<PAGE>
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
(215) 988-2700
June 2, 1995
VIA EDGAR TRANSMISSION
- ----------------------
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
re: UST Master Funds, Inc. (Registration Nos. 2-92665; 811-4088)/ Post-
------------------------------------------------------------------
Effective Amendment No. 20
--------------------------
Ladies and Gentlemen:
On behalf of UST Master Funds, Inc. (the "Company"), enclosed for
filing under the Securities Act of 1933 and the Investment Company Act of 1940
(the "1940 Act") is Post-Effective Amendment No. 20 to the Company's
registration statement on Form N-1A.
Post-Effective Amendment No. 20 is being filed pursuant to Rule 485(a)
under the Securities Act of 1933 to register Distribution Shares in the
Company's equity and international investment portfolios. Distribution Shares
will bear the expenses associated with a distribution plan adopted by the
Company pursuant to Rule 12b-1 under the 1940 Act.
Very truly yours,
/s/
David F. Connor
cc: Mr. Briccio Barrientos
<PAGE>
As filed with the SEC on June 2, 1995
UST Master Funds, Inc. - Registration Nos. 2-92665; 811-4088
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
UST Master Funds, Inc.: Post-Effective Amendment No. 20 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
UST Master Funds, Inc.: Amendment No. 22 [x]
(Exact Name of Registrant as Specified in Charter)
73 Tremont Street
Boston, Massachusetts 02108-3913
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 446-1012
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this post-effective amendment will become effective (check
appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[_] on (date) pursuant to paragraph (a)(i)
[_] 75 days after filing pursuant to paragraph (a)(ii)
[_] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
__________________________
The Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The Rule 24f-2 Notice for the
Registrant's fiscal year ended March 31, 1995 was filed on May 26, 1995.
<PAGE>
CROSS-REFERENCE SHEET
UST MASTER FUNDS, INC.
(EQUITY FUND, INCOME AND GROWTH FUND, LONG-TERM SUPPLY OF ENERGY FUND,
PRODUCTIVITY ENHANCERS FUND, ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES
FUND, AGING OF AMERICA, COMMUNICATION OF ENTERTAINMENT FUND, BUSINESS AND
INDUSTRIAL RESTRUCTURING FUND, GLOBAL COMPETITORS FUND, EARLY LIFE CYCLE FUND)
<TABLE>
<CAPTION>
FORM N-1A, PART A, ITEM PROSPECTUS CAPTION
----------------------- ------------------
<C> <S> <C>
1. Cover Page.......................... Cover Page
2. Synopsis............................ Prospectus Summary and
Expense Summary
3. Financial Highlights................ Selected Per Share Data and Ratios;
Performance Information
4. General Description of Registrant... Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment Limitations;
Description of Capital Stock
5. Management of the Fund.............. Management of the Fund; Custodian
and Transfer Agent
6. Capital Stock and Other Securities.. How to Purchase and Redeem Shares;
Dividends and Distributions; Taxes;
Description of Capital Stock;
Miscellaneous
7. Purchase of Securities Being Pricing of Shares; How to Purchase
Offered............................ and Redeem Shares; Investor Programs
8. Redemption or Repurchase............ How to Purchase and Redeem Shares
9. Pending Legal Proceedings........... Inapplicable
</TABLE>
<PAGE>
[LOGO OF UST MASTER FUNDS APPEARS HERE]
A Management Investment Company MASTER FUNDS, INC.
- -------------------------------------------------------------------------------
Equity Funds
73 Tremont Street
Boston, MA 02108-3913
For initial purchase information, call (800) 233-1136.
(From overseas, call (619) 456-9394.)
For current prices and yield information, call (800) 233-9180.
For existing account information, call (800) 446-1012.(From overseas,
call (617) 956-9744.)
- -------------------------------------------------------------------------------
This Prospectus describes the [Distribution Shares] ("Shares") offered by sev-
eral separate portfolios offered to investors by UST Master Funds, Inc. ("Mas-
ter Fund"), an open-end, management investment company. Master Fund also is-
sues an additional series of shares in the portfolios (" Shares"), which
are offered under a separate prospectus. Each portfolio (individually, a
"Fund" and collectively, the "Funds") has its own investment objective and
policies as follows:
EQUITY FUND seeks long-term capital appreciation by investing in companies
believed by the Investment Adviser to represent good long-term values not cur-
rently recognized in the market prices of their securities.
INCOME AND GROWTH FUND seeks moderate current income with capital apprecia-
tion as a secondary goal by investing in common stock, preferred stock and se-
curities convertible into common stock.
LONG-TERM SUPPLY OF ENERGY FUND seeks long-term capital appreciation by in-
vesting in companies which the Investment Adviser believes will benefit from
the availability, development and delivery of secure hydrocarbon and other en-
ergy sources.
PRODUCTIVITY ENHANCERS FUND seeks long-term capital appreciation by investing
in companies which the Investment Adviser believes will benefit from their
roles as innovators, developers and suppliers of goods and services which en-
hance service and manufacturing productivity or companies that are most effec-
tive at obtaining and applying productivity enhancement developments.
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND seeks long-term capital
appreciation by investing in companies which the Investment Adviser believes
will benefit from their provision of products, technologies and services re-
lated to conservation, protection and restoration of the environment.
AGING OF AMERICA FUND seeks long-term capital appreciation by investing in
companies which the Investment Adviser believes will benefit from the changes
occurring in the demographic structure of the U.S. population, particularly
its growing population of individuals over the age of 40.
COMMUNICATION AND ENTERTAINMENT FUND seeks long-term capital appreciation by
investing in companies which the Investment Adviser believes will benefit from
the technological and international transformation of the communications and
entertainment industries, particularly the convergence of information, commu-
nication and entertainment media.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND seeks long-term capital apprecia-
tion by investing in companies which the Investment Adviser believes will ben-
efit from their restructuring or redeployment of assets and operations in or-
der to become more competitive or profitable.
GLOBAL COMPETITORS FUND seeks long-term capital appreciation by investing
primarily in U.S.-based companies which the Investment Adviser believes will
benefit from their position as effective and strong competitors on a global
basis.
EARLY LIFE CYCLE FUND seeks long-term capital appreciation by investing in
smaller companies in the earlier stages of their development or larger or more
mature companies engaged in new and higher growth potential operations.
Each of the Funds is sponsored and distributed by UST Distributors, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser"
or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1995 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available upon request without
charge by writing to Master Fund at its address shown above or by calling
(800) 233-1136. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1995
<PAGE>
PROSPECTUS SUMMARY
UST MASTER FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Master Fund
currently offers 20 Funds with combined assets of approximately $2.5 billion.
See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York ("U.S. Trust")
serves as the Funds' investment adviser. U.S. Trust and its predecessor,
founded in 1853, offers a variety of specialized financial and fiduciary serv-
ices to high-net worth individuals, institutions and corporations. Master Fund
offers investors access to U.S. Trust's services. See "Management of the
Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund invests in equity
securities. The Income and Growth Fund also may invest significantly in bonds.
The Funds' investment objectives and policies are summarized on the cover and
explained in greater detail later in this Prospectus. See "Investment Objec-
tives and Policies," "Portfolio Instruments and Other Investment Information,"
and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load is
not applicable to investors making their investments through a variety of in-
stitutions, such as U.S. Trust Company, other banks and trust companies. See
"How to Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropriate
sales agreements with Master Fund. See "How to Purchase and Redeem Shares."
HOW TO REDEEM: Redemptions may be requested directly from Master Fund by
mail, wire or telephone. Investors investing through another institution should
request redemptions through their Shareholder Organization. See "How to Pur-
chase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to mar-
ket and industry risk. Market risk is the possibility that stock prices will
decline over short or even extended periods. The stock markets tend to be cy-
clical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. In addition,
the Long-Term Supply of Energy Fund will normally concentrate its investments
in the crude oil, petroleum and natural gas industry. This Fund will be suscep-
tible to industry risk, the possibility that a particular group of stocks will
decline in price due to industry-specific developments. Because the Funds may
invest in securities of foreign issuers, they are subject to the risks of fluc-
tuations of the value of foreign currency relative to the U.S. dollar and other
risks associated with such investments. Because the Income and Growth Fund also
invests in bonds and other fixed-income securities, it will also be affected
directly by fluctuations in interest rates and the credit markets. Investments
in non-investment grade obligations may subject the Income and Growth Fund to
increased risk of loss upon default. Such securities are generally unsecured,
are often subordinated debt and are often issued by entities with high levels
of indebtedness and that are more sensitive to adverse economic conditions. Al-
though each Fund generally seeks to invest for the long term, each Fund may en-
gage in short-term trading of portfolio securities. A high rate of portfolio
turnover may involve correspondingly greater transaction costs which must be
borne directly by a Fund and ultimately by its shareholders. Investment in the
Funds should not be considered a complete investment program. See "Investment
Objectives and Policies."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
LONG-TERM PRODUCTIVITY ENVIRONMENTALLY-
EQUITY INCOME AND SUPPLY OF ENHANCERS RELATED PRODUCTS
FUND GROWTH FUND ENERGY FUND FUND AND SERVICES FUND
-------- ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees/1/...... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............ .72% .72% .42% .47% 0%
12b-1 Fees/3/........... .50% .50% .50% .50% .50%
Other Operating Expenses
Administrative Servic-
ing Fee............... .03% .03% .03% .03% .04%
Other Expenses/2/ (af-
ter fee waivers)...... .30% .31% .53% .49% .95%
Total Fund Operating Ex-
penses (after fee waiv-
ers)/2/ ............... 1.55% 1.56% 1.48% 1.49% 1.49%
<CAPTION>
BUSINESS
AGING OF COMMUNICATION AND INDUSTRIAL GLOBAL
AMERICA AND ENTERTAINMENT RESTRUCTURING COMPETITORS EARLY LIFE
FUND FUND FUND FUND CYCLE FUND
-------- ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees/1/ ..... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/ ........... .44% .53% .52% .50% .52%
12b-1 Fees/3/........... .50% .50% .50% .50% .50%
Other Operating Expenses
Administrative Servic-
ing Fee............... .03% .03% .02% .02% .05%
Other Expenses/2/ (af-
ter fee waivers)...... .52% .42% .44% .45% .39%
Total Fund Operating Ex-
penses (after fee waiv-
ers)/2/ ............... 1.49% 1.48% 1.48% 1.47% 1.46%
</TABLE>
- -------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Re-
demption Procedures."
2. The Investment Adviser and Administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the ex-
tent necessary for Shares of each of the Long-Term Supply of Energy, Produc-
tivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restruc-
turing, Global Competitors and Early Life Cycle Funds (collectively, the
"Theme Funds"), respectively, to maintain an annual expense ratio, net of
12b-1 fees, of not more than .99%. Without such fee waivers, "Advisory Fees"
would be .75%, .75%, .60%, .60%, .60%, .60%, .60%, .60%, .60% and .60%, to-
tal operating expenses would be 1.83%, 1.84%, 2.10%, 1.96%, 3.17%, 2.01%,
1.81%, 1.83%, 1.93% and 1.79% for the Equity, Income and Growth, Long-Term
Supply of Energy, Productivity Enhancers, Environmentally-Related Products
and Services, Aging of America, Communication and Entertainment, Business
and Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively, and "Other Expenses" would be .72%, .58%, 1.78%, .65%, .43%,
.46% and .56% for the Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communica-
tion and Entertainment, Business and Industrial Restructuring and Global
Competitors Funds, respectively.
3
<PAGE>
3. The Distribution Shares offered by this Prospectus represent equal pro rata
interests in each Fund except that because the beneficial owners of Distri-
bution Shares bear a distribution fee, the net yield on Distribution Shares
can be expected, at any given time, to be lower than the net yield on the
other Shares of a Fund. As a result of the payment of sales charges and dis-
tribution fees, long-term shareholders may pay more than the economic equiv-
alent of the maximum front-end sales load permitted by the National Associa-
tion of Securities Dealers, Inc. ("NASD"). The NASD has adopted rules which
generally limit the aggregate sales charges and payments under Master Fund's
Distribution Plan to a certain percentage of total new gross share sales,
plus interest. Master Fund would stop accruing Distribution Plan fees if, to
the extent, and for as long as, such limit would otherwise be exceeded.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund.................................... $62 $99 $138 $247
Income and Growth Fund......................... 63 99 139 248
Long-Term Supply of Energy Fund................ 62 97 135 240
Productivity Enhancers Fund.................... 62 97 135 241
Environmentally-Related Products and Services
Fund.......................................... 62 97 135 241
Aging of America Fund.......................... 62 97 135 241
Communication and Entertainment Fund........... 62 97 135 240
Business and Industrial Restructuring Fund..... 62 97 135 240
Global Competitors Fund........................ 62 97 134 239
Early Life Cycle Fund.......................... 62 96 134 238
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in the Funds will bear directly or indi-
rectly. The expense summary sets forth advisory and other expenses payable with
respect to Shares of the Funds for the fiscal year ended March 31, 1995, as
restated to reflect the additional cost of distribution fees. For more complete
descriptions of the Funds' operating expenses, see "Management of the Funds" in
this Prospectus and the financial statements and notes incorporated by refer-
ence in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding
throughout each period and other performance information, with respect to the
Equity and Income and Growth Funds, the last five years of which has been de-
rived from the financial statements included in Master Fund's Annual Report to
Shareholders for the year ended March 31, 1995 (collectively, the "Financial
Statements"). The following tables should be read in conjunction with the Fi-
nancial Statements and notes thereto. More information about the performance of
each Fund is also contained in the Annual Report to Shareholders which may be
obtained from Master Fund without charge.
Prior to the date of this Prospectus, each Fund offered a single series of
shares, the Shares. As of the date of this Prospectus, the Funds began of-
fering a new series of shares designated as Distribution Shares. Shares and
Distribution Shares represent equal pro rata interests in each Fund, except
they bear different expenses which reflect the difference in the level of serv-
ices provided to them.
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
---- ------- ------- ------- ------ ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ $ 18.77 $ 16.28 $ 14.13 $13.87 $ 13.22 $ 11.32 $ 13.56 $ 12.35 $ 8.00
--- ------- ------- ------- ------ ------- ------- --------- ------- -------
Income From Investment
Operations
Net Investment Income.. 0.05 0.08 0.13 0.28 0.34 0.19 0.15 0.18 0.18
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 1.16 3.01 2.23 0.39 1.26 1.88 (1.63) 1.86 4.31
--- ------- ------- ------- ------ ------- ------- --------- ------- -------
Total From Investment
Operations............ 1.21 3.09 2.36 0.67 1.60 2.07 (1.48) 2.04 4.49
--- ------- ------- ------- ------ ------- ------- --------- ------- -------
Less Distributions
Dividends From Net
Investment Income..... (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14) (0.18) (0.14)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62) (0.65) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... (0.34) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--- ------- ------- ------- ------ ------- ------- --------- ------- -------
Total Distributions.... (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76) (0.83) (0.14)
--- ------- ------- ------- ------ ------- ------- --------- ------- -------
Net Asset Value, End of
Period................. $ $ 19.17 $ 18.77 $ 16.28 $14.13 $ 13.87 $ 13.22 $ 11.32 $ 13.56 $ 12.35
=== ======= ======= ======= ====== ======= ======= ========= ======= =======
Total Return/2/ ........ % 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)% 17.61% 56.74%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $ $122.26 $106.14 $ 71.62 $29.87 $ 25.98 $ 17.61 $ 13.58 $ 13.40 $ 5.58
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.21% 0.90%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets.... % 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.30% 2.74%/3/
Ratio of Net Investment
Income to Average Net
Assets................ % 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26% 1.53% 2.63%/3/
Portfolio Turnover
Rate.................. % 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0% 86.0% 207.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was April 25, 1985.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
5
<PAGE>
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED MARCH 31,
MARCH 3, ---------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
---------- ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95 $ 8.00
--- ------ ------ ------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.31 0.27 0.30 0.29 0.40 0.28 0.44 0.06
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 0.46 2.43 0.72 (0.43) 0.19 1.15 (0.93) 0.89
--- ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations............ 0.77 2.70 1.02 (0.14) 0.59 1.43 (0.49) 0.95
--- ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.27) (0.35) (0.28) (0.34) (0.39) (0.46) (0.21) 0.00
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (0.01) 0.00 0.00 0.00 (0.45) 0.00 (0.13) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--- ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.28) (0.35) (0.28) (0.34) (0.84) (0.46) (0.34) 0.00
--- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95
=== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/......... % 6.69% 30.45% 12.42% (1.30%) 6.14% 18.36% (5.43%) 11.88%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $ $96.68 $51.30 $23.25 $19.59 $23.66 $14.62 $ 6.66 $ 3.71
Ratio of Net Operating
Expenses to Average
Net Assets............ % 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27% 1.13%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets.... % 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27% 1.84%/3/
Ratio of Net Investment
Income to Average Net
Assets................ % 2.77% 2.76% 3.52% 3.64% 4.47% 4.09% 6.20% 4.25%/3/
Portfolio Turnover
Rate.................. % 28.0% 28.0% 81.0% 148.0% 29.0% 24.0% 27.0% 7.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was January 6, 1987.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
6
<PAGE>
LONG-TERM SUPPLY OF ENERGY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.81 $ 7.00
------- ------- ------
Income From Investment
Operations
Net Investment Income........ 0.08 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. (0.12) 0.80
------- ------- ------
Total From Investment
Operations.................. (0.04) 0.81
------- ------- ------
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.07) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------- ------
Total Distributions.......... ( ) (0.07) 0.00
------- ------- ------
Net Asset Value, End of Period. $ $ 7.70 $ 7.81
======= ======= ======
Total Return/2/................ % (0.57)% 11.57%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 6.83 $ 1.46
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 2.03% 7.03%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 1.21% 1.69%/3/
Portfolio Turnover Rate...... % 6.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
7
<PAGE>
PRODUCTIVITY ENHANCERS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 6.94 $ 7.00
------- ------ -------
Income From Investment
Operations
Net Investment Income........ ( ) 0.00 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 0.96 (0.07)
------- ------ -------
Total From Investment
Operations.................. 0.96 (0.06)
------- ------ -------
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00
Dividends in Excess of Net
Investment Income........... (0.02) 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------ -------
Total Distributions.......... ( ) (0.02) 0.00
------- ------ -------
Net Asset Value, End of Period. $ $ 7.88 $ 6.94
======= ====== =======
Total Return/2/................ % 13.81% (0.86)%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $15.70 $ 3.37
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.49% 4.23%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... % 0.01% 1.29%/3/
Portfolio Turnover Rate...... % 198.0% 183.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
8
<PAGE>
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 6.95 $ 7.00
------- -------- -------
Income From Investment
Operations
Net Investment Income........ ( ) 0.00 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. ( ) (0.71) (0.05)
------- -------- -------
Total From Investment
Operations.................. ( ) (0.71) (0.05)
------- -------- -------
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00
Dividends in Excess of Net
Investment Income........... ( ) 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- -------- -------
Total Distributions.......... ( ) 0.00 0.00
------- -------- -------
Net Asset Value, End of Period. $ $ 6.24 $ 6.95
======= ======== =======
Total Return/2/................ ( )% (10.15)% (0.71)%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 4.53 $ 2.45
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 2.20% 2.83%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... ( )% (0.07)% 0.32%/3/
Portfolio Turnover Rate...... % 28.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
9
<PAGE>
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.01 $7.00
------- ------ -----
Income From Investment
Operations
Net Investment Income........ 0.03 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. (0.02) 0.00
------- ------ -----
Total From Investment
Operations.................. 0.01 0.01
------- ------ -----
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.03) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------ -----
Total Distributions.......... ( ) (0.03) 0.00
------- ------ -----
Net Asset Value, End of Period. $ $ 6.99 $7.01
======= ====== =====
Total Return/2/................ % 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $10.58 $2.39
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.82% 3.87%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.59% 0.77%/3/
Portfolio Turnover Rate...... % 24.0% 14.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
10
<PAGE>
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.61 $7.00
------- ------ -----
Income From Investment
Operations
Net Investment Income........ 0.02 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.52 0.60
------- ------ -----
Total From Investment
Operations.................. 1.54 0.61
------- ------ -----
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.03) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) (0.37) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------ -----
Total Distributions.......... ( ) (0.40) 0.00
------- ------ -----
Net Asset Value, End of Period. $ $ 8.75 $7.61
======= ====== =====
Total Return/2/................ % 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $21.02 $5.79
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.98% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.16% 2.20%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.29% 1.06%/3/
Portfolio Turnover Rate...... % 60.0% 25.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
11
<PAGE>
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.71 $ 7.00
------- ------ ------
Income From Investment
Operations
Net Investment Income........ 0.06 0.02
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.96 0.69
------- ------ ------
Total From Investment
Operations.................. 2.02 0.71
------- ------ ------
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.07) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) (0.02) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------ ------
Total Distributions.......... ( ) (0.09) 0.00
------- ------ ------
Net Asset Value, End of Period. $ $ 9.64 $ 7.71
======= ====== ======
Total Return/2/................ % 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.73% 5.85%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.77% 2.48%/3/
Portfolio Turnover Rate...... % 75.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
12
<PAGE>
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.28 $7.00
------- ------ -----
Income From Investment
Operations
Net Investment Income........ 0.05 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 0.41 0.27
------- ------ -----
Total From Investment
Operations.................. 0.46 0.28
------- ------ -----
Less Distributions
Dividends from Net Investment
Income...................... ( ) (0.05) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions from Net
Realized Gain on Investments
and Options................. 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------ -----
Total Distributions.......... ( ) (0.05) 0.00
------- ------ -----
Net Asset Value, End of Period. $ $ 7.69 $7.28
======= ====== =====
Total Return/2/................ % 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $10.06 $2.04
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.72% 3.97%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.81% 0.82%/3/
Portfolio Turnover Rate...... % 19.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
13
<PAGE>
EARLY LIFE CYCLE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.40 $7.00
------- ------- -----
Income From Investment
Operations
Net Investment Income........ ( ) (0.01) 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.36 0.40
------- ------- -----
Total From Investment
Operations.................. 1.35 0.40
------- ------- -----
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) (0.09) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------- -----
Total Distributions.......... ( ) (0.09) 0.00
------- ------- -----
Net Asset Value, End of Period. $ $ 8.66 $7.40
======= ======= =====
Total Return/2/................ % 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.95% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.15% 2.70%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... ( )% (0.25)% 0.12%/3/
Portfolio Turnover Rate...... % 20.0%/4/ 4.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
14
<PAGE>
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust and its predecessor, the Funds' Investment Adviser, was founded in
1853 and offers a variety of specialized fiduciary and financial services to
high-net worth individuals, institutions and corporations. As one of the larg-
est institutions of its type, U.S. Trust prides itself in offering an attentive
and high level of service to each of its clients. The UST Master Funds offer
individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Funds, U.S. Trust follows a long-
term investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. U.S. Trust's ap-
proach begins with the conviction that all worthwhile investments are grounded
in value. The Investment Adviser believes that an investor can identify funda-
mental values that eventually should be reflected in market prices. U.S. Trust
believes that over time, a disciplined search for fundamental value will
achieve better results than attempting to take advantage of short-term price
movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.
Strategies. In order to translate its investment philosophy into more specific
guidance for selection of investments, the Investment Adviser uses three spe-
cific strategies. These strategies, while identified separately, may overlap so
that more than one may be applied in an investment decision.
U.S. Trust's "PROBLEM/OPPORTUNITY STRATEGY" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from complex
problems such as the changing demo-graphics and aging of the U.S. population or
the need to enhance industrial productivity. U.S. Trust's second strategy is a
"TRANSACTION VALUE" comparison of a company's real underlying asset value with
the market price of its shares and with the sale prices for similar assets
changing ownership in public market transactions. Differences between a
company's real asset value and the price of its shares often are corrected over
time by restructuring of the assets or by market recognition of their value.
U.S. Trust's third strategy involves identifying "EARLY LIFE CYCLE" companies
whose products are in their earlier stages of development or that seek to ex-
ploit new markets. Frequently such companies are smaller companies, but early
life cycle companies may also include larger established companies with new
products or markets for existing products. The Investment Adviser believes that
over time the value of such companies should be recognized in the market.
Themes. To complete U.S. Trust's investment philosophy, the three portfolio
strategies discussed above are applied in concert with several "longer-term in-
vestment themes" to identify investment opportunities. The Investment Adviser
believes these longer-term themes represent strong and inexorable trends. The
Investment Adviser also believes that understanding the instigation, catalysts
and effects of these longer-term trends should help to identify companies that
are beneficiaries of these trends.
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment ob-
jective of each Fund, although their achievement cannot be assured. The invest-
ment objective of each Fund is "fundamental", meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). Except as noted below in
"Investment Limitations,"
15
<PAGE>
the investment policies of each Fund may be changed without a vote of the
holders of a majority of the outstanding Shares of such Fund.
EQUITY FUND
The Equity Fund's investment objective is to seek long-term capital apprecia-
tion. The Equity Fund invests in companies which the Investment Adviser
believes have value currently not recognized in the market prices of the com-
panies' securities. The Investment Adviser uses the investment philosophy,
strategies and themes discussed above to identify such investment values and
to diversify the Fund's investments over a variety of industries and types of
companies. See "Investment Policies Common to the Equity Fund and the Theme
Funds" for a discussion of various investment policies applicable to the Eq-
uity Fund.
THEME FUNDS
Eight Theme Funds are offered having the common investment objective of long-
term capital appreciation. As noted above, these Theme Funds are based on
themes identified and followed by the Investment Adviser. Each Theme Fund's
key policies are discussed below. Additional policies common to all Theme
Funds are discussed after this section.
LONG-TERM SUPPLY OF ENERGY FUND--invests in companies which the Investment
Adviser believes will benefit from the availability, development and delivery
of secure hydrocarbon and other energy sources. Such companies include those
engaged in the following types of activities: the production, transmission,
marketing, control or measurement of energy or fuels; providing products or
services to companies engaged in such activities; energy-related research, ex-
perimentation and consulting; and environmental activities such as pollution
control and energy conservation. Included in such companies are oil and gas
production and pipeline companies; drilling and drilling service companies;
electric and gas utilities; and other energy resource companies such as coal
producers and newer resources such as geothermal and solar energy producers.
Normally, at least 25% of the Fund's assets will be invested in the crude oil,
petroleum and natural gas industry. However, less than that amount may be so
invested if there have been changes in governmental regulations, world eco-
nomic and political events, exploration or production spending; or supply, de-
mand or prices of crude oil, petroleum, natural gas or other energy sources,
and in the Investment Adviser's opinion, such changes would have an adverse
affect on the securities of companies in that industry. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
Among the characteristics the Investment Adviser currently looks for in en-
ergy and energy-related investments are companies or energy sources which the
Investment Adviser believes are:
- - dedicated to producing supplies of energy at economically acceptable cost;
- - located in politically and economically stable or "secure" areas, i.e, sub-
ject only to minimal risk of disruption for political or ideological rea-
sons, or by economic "warfare" or systemic economic weakness;
- - available in continuous, sufficient quantity to be reliable and economically
significant;
- - involved in energy which is easily and economically transportable and dis-
tributable to where it is consumed.
PRODUCTIVITY ENHANCERS FUND--invests in companies which the Investment Ad-
viser believes will benefit from their roles as innovators, developers and
suppliers of goods and services which enhance service and manufacturing pro-
ductivity or companies that are most effective at obtaining and applying pro-
ductivity enhancement developments. The essential criteria for such products
and services is that they have the ability to increase a user's productivity,
e.g., enable the user to generate equal or greater economic value at lower to-
tal unit cost than alternatives or provide measurable improvement of produc-
tivity by the provider or the user. Such companies may include but are not
limited to production automation manufacturers, computer hardware and software
producers and distributors,
16
<PAGE>
communications and mobile telephone providers, and companies involved with
cost control, asset redeployment and downsizing activities and enhancing the
utilization of technology. Under normal conditions, at least 65% of the Fund's
total assets will be invested in companies of the type described in this para-
graph.
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND--invests in companies
which the Investment Adviser believes will benefit from their provision of
products, technologies and services related to conservation, protection and
restoration of the environment. Such companies may include but are not limited
to companies engaged in waste management and pollution control, prevention and
cleanup activities. The Fund is not intended to be an "environmentally cor-
rect" fund and may invest in companies without regard to whether they are en-
gaged in operations harmful to the environment. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.
The Fund may also invest a portion of its assets
in securities of companies that offer products and services used by individu-
als in response to ecological concerns and concerns relating to their social
environment. Such investments may include, without limitation, securities of
companies that produce protective clothing, sunscreens and personal security
products.
AGING OF AMERICA FUND--invests in companies which the Investment Adviser be-
lieves will benefit from the changes occurring in the demographic structure of
the U.S. population, particularly its growing proportion of individuals over
the age of 40. In analyzing companies for this Fund, the Investment Adviser
considers carefully the ongoing changes in the mean and median ages of the
U.S. population and the resulting effects on the lifestyles and day-to-day
economic actions of the population as a whole. Companies currently positioned
to benefit from such changes include health care, pharmaceutical, biotechnol-
ogy and similar health-related firms. In addition, certain clothing, financial
services, entertainment, real estate and housing, food and beverage and other
types of companies may be positioned to benefit from the demographic changes.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph.
COMMUNICATION AND ENTERTAINMENT FUND--invests in companies which the Invest-
ment Adviser believes will benefit from the technological and international
transformation of the communications and entertainment industries, particu-
larly the convergence of information, communication and entertainment media.
Such companies may include those engaged in the development, production, sale
and distribution of products or services in the broadcast, radio and televi-
sion, leisure, entertainment, amusement, publishing, telecommunications serv-
ices and equipment, and tele-phone utilities industries. In analyzing compa-
nies for investment, the Investment Adviser may focus on firms which the In-
vestment Adviser believes are innovators of or will benefit from the melding
of computer, communications and entertainment technologies. Under normal con-
ditions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND--invests in companies which the
Investment Adviser believes will benefit from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able. Such companies may include those involved in prospective mergers, con-
solidations, liquidations, spin-offs, financial restructurings and reorganiza-
tions. The business activities of such companies are not limited in any way.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph. The Investment
Adviser's focus is to find companies whose restructuring activities offer sig-
nificant value and investment potential. For example, several years ago
leveraged buy-outs and mergers were prominent trends, while currently a great
deal of value enhancing activity is occurring as companies deleverage or re-
duce their debt burdens
17
<PAGE>
in order to increase profitability. There is risk in these types of invest-
ments. For example, should a company be unsuccessful in reducing its debt, it
may be forced into default on its debt, increasing its debt or bankruptcy.
GLOBAL COMPETITORS FUND--invests primarily in U.S.-based companies which the
Investment Adviser believes will benefit from their position as effective and
strong competitors on a global basis. Such companies are characterized by their
ability to supply something unique or of greater value, or to deliver goods and
services more efficiently or reliably. These companies develop and implement
international marketing strategies for their goods and services. The range of
businesses encompassed by this policy is broad and, by way of example, may in-
clude companies engaged in soft drink production and sales, clothing manufac-
turers, tobacco product producers, precision instrument and aerospace provid-
ers, and a variety of communications systems, biotechnology and high technology
suppliers. While the Fund will invest primarily in U.S.-based companies with
such features, up to 20% of the Fund's assets may be invested in non-U.S.-based
global competitors. The Fund will not engage in currency hedging in an attempt
to anticipate currency fluctuations with respect to any such foreign invest-
ments. Under normal conditions, the Fund will invest in securities of issuers
from at least three countries and at least 65% of the Fund's total assets will
be invested in companies of the type described in this paragraph.
EARLY LIFE CYCLE FUND--invests primarily in smaller companies which are in the
earlier stages of their development or larger or more mature companies engaged
in new and higher growth potential operations. An early life cycle company is
one which is early in its development as a company, yet has demonstrated or is
expected to achieve substantial long-term earnings growth. More mature or larg-
er, established companies may also be positioned for accelerating earnings be-
cause of rejuvenated management, new products, new markets for existing prod-
ucts or structural changes in the economy. In selecting companies for invest-
ment, the Investment Adviser looks for innovative companies whose potential has
not yet been fully recognized by the securities markets. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
with capitalization of $1 billion or less. The risk and venture oriented nature
of such companies naturally entails greater risk for investors when contrasted
with investing in more established companies.
INVESTMENT POLICIES COMMON TO THE EQUITY FUND AND THE THEME FUNDS
Under normal market and economic conditions, the Equity and each Theme Fund
will invest at least 65% of its total assets in common stock, preferred stock
and securities convertible into common stock. Normally, up to 35% of each such
Fund's total assets may be invested in other securities and instruments includ-
ing, e.g., other investment-grade debt securities, warrants, options, and
futures instruments as described in more detail below. During temporary defen-
sive periods or when the Investment Adviser believes that suitable stocks or
convertible securities are unavailable, each Fund may hold cash or invest some
or all of its assets in U.S. Government securities, high-quality money market
instruments and repurchase agreements collateralized by the foregoing obliga-
tions.
In managing the Equity and Theme Funds, the Investment Adviser seeks to pur-
chase securities having value currently not recognized in the market price of a
security, consistent with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Early Life Cycle Fund emphasizes such companies. Certain securities owned
by the Equity and Theme Funds may be traded only in the over-the-counter market
or on a regional securities exchange,
18
<PAGE>
may be listed only in the quotation service commonly known as the "pink
sheets," and may not be traded every day or in the volume typical of trading on
a national securities exchange. As a result, there may be a greater fluctuation
in the value of a Fund's Shares, and a Fund may be required, in order to meet
redemptions or for other reasons, to sell these securities at a discount from
market prices, to sell during periods when such disposition is not desirable,
or to make many small sales over a period of time.
The Equity and Theme Funds may invest in the securities of foreign issuers.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs represent
receipts typically issued by a U.S. bank or trust company which evidence owner-
ship of underlying securities of foreign issuers. Investments in unsponsored
ADRs involve additional risk because financial information based on generally
accepted accounting principles ("GAAP") may not be available for the foreign
issuers of the underlying securities. ADRs may not necessarily be denominated
in the same currency as the underlying securities into which they may be con-
verted.
INCOME AND GROWTH FUND
The Income and Growth Fund has two investment objectives. Its primary invest-
ment objective is to seek to provide moderate current income and then, as a
secondary objective, to achieve capital appreciation from its investments. In
attempting to achieve these two objectives, the Income and Growth Fund invests,
during normal market and economic conditions, a substantial portion of its as-
sets in common stock, preferred stock and securities convertible into common
stock. The Fund's investments in equity securities will be income-oriented, and
it is expected that a portion of its assets will be invested on a regular basis
in debt obligations.
The Fund may invest in the securities of foreign issuers. The Fund may also
invest indirectly in the securities of foreign issuers through sponsored and
unsponsored ADRs. For information on ADRs, see "Investment Policies Common to
the Equity Fund and the Theme Funds."
In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends and
other distributions which will result in moderate current income when added to
the income from the Fund's non-equity investments. As a general matter, the In-
vestment Adviser will use the three strategies described above in "U.S. Trust's
Investment Philosophy and Strategies"--problem/opportunity, transaction value,
and early life cycle. In applying these strategies, however, the Investment Ad-
viser will place greater emphasis on the current and anticipated income of par-
ticular securities and lesser emphasis on the potential for capital apprecia-
tion. As a result, the Income and Growth Fund can be expected to have a rela-
tively smaller proportion of its assets invested in common shares of early life
cycle companies than the Equity Fund or other Theme Funds. The Investment Ad-
viser may also purchase equity securities for the Income and Growth Fund from
time to time without regard to the strategies outlined above if it determines
that the purchase is in furtherance of the Fund's investment objectives.
Debt obligations may be acquired by the Income and Growth Fund to produce in-
come and (under certain conditions) capital appreciation, and may include both
convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S. Govern-
ment obligations, and other types of instruments listed in the next paragraph.
Except as stated below, investments in debt obligations will be limited to
those that are considered to be investment grade-i.e., debt obligations classi-
fied within the four highest ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if unrated, which
are determined by the Investment Adviser to be of comparable quality. However,
the Investment Adviser may at any time ac
19
<PAGE>
quire other, non-investment grade obligations when it believes that their in-
vestment characteristics make them desirable acquisitions for the Income and
Growth Fund in light of its investment objectives and current portfolio mix, so
long as, under normal market and economic conditions, no more than 5% of the
Fund's total assets are invested in non-investment grade debt obligations. Not-
withstanding the foregoing, the Fund may invest up to 35% of its total assets
in non-investment grade convertible debt obligations. Non-investment grade ob-
ligations (those that are rated "Ba" or lower by Moody's and, at the same time,
"BB" or lower by S&P or unrated obligations), commonly referred to as "junk
bonds", have speculative characteristics. Risks associated with lower-rated
debt securities are (a) the relative youth and growth of the market for such
securities, (b) the sensitivity of such securities to interest rate and eco-
nomic changes, (c) the lower degree of protection of principal and interest
payments, (d) the relatively low trading market liquidity for the securities,
(e) the impact that legislation may have on the high yield bond market (and, in
turn, on the Fund's net asset value and investment practices), and (f) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely effect their ability to serv-
ice their principal and interest payment obligations, to meet projected busi-
ness goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower-rated bonds and adversely effect the value of out-
standing bonds and the ability of the issuers to repay principal and interest.
If the issuer of a debt obligation held by the Fund defaulted, the Fund could
incur additional expenses to seek recovery. Adverse publicity and investor per-
ceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower-rated securities held by the Fund, especially in
a thinly traded market.
Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" 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 condi-
tions. The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating. The rating "C" is typically
applied to debt subordinated to senior debt which is assigned an actual or im-
plied "CCC-" debt rating, and may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are continued. The
rating "CI" is reserved for income bonds on which no interest is being paid.
Debt obligations rated "D" are in default, and payments of interest and/or re-
payment of principal is in arrears. The ratings from "AA" through "CCC" are
sometimes modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Moody's has a similar classifica-
tion scheme for non-investment grade debt obligations. Debt obligations rated
"Ba," "B," "Caa," "Ca" and "C" provide questionable protection of interest and
principal. The rating "Ba" indicates that a debt obligation has some specula-
tive characteristics. The rating "B" indicates a general lack of characteris-
tics of desirable investment. Debt obligations rated "Caa" are of poor quality,
while debt obligations rated "Ca" are considered highly speculative. "C" repre-
sents the lowest rated class of debt obligations. Moody's applies numerical
modifiers 1, 2 and 3 in each generic classification from "Aa" to "B" in its
bond rating system. The modifier "1" indicates that a security ranks in the
higher end of its rating category; the modifier "2" reflects a mid-range rank-
ing; and the modifier "3" indicates that the security ranks at the lower end of
its generic rating category.
In addition, the Income and Growth Fund may invest up to 10% of its total as-
sets in other types of instruments, including warrants, options and other
rights to purchase securities; liquidating trust re-
20
<PAGE>
ceipts; limited partnership interests; certificates of beneficial ownership;
creditor claims; and loan participations. Such instruments may represent owner-
ship or creditor interests in a wide range of assets or businesses, and may be
acquired by the Income and Growth Fund for either income purposes (as would
normally be the case with instruments such as liquidating trust receipts) or
capital appreciation (as would be the case with warrants and options). In cer-
tain instances, there may be no established market for such instruments. The
Income and Growth Fund will, however, at no time invest more than 10% of the
value of its net assets in securities that are illiquid or for which market
quotations are not readily available. Further, certain of these instruments may
have speculative characteristics. For example, certain instruments may be is-
sued by companies that are insolvent or have otherwise defaulted on their debt
obligations. Such companies may be involved in bankruptcy reorganization pro-
ceedings. Warrants and options acquired by the Income and Growth Fund are sub-
ject to the possible loss of the entire premium paid by the Fund if the market
price of the underlying security falls below the exercise price. The Investment
Adviser will purchase such obligations only when it determines that the poten-
tial return justifies the attendant risks. The investment features of the fore-
going instruments and investment risks involving their acquisition are
described further in the Statement of Additional Information. Additionally,
some of the instruments described above may not be "securities" or may not pro-
duce qualifying income for purposes of the provisions of the Internal Revenue
Code of 1986, as amended, applicable to investment companies. See "Taxes--Fed-
eral" below for a discussion of such provisions.
RISK FACTORS
Each Fund is subject to market risk, interest rate risk and in some cases in-
dustry risk. Market risk is the possibility that stock prices will decline over
short or even extended periods. The stock markets tend to be cyclical, with pe-
riods of generally rising prices and periods of generally declining prices.
These cycles will affect the values of each Fund. In addition, the prices of
bonds and other debt instruments generally fluctuate inversely with interest
rate changes. Factors affecting debt securities will affect all of the Funds'
debt holdings.
The Long-Term Supply of Energy Fund will normally concentrate its investments
in the crude oil, petroleum and natural gas industry. Accordingly, it will be
susceptible to industry risk, the possibility that a particular group of stocks
will decline in price due to industry-specific developments.
Energy-related investments are affected generally by supply, demand, and other
competitive factors for the companies' specific products and services. They are
also affected by unpredictable factors such as the supply and demand for oil,
gas, electricity and other energy sources, prices of such energy sources, ex-
ploration and production spending, governmental regulation, and world economic
and political events. In addition, utilities firms in the energy field are sub-
ject to a variety of factors affecting the public utilities industries, includ-
ing: difficulty obtaining adequate returns on invested capital which are typi-
cally subject to the control and scrutiny of public service commissions; re-
strictions on operations and increased costs and delays as a result of environ-
mental considerations; costs of and ability to secure financing for large con-
struction and development projects; difficulties in obtaining secure energy re-
sources; the uncertain effects of conservation efforts; and a variety of issues
concerning financing, governmental approval and environmental aspects of nu-
clear power facilities.
Environmentally-related investments are affected generally by issues and un-
certainties impacting the specialty chemicals, engineering and construction,
machinery and pollution control industries. Such factors include the supply,
demand, and other normal competitive factors for the various portfolio compa-
nies' products and services. The environmental products and services industry
generally has been affected positively by legislation resulting in stricter
governmental regulations and enforcement policies for both commercial and gov-
ernmental generators of waste, as
21
<PAGE>
well as by specific expenditures for cleanup efforts. Chemical products are af-
fected, for example, by product obsolescence and competition; the handling of
hazardous chemicals and products; and the potential for calamitous accidents.
In addition to supply and demand factors, engineering, construction and machin-
ery companies are affected by changes in interest rates and governmental spend-
ing and financing of public works and cleanup projects. Finally, all of these
types of companies are heavily affected by regulation of various governments,
including the federal Environmental Protection Agency and its state counter-
parts. As regulations are developed and enforced, such companies may be re-
quired to alter or cease production of a product or service or to agree to re-
strictions on their operations.
Companies in the various communications and entertainment industries encounter
intense competition, short product life cycles and rapidly changing consumer
tastes. In addition, companies in the telecommunications and utilities indus-
tries are subject to heavy governmental regulation.
Small companies may have limited product lines, markets, or financial re-
sources, or may be dependent upon a small management group, and their securi-
ties may be subject to more abrupt or erratic market movements than larger,
more established companies, both because their securities typically are traded
in lower volume and because the issuers typically are subject to a greater de-
gree to changes in their earnings and prospects.
All Funds may invest in the securities of foreign issuers. Investments in for-
eign securities involve certain risks not ordinarily associated with invest-
ments in domestic securities. Such risks include fluctuations in foreign ex-
change rates, future political and economic developments, and the possible im-
position of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect to certain countries there is the possibility
of expropriation of assets, confiscatory taxation, political or social insta-
bility or diplomatic developments which could adversely affect investments in
those countries. There may be less publicly available information about a for-
eign company than about a U.S. company, and foreign companies may not be sub-
ject to accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securi-
ties markets, while growing in volume, have, for the most part, substantially
less volume than U.S. markets, and securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable U.S.-
based companies. Transaction costs on foreign securities markets are generally
higher than in the United States. There is generally less government supervi-
sion and regulation of foreign exchanges, brokers and issuers than there is in
the United States and a Fund might have greater difficulty taking appropriate
legal action in a foreign court. Dividends and interest payable on a Fund's
foreign portfolio securities may be subject to foreign withholding taxes. To
the extent such taxes are not offset by credits or deductions allowed to in-
vestors under the Federal income tax provisions, they may reduce the net return
to the shareholders.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the Equity
and Theme Funds' shares may be suitable only for those investors who can invest
without concern for current income and are financially able to assume risk in
search of long-term capital gains.
Securities of companies discussed in this section may be more volatile than
the overall market.
PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
All Funds may invest in "money market instruments," which include, among other
things, bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable
22
<PAGE>
time deposits earning a specified return and issued by a U.S. bank which is a
member of the Federal Reserve System or insured by the Bank Insurance Fund of
the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan
association or savings bank which is insured by the Savings Association Insur-
ance Fund of the FDIC. Bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks and obligations of domestic
branches of foreign banks. Investments in bank obligations of foreign branches
of domestic financial institutions or of domestic branches of foreign banks are
limited so that no more than 5% of the value of a Fund's total assets may be
invested in any one branch, and no more than 20% of a particular Fund's total
assets at the time of purchase may be invested in the aggregate in such obliga-
tions (see investment limitation No. 5 below under "Investment Limitations").
Investments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instrument
purchased by a Fund, the Fund may, from time to time as specified in the in-
strument, demand payment of the principal of the instrument or may resell the
instrument to a third party. The absence of an active secondary market, howev-
er, could make it difficult for a Fund to dispose of the instrument if the is-
suer defaulted on its payment obligation or during periods that the Fund is not
entitled to exercise its demand rights, and the Fund could, for this or other
reasons, suffer a loss with respect to such instrument. Any security which can-
not be disposed of within seven days without taking a reduced price will be
considered an illiquid security subject to the 10% limitation discussed below
under "Investment Limitations."
GOVERNMENT OBLIGATIONS
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers Home
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the Federal Na-
tional Mortgage Association, the General Services Administration, the Student
Loan Marketing Association, the Central Bank for Cooperatives, the Federal Home
Loan Mortgage Corporation, the Federal Intermediate Credit Banks and the Mari-
time Administration.
REPURCHASE AGREEMENTS
In order to effectively manage their cash holdings, the Funds may enter into
repurchase agreements. Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Master Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will be
subject to the 10% limit described in Investment Limitation No. 6 below.
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Fund at not
less than the repurchase price. Default or bankruptcy of the seller would, how-
ever, expose a Fund to possible delay in connection with the disposition of the
underlying securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
23
<PAGE>
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its portfo-
lio securities to broker/dealers pursuant to agreements requiring the loans to
be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all out-
standing loans of a Fund exceeds 30% of the value of its total assets. There
may be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the bor-
rower of the securities fail financially. However, loans are made only to bor-
rowers deemed by the Investment Adviser to be of good standing and when, in the
Investment Adviser's judgment, the income to be earned from the loan justifies
the attendant risks.
OPTIONS
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Income and Growth and Theme Funds may purchase put and call options listed
on a national securities exchange and issued by the Options Clearing Corpora-
tion in an amount not exceeding 5% of a Fund's net assets, as described further
in the Statement of Additional Information. Such options may relate to particu-
lar securities or to various stock or bond indices. Purchasing options is a
specialized investment technique which entails a substantial risk of a complete
loss of the amounts paid as premiums to the writer of the options.
In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase trans-
actions with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The aggre-
gate value of the securities subject to options written by each Fund may not
exceed 25% of the value of its net assets. By writing a covered call option, a
Fund forgoes the opportunity to profit from an increase in the market price of
the underlying security above the exercise price except insofar as the premium
represents such a profit, and it will not be able to sell the underlying secu-
rity until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options is not a primary investment technique of the Funds and
such options will normally be written on underlying securities as to which the
Investment Adviser does not anticipate significant short-term capital apprecia-
tion. Additional information on option practices, including particular risks
thereof, is provided in the Funds' Statement of Additional Information.
FUTURES CONTRACTS
The Theme Funds may also enter into interest rate futures contracts, other
types of financial futures contracts and related futures options, as well as
any index or foreign market futures which are available on recognized exchanges
or in other established financial markets.
The Theme Funds will not engage in futures transactions for speculation, but
only as a hedge against changes in market values of securities which a Fund
holds or intends to purchase. The Theme Funds will engage in futures transac-
tions only to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the Securities and Exchange Commission ("SEC"). When investing in
futures contracts, the Funds must satisfy certain asset segregation require-
ments to ensure that the use of futures is unleveraged. When a Fund takes a
long position in a futures contract, it must maintain a segregated account con-
taining cash and/or certain liquid assets
24
<PAGE>
equal to the purchase price of the contract, less any margin or deposit. When a
Fund takes a short position in a futures contract, the Fund must maintain a
segregated account containing cash and/or certain liquid assets in an amount
equal to the market value of the securities underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are
not applicable when a Fund "covers" an options or futures position generally by
entering into an offsetting position. Each Fund will limit its hedging transac-
tions in futures contracts and related options so that, immediately after any
such transaction, the aggregate initial margin that is required to be posted by
the Fund under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, does not exceed 5% of the Fund's total assets, after
taking into account any unrealized profits and unrealized losses on the Fund's
open contracts (and excluding the amount that a futures option is "in-the-mon-
ey" at the time of purchase). An option to buy a futures contract is "in-the-
money" if the then-current purchase price of the underlying futures contract
exceeds the exercise or strike price; an option to sell a futures contract is
"in-the-money" if the exercise or strike price exceeds the then-current pur-
chase price of the contract that is the subject of the option. In addition, the
use of futures contracts is further restricted to the extent that no more than
10% of a Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the In-
vestment Adviser to correctly anticipate movements in the direction of the mar-
ket. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of the futures contracts (or options) and
movements in the price of the instruments being hedged. Further, there is no
assurance that a liquid market will exist for any particular futures contract
(or option) at any particular time. Consequently, a Fund may realize a loss on
a futures transaction that is not offset by a favorable movement in the price
of securities which it holds or intends to purchase or may be unable to close a
futures position in the event of adverse price movements.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in high-
quality, short-term debt securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. The Income and
Growth Fund may also purchase securities of unit investment trusts registered
with the SEC as investment companies. In addition to the advisory fees and
other expenses a Fund bears directly in connection with its own operations, as
a shareholder of another investment company, a Fund would bear its pro rata
portion of the other investment company's advisory fees and other expenses. As
such, the Fund's shareholders would indirectly bear the expenses of the Fund
and the other investment company, some or all of which would be duplicative.
Such securities will be acquired by each Fund within the limits prescribed by
the Investment Company Act of 1940 (the "1940 Act") which include, subject to
certain exceptions, a prohibition against a Fund investing more than 10% of the
value of its total assets in such securities.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place in the future, beyond the normal settlement
date, at a stated price and yield. Securities purchased on a "forward commit-
ment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not
25
<PAGE>
exceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the particular Fund. Portfolio investments may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such in-
vestments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal").
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding Shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding. Optioned stock held in escrow is not deemed to be a
pledge; and
3. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (ii) each Fund may
lend portfolio securities in an amount
26
<PAGE>
not exceeding 30% of its total assets, and (iii) the Income and Growth Fund
may purchase or hold creditor claims, loan participations and other instru-
ments in accordance with its investment objectives and policies.
Each Fund other than the Long-Term Supply of Energy Fund may not:
4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Equity and Income and
Growth Funds, there is no limitation with respect to securities issued or
guaranteed by the U.S. Government or domestic bank obligations, (b) with re-
spect to each Theme Fund, there is no limitation with respect to securities
issued or guaranteed by the U.S. Government, and (c) neither all finance com-
panies, as a group, nor all utility companies, as a group, are considered a
single industry for purposes of this policy.
Each of the Equity and Income and Growth Funds may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase (i)
more than 5% of the value of its total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Theme Funds may not invest in obligations of foreign branches of finan-
cial institutions or in domestic branches of foreign banks if immediately af-
ter such purchase (i) more than 5% of the value of their respective total as-
sets would be invested in obligations of any one foreign branch of the finan-
cial institution or domestic branch of a foreign bank; or (ii) more than 20%
of their respective total assets would be invested in foreign branches of fi-
nancial institutions or in domestic branches of foreign banks. The Theme Funds
may not knowingly invest more than 10% of the value of their respective total
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, restricted securities and other securities
for which market quotations are not readily available. These investment poli-
cies may be changed by Master Fund's Board of Directors upon reasonable notice
to shareholders.
The Equity and Income and Growth Funds will not invest more than 25% of the
value of their respective total assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percent-
age resulting from a change in value of a Fund's portfolio securities will not
constitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund
are priced at the close of regular trading hours on the New York Stock Ex-
change (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value
and pricing for each Fund are determined on each day the Exchange and the
27
<PAGE>
Investment Adviser are open for trading ("Business Day"). Currently, the holi-
days which the Funds observe are New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Co-
lumbus Day, Veterans Day, Thanksgiving Day and Christmas. Net asset value per
Share for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets allocable to a Fund, less the li-
abilities charged to the Fund, by the number of its outstanding Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. Restricted securities, securities for which market quo-
tations are not readily available, and other assets are valued at fair value,
pursuant to guidelines adopted by Master Fund's Board of Directors.
Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Master Fund's administrators have undertaken to price the se-
curities in the Funds' portfolios, and may use one or more independent pricing
services in connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Master Fund's spon-
sor and distributor, (the "Distributor"), a wholly-owned subsidiary of
. The Distributor is a registered broker/dealer. Its principal offices
are at and it may be reached at (800) 233-1136 in connection with
all initial purchase information.
Under Master Fund's Distribution Agreement and Distribution Plan, adopted
pursuant to Rule 12b-1 under the 1940 Act, the Distribution Shares of each
Fund reimburse the Distributor monthly for distribution expenses in an amount
not to exceed .75% of the average daily net asset value of the Fund's out-
standing Distribution Shares. Distribution Shares of each Fund currently bear
the expense of such distribution fees at the annual rate of .50% of the aver-
age daily net asset value of the Fund's outstanding Distribution Shares.
Distribution expenses payable by the Distributor under the Distribution Plan
include direct and indirect marketing expenses such as: i) the expense of pre-
paring, printing and distributing promotional ma
28
<PAGE>
terials and prospectuses (other than prospectuses used for regulatory purposes
or for distribution to existing shareholders); ii) the expense of other adver-
tising via radio, television or other print or electronic media; and iii) the
expense of payments to financial institutions that are not affiliated with the
Distributor ("Distribution Organizations") for distribution assistance.
PURCHASE OF SHARES
Shares may be purchased by customers ("Customers") of financial institutions
("Shareholder Organizations"). A Shareholder Organization may elect to hold of
record Shares for its Customers and to record beneficial ownership of Shares on
the account statements provided by it to its Customers. If it does so, it is
the Shareholder Organization's responsibility to transmit to the Distributor
all purchase orders for its Customers and to transmit, on a timely basis, pay-
ment for such orders to Mutual Funds Service Company ("MFSC"), the Funds' sub-
transfer agent, in accordance with the procedures agreed to by the Shareholder
Organization and the Distributor. Confirmations of all such Customer purchases
and redemptions will be sent by MFSC to the particular Shareholder Organiza-
tion. As an alternative, a Shareholder Organization may elect to establish its
Customers' accounts of record with MFSC. In this event, even if the Shareholder
Organization continues to place its Customers' purchase and redemption orders
with the Funds, MFSC will send confirmations of such transactions and periodic
account statements directly to Customers. A Shareholder Organization may also
elect to establish its Customers as record holders.
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call the Distributor at the phone
number listed above.) An investor purchasing Shares through certain Shareholder
Organizations may incur transaction charges in connection with such purchases.
Investors should contact their Shareholder Organizations for further informa-
tion on transaction fees.
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGES REALLOWANCE TO DEALERS
------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- ----------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50 4.71 4.00
$50,000 to $99,999...... 4.00 4.17 3.50
$100,000 to $249,999.... 3.50 3.63 3.00
$250,000 to $499,999.... 3.00 3.09 2.50
$500,000 to $999,999.... 2.00 2.05 1.50
$1,000,000 to
$1,999,999............. 1.00 1.00 .50
$2,000,000 and over..... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any dealer that sponsors sales con-
tests or recognition programs conforming to criteria established by the Dis-
tributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the dealer at the public offering price during such programs. Also, the Dis-
tributor in its discretion may from time to time, pursuant to objective crite-
ria established by the Distributor, pay fees to qualifying dealers for certain
services or activities which are primarily intended to result in sales of
Shares of the Funds. If any such program is made available to any dealer, it
will be made available to all dealers on the same terms and conditions. Pay-
ments made under such programs will be made by the Distributor out of its own
assets and not out of the assets of the Funds.
29
<PAGE>
These programs will not change the price of Shares or the amount that the Funds
will receive from such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations and
partnerships (excluding full service broker/dealers and financial planners,
registered investment advisers and depository institutions not covered by the
exemptions in (d) and (e) below); (d) financial planners and registered invest-
ment advisers not affiliated with or clearing purchases through full service
broker/dealers; (e) purchases of Shares by depository institutions for their
own account as principal; (f) exchange transactions (described below under "In-
vestor Programs--Exchange Privilege") where the Shares being exchanged were ac-
quired in connection with the distribution of assets held in trust, agency or
custodial accounts maintained with the trust department of a bank; (g) corpo-
rate/ business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh ac-
counts) sponsored by the Distributor and IRA accounts sponsored by the Invest-
ment Adviser; (h) company-sponsored employee pension or retirement plans making
direct investments in the Funds; (i) purchases of Shares by officers, trustees,
directors, employees and retirees of Master Fund, UST Master Tax-Exempt Funds,
Inc. ("Master Tax-Exempt Fund"), the Investment Adviser, or of any direct or
indirect affiliate of any of them; (j) purchases of Shares by all beneficial
shareholders of Master Fund or Master Tax-Exempt Fund as of May 22, 1989; (k)
purchases of Shares by investment advisers registered under the Investment Ad-
visers Act of 1940 for their customers through an omnibus account established
with United States Trust Company of New York; (l) purchases of Shares by direc-
tors, officers and employees of brokers and dealers selling shares pursuant to
a selling agreement with Master Fund and Master Tax-Exempt Fund; (m) purchases
of shares by investors who are members of affinity groups serviced by
USAffinity Investments Limited Partnership; and (n) customers of certain finan-
cial institutions who purchase Shares through a registered representative of
UST Financial Services Corp. on the premises of their financial institutions.
In addition, no sales load is charged on the reinvestment of dividends or dis-
tributions or in connection with certain share exchange transactions. Investors
who have previously redeemed shares in an "Eligible Fund" (as defined below) on
which a sales load has been paid also have a one-time privilege of purchasing
shares of another "Eligible Fund" at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30 calen-
dar days from the date of redemption and only with respect to the amount of the
redemption. These exemptions to the imposition of a sales load are due to the
nature of the investors and/or reduced sales effort that will be needed in ob-
taining investments.
QUANTITY DISCOUNTS
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify MFSC at
the time of purchase that he or she would like to take advantage of any of the
discount plans described below. Upon such notification, the investor will re-
ceive the lowest applicable sales charge. Quantity discounts may be modified or
terminated at any time and are subject to confirmation of an investor's hold-
ings through a check of appropriate records. For more information about quan-
tity discounts, please contact the Distributor or your Shareholder Organiza-
tion.
Rights of Accumulation. A reduced sales load applies to any purchase of shares
of any portfolio of Master
30
<PAGE>
Fund and Master Tax-Exempt Fund that is sold with a sales load ("Eligible
Fund") where an investor's then current aggregate investment is $50,000 or
more. "Aggregate investment" means the total of: (a) the dollar amount of the
then current purchase of shares of an Eligible Fund, and (b) the value (based
on current net asset value) of previously purchased and beneficially owned
shares of any Eligible Fund on which a sales load has been paid. If, for exam-
ple, an investor beneficially owns shares of one or more Eligible Funds with an
aggregate current value of $49,000 on which a sales load has been paid and sub-
sequently purchases shares of an Eligible Fund having a current value of
$1,000, the load applicable to the subsequent purchase would be reduced to
4.00% of the offering price. Similarly, with respect to each subsequent invest-
ment, all shares of Eligible Funds that are beneficially owned by the investor
at the time of investment may be combined to determine the applicable sales
load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below and
in the Letter of Intent. To compute the applicable sales load, the offering
price of shares of an Eligible Fund on which a sales load has been paid, bene-
ficially owned by an investor on the date of submission of the Letter of In-
tent, may be used as a credit toward completion of the Letter of Intent. Howev-
er, the reduced sales load will be applied only to new purchases.
MFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load re-
duction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the total purchases. If such re-
mittance is not received within 20 days, MFSC, as attorney-in-fact pursuant to
the terms of the Letter of Intent and at the Distributor's direction, will re-
deem an appropriate number of shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind an investor to purchase the full
amount indicated at the sales load in effect at the time of signing, but an in-
vestor must complete the intended purchase in accordance with the terms of the
Letter of Intent to obtain the reduced sales load. To apply, an investor must
indicate his or her intention to do so under a Letter of Intent at the time of
purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse purchas-
ing securities for his, her or their own account or for the account of any mi-
nor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Customers of certain Shareholder Organizations may purchase Shares by complet-
ing the Application for purchase of Shares accompanying this Prospectus and
mailing it, together with a check payable to UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
31
<PAGE>
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to UST Master Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from MFSC
or a Shareholder Organization; or (c) a letter stating the amount of the in-
vestment, the name of the Fund and the account number in which the investment
is to be made.
Purchases by Wire
Customers of certain Shareholder Organizations may also purchase Shares by
wiring Federal funds to MFSC. Prior to making an initial investment by wire, an
investor must telephone MFSC at (800) 446-1012 (from overseas, call (617) 956-
9744) for instructions. Federal funds and registration instructions should be
wired through the Federal Reserve System to:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
UST Master Funds
Wire Control Number
Account Registration
(including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to MFSC. Redemptions by in-
vestors will not be processed until the completed Application for purchase of
Shares has been received by MFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial aggregate
investment by a Shareholder Organization investing on behalf of its Customers
is $500 per Fund. The minimum subsequent investment is $50 per Fund. Customers
may agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Master Fund re-
serves the right to reject any purchase order, in whole or in part, or to waive
any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to MFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
No charge for wiring redemption payments to Shareholder Organizations is im-
posed by Master Fund, although Shareholder Organizations may charge a Custom-
er's account for wiring redemption proceeds. Information relating to such re-
demption services and charges, if any, is available from the Shareholder Orga-
nizations. An investor redeeming Shares through a Shareholder Organization may
incur transaction charges in connection with such redemptions. Such investors
should contact their Shareholder Organization for further information on trans-
action fees. Investors may redeem all or part of their Shares in accordance
with the procedures described below (these procedures also apply to Customers
of Shareholder Organizations for whom individual accounts have been established
with MFSC).
REDEMPTION BY MAIL
Customers of certain Shareholder Organizations may redeem shares by submitting
a written request for redemption to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
32
<PAGE>
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. A redemption request for an amount in excess of $50,000 per account, or
for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by MFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC at (800) 446-1012 (from over-
seas, call (617) 956-9744).
REDEMPTION BY WIRE OR TELEPHONE
Customers of certain Shareholder Organizations who have so indicated on the
Application, or have subsequently arranged in writing to do so, may redeem
Shares by instructing MFSC by wire or telephone to wire the redemption proceeds
directly to the investor's account at any commercial bank in the United States.
Customers of certain Shareholder Organizations who are shareholders of record
may redeem Shares by instructing MFSC by telephone to mail a check for redemp-
tion proceeds of $500 or more to the shareholder of record at his or her ad-
dress of record. Only redemptions of $500 or more will be wired to an invest-
or's account. An $8.00 fee for each wire redemption by an investor is deducted
by MFSC from the proceeds of the redemption. The redemption proceeds for Direct
Investors must be paid to the same bank and account as designated on the Appli-
cation or in written instructions subsequently received by MFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, an investor must send a written request to Master Fund, c/o MFSC, at
the address listed above under "Redemption by Mail." Such requests must be
signed by the investor, with signatures guaranteed (see "Redemption by Mail"
above, for details regarding signature guarantees). Further documentation may
be requested.
MFSC and the Distributor reserve the right to re- fuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Master Fund,
MFSC or the Distributor. MASTER FUND, MFSC, AND THE DISTRIBUTOR WILL NOT BE LI-
ABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELEPHONE IN-
STRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER FUND WILL USE SUCH PROCEDURES
AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND RE-
QUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
33
<PAGE>
If any portion of the Shares to be redeemed represents an investment made by
personal check, Master Fund and MFSC reserve the right not to honor the redemp-
tion until MFSC is reasonably satisfied that the check has been collected in
accordance with the applicable banking regulations which may take up to 15
days. An investor who anticipates the need for more immediate access to his or
her investment should purchase Shares by Federal funds or bank wire or by cer-
tified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and Fed-
eral funds. If an investor's purchase check is not collected, the purchase will
be cancelled and MFSC will charge a fee of $25.00 to the investor's account.
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund after 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Organ-
ization to maintain a minimum balance in his or her account at the institution
with respect to Shares of a Fund, and the balance in such account falls below
that minimum, the Customer may be obliged by the Shareholder Organization to
redeem all or part of his or her Shares to the extent necessary to maintain the
required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received prior to the
close of regular trading hours on the Exchange (currently 4:00 p.m., Eastern
Time) on any Business Day are priced according to the net asset value deter-
mined on that day. Purchase orders received after the close of regular trading
hours on the Exchange are priced at the net asset value per Share determined on
the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Customers of Shareholder Organizations may, after appropriate prior authoriza-
tion and without an exchange fee imposed by Master Fund, exchange Shares in a
Fund having a value of at least $500 for shares of any other portfolio offered
by Master Fund, provided that such other Distribution Shares may legally be
sold in the state of the investor's residence.
Master Fund currently offers, in addition to the Distribution Shares of the
Equity, Theme and Income and Growth Funds, several additional portfolios as
follows:
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in Distribution Shares of another
portfolio of Master Fund. The redemption will be made at the per Share net as-
set value of the Shares being redeemed next determined after the exchange re-
quest is received. The Distribution Shares of the portfolio to be acquired will
be purchased at the per share net asset value of those shares (plus any appli-
cable sales load) next determined after acceptance of the exchange request. In
order to prevent abuse of this privilege to the disadvantage of other share-
holders, Master Fund reserves the right to limit the number of exchange re-
quests of investors to no more than six per year. No sales load will be payable
on shares
34
<PAGE>
to be acquired through an exchange to the extent that a sales load was previ-
ously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in the Funds. For fur-
ther information regarding Master Fund's exchange privilege, shareholders
should contact the Distributor at (800) 233-1136 (from overseas, call (619)
456-9394). Investors exercising the exchange privilege with the other portfo-
lios of Master Fund should request and review the prospectuses of such funds.
Such prospectuses may be obtained by calling the numbers listed above. Master
Fund may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request. MASTER
FUND, MFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EX-
CHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENU-
INE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER
FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING
THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event and,
accordingly, a capital gain or loss may be realized by an investor. Before mak-
ing an exchange, an investor should consult a tax or other financial adviser to
determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
Customers of certain Shareholder Organizations who own Shares of a Fund with a
value of $10,000 or more may establish a Systematic Withdrawal Plan. The in-
vestor may request a declining-balance withdrawal, a fixed-dollar withdrawal, a
fixed-share withdrawal, or a fixed-percentage withdrawal (based on the current
value of Shares in the account) on a monthly, quarterly, semi-annual or annual
basis. Information about such plans and the applicable procedures may be ob-
tained by Customers directly from their Shareholder Organizations.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by certain Shareholder Or-
ganizations:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Purchase
Plans and Keogh Plans are not subject to the minimum investment and forced re-
demption provisions described above. The minimum intitial investment for IRAs
is $250 per Fund and the minimum subsequent investment is $50 per Fund.
Detailed information concerning eligibility, service fees and other matters re-
lated to these plans is available from Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Customers of certain Shareholder Or-
ganizations to purchase Shares (minimum of $50 per Fund per transaction) at
regular intervals selected by the Customer. Provided the investor's financial
institution allows automatic withdrawals, Shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be deb-
ited in the specified amount, and Shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days.
35
<PAGE>
The Automatic Investment Program is one means by which an investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help investors to reduce their average cost per share because
the agreed upon fixed investment amount allows more Shares to be purchased dur-
ing periods of lower share prices and fewer Shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be fol-
lowed on a sustained, consistent basis. Investors should be aware, however,
that Shares bought using Dollar Cost Averaging are purchased without regard to
their price on the day of investment or to market trends. In addition, while
investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an investor ultimately redeems his Shares at a price which is lower
than their purchase price.
Information concerning the availability of, and the procedures and fees relat-
ing to, Automatic Investment accounts is available from Shareholder Organiza-
tions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
quarterly. For dividend purposes, a Fund's investment income is reduced by ac-
crued expenses directly attributable to that Fund and the general expenses of
Master Fund prorated to that Fund on the basis of its relative net assets. Net
realized capital gains are distributed at least annually. Dividends and distri-
butions will reduce the net asset value of each of the Funds by the amount of
the dividend or distribution. All dividends and distributions paid on Shares
held of record by the Investment Adviser and its affiliates or correspondent
banks will be paid in cash. Direct and Institutional Investors and Customers of
other Shareholder Organizations will receive dividends and distributions in ad-
ditional Shares of the Fund on which the dividend or distribution is paid (as
determined on the payable date), unless they have requested in writing (re-
ceived by MFSC at Master Fund's address prior to the payment date) to receive
dividends and distributions in cash. Reinvested dividends and distributions re-
ceive the same tax treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders an amount equal to at
least 90% of its investment company taxable income for each taxable year. In
general, a Fund's investment company taxable income will be its income (includ-
ing dividends and interest), subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. Each Fund intends to distribute
substantially all of its investment company taxable income each year. Such div-
idends will be taxable as ordinary income to Fund shareholders who are not cur-
rently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distribu-
tions to IRAs and qualified pension plans are deferred under the Code.) The
dividends received deduction for corporations will apply to such ordinary in-
come distributions to the extent of the total qualifying dividends received by
a Fund from domestic corporations for the taxable year.
Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is
36
<PAGE>
taxable to shareholders as long-term capital gain, regardless of how long the
shareholders have held their Shares and whether such gains are received in cash
or reinvested in additional Shares. Such distributions are not eligible for the
dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to them.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares for
Shares of another Fund within 90 days of the purchase and is able to reduce the
sales charges applicable to the new Shares (by virtue of the exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged Shares, but may be included (subject to the same
limitation) in the tax basis of the new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign cur-
rencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any in-
come derived by a Fund from a partnership or trust is treated as derived with
respect to the Fund's business of investing in stock, securities or currencies
only to the extent that such income is attributable to items of income which
would have been qualifying income if realized by the Fund in the same manner as
by the partnership or trust. Some of the investments that the Income and Growth
Fund may make (such as liquidating trust receipts and creditor claims) may not
be securities or may not produce qualifying income. Therefore, it may be neces-
sary for the Investment Adviser to restrict the investments of that Fund to en-
sure that non-qualifying income does not exceed 10% of that Fund's total gross
income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situations.
Shareholders will be advised annually as to the Federal income tax consequences
of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes,
37
<PAGE>
which may have different consequences from those of the Federal income tax law
described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Mas-
ter Fund's Board of Directors. The Statement of Additional Information contains
the names of and general background information concerning Master Fund's direc-
tors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust (and its predecessor) is a state-chartered bank and trust
company created by Special Act of the New York Legislature in 1853. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment man-
agement, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. The Investment Adviser is a
member bank of the Federal Reserve System and the Federal Deposit Insurance
Corporation and is one of the twelve members of the New York Clearing House As-
sociation.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $ billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Equity Fund's portfolio manager, David A. Tillson, is the person primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Tillson, a Senior Vice President and Senior Portfolio Manager, has been
with U.S. Trust since 1993, and has been the Fund's portfolio manager since De-
cember 1994. Prior to joining U.S. Trust, Mr. Tillson was the founder and Pres-
ident of TDA Capital Management Company, and a Senior Vice President of Matrix
Asset Advisors until 1993. He was also a Vice President and Senior Portfolio
Manager with V C S & O Asset Management until 1990.
The Income and Growth and Long-Term Supply of Energy Funds' portfolio manager,
Richard L. Bayles, is the person primarily responsible for the day-to-day man-
agement of the Funds' investment portfolios. Mr. Bayles, a Senior Vice Presi-
dent and Senior Portfolio Manager of U.S. Trust, has been with U.S. Trust since
1990 and has been the Income and Growth Fund's portfolio manager since 1990 and
the Long-Term Supply of Energy Fund's portfolio manager since its inception.
Prior to his reassociation with U.S. Trust, Mr. Bayles was a Managing Director
at John W. Bristol and Company, an investment advisory firm, from 1987 to 1990.
The Productivity Enhancers Fund's portfolio manager, Ronald C. Steele, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Steele, a Senior Vice President and Senior Portfolio
Manager of U.S. Trust, has been the Fund's portfolio manager since its incep-
tion.
The Environmentally-Related Products and Services Fund's portfolio manager,
Victor Sapuppo, is the person primarily responsible for the day-to-day manage-
ment of the Fund's investment portfolio. Mr. Sapuppo, Vice President and Senior
Portfolio Manager of the Personal Equity and Balanced Investment Division of
U.S. Trust, has been with U.S. Trust since 1962 and has been the Fund's portfo-
lio manager since its inception.
38
<PAGE>
The Aging of America Fund's portfolio manager, Roger F. Schaefer, is the per-
son primarily responsible for the day-to-day management of the Fund's invest-
ment portfolio. Mr. Schaefer, a Vice President and Senior Portfolio Manager of
U.S. Trust, has been with U.S. Trust since 1970 and has been the Fund's portfo-
lio manager since its inception.
The Communication and Entertainment Fund's portfolio manager, John J.
Apruzzese, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Apruzzese, a Senior Vice President, De-
partment Manager and Senior Portfolio Manager of U.S. Trust, has been with U.S.
Trust since 1984 and has been the Fund's portfolio manager since its inception.
The Business and Industrial Restructuring Fund's portfolio manager, David J.
Williams, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Williams, Senior Vice President, Depart-
ment Manager and Senior Portfolio Manager of the Personal Equity and Balanced
Investment Division of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
The Global Competitors Fund's portfolio manager, Wendy S. Popowich, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Ms. Popowich, a Vice President and Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since 1983
and has been the Fund's portfolio manager since its inception.
The Early Life Cycle Fund's portfolio manager, Timothy W. Evnin, is the person
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Evnin, a Vice President and Portfolio Manager of U.S. Trust, has
been with U.S. Trust since 1987 and has been the Fund's portfolio manager since
its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of: .75% of the average daily
net assets of the Equity and the Income and Growth Funds; and .60% of the aver-
age daily net assets of each Theme Fund. The advisory fee rates payable by the
Equity and Income and Growth Funds are higher than the rates payable by most
mutual funds. The Board of Directors believes, based on information supplied to
it by the Investment Adviser, that this fee is comparable to the rate paid by
many other funds with similar investment objectives and policies and is appro-
priate for the Funds in light of their investment objectives and policies. For
the fiscal year ended March 31, 1995, the Investment Adviser received an advi-
sory fee at the effective annual rates of . %, . %, . %, . %, %, . %,
. %, . %, . % and . % of the average daily net assets of the Equity, Income
and Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmental-
ly-Related Products and Services, Aging of America, Communication and Enter-
tainment, Business and Industrial Restructuring, Global Competitors and Early
Life Cycle Funds, respectively. For the same period, the Investment Adviser
waived advisory fees at the effective annual rates of . %, . %, . %, . %,
. %, . %, . %, . %, . % and . % of the average daily net assets of the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors
and Early Life Cycle Funds, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the advi-
sory fees payable to it by a Fund, which waiver may be terminated at any time.
See "Management of the Funds--Service Organizations" for additional information
on fee waivers.
39
<PAGE>
ADMINISTRATORS
Mutual Funds Service Company and Federated Investors, Inc. serve as the
Funds' administrators (the "Administrators") and provide them with general ad-
ministrative and operational assistance. The Administrators also serve as ad-
ministrators of the other portfolios of Master Fund and Master Tax-Exempt
Fund, which are also advised by the Investment Adviser and distributed by the
Distributor. For the services provided to all portfolios of Master Fund (ex-
cept the International, Emerging Americas, Pacific/Asia and Pan European
Funds) and Master Tax-Exempt Fund, the Administrators are entitled jointly to
annual fees, computed daily and paid monthly, based on the combined aggregate
average daily net assets of the two companies (excluding the International,
Emerging Americas, Pacific/Asia and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF MASTER FUND
(EXCLUDING THE INTERNATIONAL, EMERGING AMERICAS,
PACIFIC/ASIA AND PAN EUROPEAN FUNDS) ANNUAL
AND MASTER TAX-EXEMPT FUND FEE
------------------------------------------------ ------
<S> <C>
first $200 million....................................................... .200%
next $200 million........................................................ .175%
over $400 million........................................................ .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
two investment companies are determined in proportion to their relative aver-
age daily net assets at the time of determination. After those allocations
have been made, the Administrators are entitled jointly to an annual minimum
fee of $50,000 from each Theme Fund for each full year after they have com-
menced operations. From time to time, the Administrators may waive (either
voluntarily or pursuant to applicable state expense limitations) all or a por-
tion of the administration fee payable to them by a Fund, which waivers may be
terminated at any time. See "Management of the Funds--Service Organizations"
for additional information on fee waivers. For the fiscal year ended March 31,
1995, MFSC and Concord Holding Corporation ("Concord"), the former co-adminis-
trator, received an aggregate administration fee (under the same compensation
arrangements noted above) at the effective annual rates of . %, . %, . %, . %,
. %, . %, . %, . %, . % and . % of the average daily net assets of the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers, Envi-
ronmentally-Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, MFSC and Concord
waived fees at the effective annual rates of . %, . %, . %, . %, . %, . % and
. % of the average daily net assets of the Long-Term Supply of Energy, Produc-
tivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing and Global Competitors Funds, respectively.
SERVICE ORGANIZATIONS
Master Fund will enter into Shareholder Servicing agreements ("Servicing
Agreement") with Shareholder Organizations which agree to provide their Cus-
tomers various shareholder administrative services with respect to their
Shares (hereinafter referred to as "Service Organizations"). As a considera-
tion for the administrative services provided to Customers, a Fund will pay
each Service Organization an administrative service fee at the annual rate of
up to .40% of the average daily net asset value of its Shares held by the
Service Organization's Customers. Such services, which are described more
fully in the Statement of Additional Information under "Management of the
Funds--Service Organizations," may include assisting in processing purchase,
exchange and redemption requests; transmitting and receiving funds in connec-
tion with Customer orders to purchase, exchange or redeem Shares; and provid-
ing periodic statements. Under the terms of the Servicing Agreement, Service
Organizations will be required to provide to Customers a schedule of any fees
that they may change in connection with a Customer's investment. Until further
notice, the Investment Adviser and Administra
40
<PAGE>
tors have voluntarily agreed to waive fees payable by a Fund in an amount equal
to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distribut-
ing securities such as Shares of the Funds, but such banking laws and regula-
tions do not prohibit such a holding company or affiliate or banks generally
from acting as investment adviser, transfer agent, or custodian to such an in-
vestment company, or from purchasing shares of such company for and upon the
order of customers. The Investment Adviser, MFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would af-
fect their net asset values per Share or result in financial loss to any share-
holder.
DESCRIPTION OF CAPITAL STOCK
UST Master Funds, Inc. was organized as a Maryland corporation on August 2,
1984. Currently, Master Fund has authorized capital of 35 billion shares of
Common Stock, $.001 par value per share, classified into 34 series of shares
representing interests in 20 investment portfolios. This Prospectus describes
the Equity, Income and Growth, Early Life Cycle, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring
and Global Competitors Funds. Master Fund offers Shares and Distribution
Shares representing interests in each of those Funds. Shares and Distribu-
tion Shares have different expenses, which may affect performance. Contact the
distributor at (800) 233-1136 for information regarding each of those Fund's
Shares, which are offered through a separate prospectus.
Each Share (irrespective of series designation) represents an equal propor-
tionate interest in the particular Fund with other Shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such Fund as are declared in the discretion of Master
Fund's Board of Directors. Master Fund's Charter authorizes the Board of Direc-
tors to classify or reclassify any class of shares into one or more additional
classes or series.
Shareholders are entitled to one vote for each full Share held, and fractional
votes for fractional Shares held, and will vote in the aggregate and not by
class, except as otherwise expressly required by law. Holders of a Fund's
Shares in the respective Fund will vote in the aggregate, and not by series, on
all matters, except where otherwise required by law and except that only Dis-
tribution Shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's Distribution Plan.
The Shares, unlike the Distribution Shares, do not bear any expenses un-
der a distribution plan adopted under Rule 12b-1 under the 1940 Act and can be
exchanged into the other investment port
41
<PAGE>
folios of Master Fund and Master Tax-Exempt Fund. See "Investor Programs--Ex-
change Privilege" for a description of the exchange privilege for holders of
Distribution Shares.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of May 19, 1995, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have discretion to vote or invest such
Shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase") serves as the custodian of the Funds'
assets and as their transfer and dividend disbursing agent. Communications to
the custodian and transfer agent should be directed to Chase at
.
[U.S. Trust has entered into an International Custodian Agreement with Morgan
Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, NY 11201, providing for
the custody of foreign securities held by the Funds.]
Chase has also entered into a sub-transfer agency arrangement with MFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of the Equity and Theme Funds
may be also compared to the Standard & Poor's 500 Stock Index ("S&P 500"), an
index of unmanaged groups of common stocks, the Consumer Price Index, or the
Dow Jones Industrial Average, a recognized unmanaged index of common stocks of
30 industrial companies listed on the New York Stock Exchange.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares and also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be con-
sidered as representative of a Fund's future performance. Shareholders
42
<PAGE>
should remember that performance is generally a function of the kind and qual-
ity of the instruments held in a portfolio, portfolio maturity, operating ex-
penses, and market conditions. Any fees charged by Shareholder Organizations
with respect to accounts of Customers that have invested in Shares will not be
included in calculations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Master Fund or a particular Fund means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change
in a fundamental investment policy, the affirmative vote of the lesser of (a)
more than 50% of the outstanding shares of Master Fund or such Fund, or (b) 67%
or more of the shares of Master Fund or such Fund present at a meeting if more
than 50% of the outstanding shares of Master Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at the
address or telephone number listed under "Distributor."
43
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Funds Service Company c/o Mutual Funds Service Company--
P.O. Box 2798 Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus enti-
tled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per Fund.
Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organiza-
tions, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
44
<PAGE>
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[LOGO OF MUTUAL FUNDS SERVICE COMPANY
UST MASTER CLIENT SERVICES
FUNDS P.O. Box 2798
APPEARS HERE] Boston, MA 02208-2798
(800) 446-1012 NEW ACCOUNT APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other_______________________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Indentification #
( )
------------------------------ -----------------------------
Name Telephone #
------------------------------
Address
------------------------------ [_] U.S. Citizen
City/State/Zip [_] Other (specify)__________
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
FUND INITIAL INVESTMENT
[_] Equity Fund $ ____________ 800
[_] Income and Growth Fund $ ____________ 801
[_] Long-Term Energy Fund $ ____________ 813
[_] Productivity Enhancers Fund $ ____________ 814
[_] Environmental Fund $ ____________ 815
[_] Aging of America Fund $ ____________ 816
[_] Communication & Entertainment Fund $ ____________ 817
[_] Business & Industrial Restructuring Fund $ ____________ 818
[_] Global Competitors Fund $ ____________ 819
[_] Early Life Cycle Fund $ ____________ 812
[_] Other $ ____________
TOTAL INITIAL INVESTMENT: $ ____________
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds."
B. BY WIRE: A bank wire in the amount of $ has been sent to the Fund from
------------------ ---------------------
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $1,000 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*_____________________________________________________
Name of Bank ______________________________________________________________
Bank A.B.A. Number________________ Account Number ________________________
Bank Address ______________________________________________________________
City/State/Zip ____________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by UST
Distributors, Inc. Listed below are the numbers of each of
my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER UST MASTER FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Master Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an aggregate
amount in Eligible Funds of Master Fund and Master Tax-Exempt
Fund at least equal to (check appropriate box):
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000
[_] $1,000,000 [_] $2,000,000
By signing this application, I hereby authorize MFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the UST Master Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
UST Distributors, Inc., and with the Prospectus and Statement
of Additional Information of each Fund purchased. We agree to
notify MFSC of any purchases made under the Letter of Intent
or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
[LOGO OF MUTUAL FUNDS SERVICE COMPANY
UST MASTER CLIENT SERVICES
FUNDS P.O. Box 2798
APPEARS HERE] Boston, MA 02208-2798
(800) 446-1012
SUPPLEMENTAL APPLICATION
SPECIAL INVESTMENT AND WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name _____________________________________________________________
Owner Name ____________________________________________________________
Street Address ________________________________________________________
Resident of [_] U.S. [_] Other ______________________________________
Account Number ________________________________________________________
Social Security or Taxpayer ID Number _________________________________
City, State, Zip Code _________________________________________________
[_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50 per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ---------------------------------- -------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our account for
amounts drawn by MFSC, acting as my agent for the purchase of Fund shares.
I/We agree that your rights in respect to each withdrawal shall be the same
as if it were a check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received by you. I/We
agree that you shall incur no liability when honoring debits, except a loss
due to payments drawn against insufficient funds. I/We further agree that
you will incur no liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the cancellation of that
purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X __________________ ___________ X ____________________ ___________
Signature Date Signature Date
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- ------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize MFSC to redeem the necessary number of
shares from my/our UST Master Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum) $________________________
Please make check payable to: (To be completed only if
redemption proceeds to be paid to other than account holder of
record or mailed to address other than address of record)
Recipient ________________________________
Street Address ___________________________
City, State, Zip Code ____________________
NOTE: If recipient of checks is not the registered
----
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until MFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
-------------------------------------------------------------
Signature Guarantee* (if applicable)
-------------------------------------------------------------
Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
-------------------------------------------------------------
Signature Guarantee* (if applicable)
-------------------------------------------------------------
Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 15
INVESTMENT OBJECTIVES AND POLICIES......................................... 15
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 22
INVESTMENT LIMITATIONS..................................................... 26
PRICING OF SHARES.......................................................... 27
HOW TO PURCHASE AND REDEEM SHARES.......................................... 28
INVESTOR PROGRAMS.......................................................... 34
DIVIDENDS AND DISTRIBUTIONS................................................ 35
TAXES...................................................................... 36
MANAGEMENT OF THE FUNDS.................................................... 37
DESCRIPTION OF CAPITAL STOCK............................................... 41
CUSTODIAN AND TRANSFER AGENT............................................... 41
PERFORMANCE INFORMATION.................................................... 41
MISCELLANEOUS.............................................................. 42
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 43
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF AD-
DITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MASTER
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
MASTER FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTEQP894
[LOGO OF UST MASTER FUNDS APPEARS HERE]
MASTER FUNDS, INC.
EQUITY FUND
INCOME AND GROWTH FUND
LONG-TERM SUPPLY OF ENERGY FUND
PRODUCTIVITY ENHANCERS FUND
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
AGING OF AMERICA FUND
COMMUNICATION AND ENTERTAINMENT FUND
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
GLOBAL COMPETITORS FUND
EARLY LIFE CYCLE FUND
Prospectus
August 1, 1995
<PAGE>
CROSS-REFERENCE SHEET
UST MASTER FUNDS, INC.
(EQUITY FUND, INCOME AND GROWTH FUND, LONG-TERM SUPPLY OF ENERGY FUND,
PRODUCTIVITY ENHANCERS FUND, ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES
FUND, AGING OF AMERICA, COMMUNICATION OF ENTERTAINMENT FUND, BUSINESS AND
INDUSTRIAL RESTRUCTURING FUND, GLOBAL COMPETITORS FUND, EARLY LIFE CYCLE FUND)
<TABLE>
<CAPTION>
FORM N-1A, PART A, ITEM PROSPECTUS CAPTION
----------------------- ------------------
<C> <S> <C>
1. Cover Page.......................... Cover Page
2. Synopsis............................ Prospectus Summary and
Expense Summary
3. Financial Highlights................ Selected Per Share Data and Ratios;
Performance Information
4. General Description of Registrant... Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment Limitations;
Description of Capital Stock
5. Management of the Fund.............. Management of the Fund; Custodian
and Transfer Agent
6. Capital Stock and Other Securities.. How to Purchase and Redeem Shares;
Dividends and Distributions; Taxes;
Description of Capital Stock;
Miscellaneous
7. Purchase of Securities Being Pricing of Shares; How to Purchase
Offered............................ and Redeem Shares; Investor Programs
8. Redemption or Repurchase............ How to Purchase and Redeem Shares
9. Pending Legal Proceedings........... Inapplicable
</TABLE>
<PAGE>
[LOGO OF UST MASTER FUNDS APPEARS HERE]
A Management Investment Company MASTER FUNDS, INC.
- -------------------------------------------------------------------------------
Equity Funds For initial purchase information, call (800)
233-1136. (From overseas, call (619) 456-
73 Tremont Street 9394.) For current prices and yield informa-
Boston, MA 02108-3913 tion, call (800) 233-9180. For existing ac-
count information, call (800) 446-1012.
(From overseas, call (617) 956-9744.)
- -------------------------------------------------------------------------------
This Prospectus describes the Shares ("Shares") offered by several sepa-
rate portfolios offered to investors by UST Master Funds, Inc. ("Master
Fund"), an open-end, management investment company. Master Fund also issues an
additional series of shares in the portfolios ("Distribution Shares"), which
are offered under a separate prospectus. Each portfolio (individually, a
"Fund" and collectively, the "Funds") has its own investment objective and
policies as follows:
EQUITY FUND seeks long-term capital appreciation by investing in companies
believed by the Investment Adviser to represent good long-term values not cur-
rently recognized in the market prices of their securities.
INCOME AND GROWTH FUND seeks moderate current income with capital apprecia-
tion as a secondary goal by investing in common stock, preferred stock and se-
curities convertible into common stock.
LONG-TERM SUPPLY OF ENERGY FUND seeks long-term capital appreciation by in-
vesting in companies which the Investment Adviser believes will benefit from
the availability, development and delivery of secure hydrocarbon and other en-
ergy sources.
PRODUCTIVITY ENHANCERS FUND seeks long-term capital appreciation by investing
in companies which the Investment Adviser believes will benefit from their
roles as innovators, developers and suppliers of goods and services which en-
hance service and manufacturing productivity or companies that are most effec-
tive at obtaining and applying productivity enhancement developments.
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND seeks long-term capital
appreciation by investing in companies which the Investment Adviser believes
will benefit from their provision of products, technologies and services re-
lated to conservation, protection and restoration of the environment.
AGING OF AMERICA FUND seeks long-term capital appreciation by investing in
companies which the Investment Adviser believes will benefit from the changes
occurring in the demographic structure of the U.S. population, particularly
its growing population of individuals over the age of 40.
COMMUNICATION AND ENTERTAINMENT FUND seeks long-term capital appreciation by
investing in companies which the Investment Adviser believes will benefit from
the technological and international transformation of the communications and
entertainment industries, particularly the convergence of information, commu-
nication and entertainment media.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND seeks long-term capital apprecia-
tion by investing in companies which the Investment Adviser believes will ben-
efit from their restructuring or redeployment of assets and operations in or-
der to become more competitive or profitable.
GLOBAL COMPETITORS FUND seeks long-term capital appreciation by investing
primarily in U.S.-based companies which the Investment Adviser believes will
benefit from their position as effective and strong competitors on a global
basis.
EARLY LIFE CYCLE FUND seeks long-term capital appreciation by investing in
smaller companies in the earlier stages of their development or larger or more
mature companies engaged in new and higher growth potential operations.
Each of the Funds is sponsored and distributed by UST Distributors, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser"
or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1995 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available upon request without
charge by writing to Master Fund at its address shown above or by calling
(800) 233-1136. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGA TIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1995
<PAGE>
PROSPECTUS SUMMARY
UST MASTER FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Master Fund
currently offers 20 Funds with combined assets of approximately $2.5 billion.
See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York ("U.S. Trust")
serves as the Funds' investment adviser. U.S. Trust and its predecessor,
founded in 1853, offers a variety of specialized financial and fiduciary serv-
ices to high-net worth individuals, institutions and corporations. Master Fund
offers investors access to U.S. Trust's services. See "Management of the
Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund invests in equity
securities. The Income and Growth Fund also may invest significantly in bonds.
The Funds' investment objectives and policies are summarized on the cover and
explained in greater detail later in this Prospectus. See "Investment Objec-
tives and Policies," "Portfolio Instruments and Other Investment Information,"
and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load is
not applicable to investors making their investments through a variety of in-
stitutions, such as U.S. Trust Company, other banks and trust companies. See
"How to Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropriate
sales agreements with Master Fund. See "How to Purchase and Redeem Shares."
HOW TO REDEEM: Redemptions may be requested directly from Master Fund by
mail, wire or telephone. Investors investing through another institution should
request redemptions through their Shareholder Organization. See "How to Pur-
chase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to mar-
ket and industry risk. Market risk is the possibility that stock prices will
decline over short or even extended periods. The stock markets tend to be cy-
clical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. In addition,
the Long-Term Supply of Energy Fund will normally concentrate its investments
in the crude oil, petroleum and natural gas industry. This Fund will be suscep-
tible to industry risk, the possibility that a particular group of stocks will
decline in price due to industry-specific developments. Because the Funds may
invest in securities of foreign issuers, they are subject to the risks of fluc-
tuations of the value of foreign currency relative to the U.S. dollar and other
risks associated with such investments. Because the Income and Growth Fund also
invests in bonds and other fixed-income securities, it will also be affected
directly by fluctuations in interest rates and the credit markets. Investments
in non-investment grade obligations may subject the Income and Growth Fund to
increased risk of loss upon default. Such securities are generally unsecured,
are often subordinated debt and are often issued by entities with high levels
of indebtedness and that are more sensitive to adverse economic conditions. Al-
though each Fund generally seeks to invest for the long term, each Fund may en-
gage in short-term trading of portfolio securities. A high rate of portfolio
turnover may involve correspondingly greater transaction costs which must be
borne directly by a Fund and ultimately by its shareholders. Investment in the
Funds should not be considered a complete investment program. See "Investment
Objectives and Policies."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
LONG-TERM PRODUCTIVITY ENVIRONMENTALLY-
EQUITY INCOME AND SUPPLY OF ENHANCERS RELATED PRODUCTS
FUND GROWTH FUND ENERGY FUND FUND AND SERVICES FUND
-------- ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees/1/...... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............ .72% .72% .42% .47% 0%
12b-1 Fees.............. None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee............... .03% .03% .03% .03% .04%
Other Expenses/2/ (af-
ter fee waivers)...... .30% .31% .53% .49% .95%
Total Fund Operating Ex-
penses (after fee waiv-
ers)/2/ ............... 1.05% 1.06% .98% .99% .99%
<CAPTION>
BUSINESS
AGING OF COMMUNICATION AND INDUSTRIAL GLOBAL
AMERICA AND ENTERTAINMENT RESTRUCTURING COMPETITORS EARLY LIFE
FUND FUND FUND FUND CYCLE FUND
-------- ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees/1/ ..... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/ ........... .44% .53% .52% .50% .52%
12b-1 Fees.............. None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee............... .03% .03% .02% .02% .05%
Other Expenses/2/ (af-
ter fee waivers)...... .52% .42% .44% .45% .39%
Total Fund Operating Ex-
penses (after fee waiv-
ers)/2/ ............... .99% .98% .98% .97% .96%
</TABLE>
- -------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire re-
demption by noninstitutional (i.e. individual) investors which is not re-
flected in the expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
See "Redemption Procedures."
2. The Investment Adviser and Administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for each of the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds (collectively, the "Theme
Funds"), respectively, to maintain an annual expense ratio of not more than
.99%. Without such fee waivers, "Advisory Fees" would be .75%, .75%, .60%,
.60%, .60%, .60%, .60%, .60%, .60% and .60%, total operating expenses would
be 1.08%, 1.09%, 1.35%, 1.21%, 2.42%, 1.26%, 1.06%, 1.08%, 1.18% and 1.04%
for the Equity, Income and Growth, Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively, and "Other Ex-
penses" would be .72%, .58%, 1.78%, .63%, .43%, .46% and .56% for the Long-
Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring and Global Competitors Funds, respec-
tively.
3
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund.................................... $55 $77 $100 $167
Income and Growth Fund......................... 55 77 101 169
Long-Term Supply of Energy Fund................ 55 75 97 160
Productivity Enhancers Fund.................... 55 75 97 161
Environmentally-Related Products and Services
Fund.......................................... 55 75 97 161
Aging of America Fund.......................... 55 75 97 161
Communication and Entertainment Fund........... 55 75 97 160
Business and Industrial Restructuring Fund..... 55 75 97 160
Global Competitors Fund........................ 54 75 96 159
Early Life Cycle Fund.......................... 54 74 96 158
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in the Funds will bear directly or indi-
rectly. The expense summary sets forth advisory and other expenses payable with
respect to Shares of the Funds for the fiscal year ended March 31, 1995. For
more complete descriptions of the Funds' operating expenses, see "Management of
the Funds" in this Prospectus and the financial statements and notes incorpo-
rated by reference in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding throughout
each period and other performance information, with respect to the Equity and
Income and Growth Funds, the last five years of which has been derived from the
financial statements included in Master Fund's Annual Report to Shareholders
for the year ended March 31, 1995 (collectively, the "Financial Statements").
The following tables should be read in conjunction with the Financial
Statements and notes thereto. More information about the performance of
each Fund is also contained in the Annual Report to Shareholders which may be
obtained from Master Fund without charge.
Prior to the date of this Prospectus, each Fund offered a single series of
shares, the Shares. As of the date of this Prospectus, the Funds began of-
fering a new series of shares designated as Distribution Shares. Shares
and Distribution Shares represent equal pro rata interests in each Fund, except
they bear different expenses which reflect the difference in the level of serv-
ices provided to them.
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
------- ------- ------- ------ ------ ------ ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32 $ 13.56 $12.35 $ 8.00
------- ------- ------- ------ ------ ------ ------ -------- ------ ------
Income From Investment
Operations
Net Investment Income.. 0.07 0.05 0.08 0.13 0.28 0.34 0.19 0.15 0.18 0.18
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 2.67 1.16 3.01 2.23 0.39 1.26 1.88 (1.63) 1.86 4.31
------- ------- ------- ------ ------ ------ ------ -------- ------ ------
Total From Investment
Operations............ 2.74 1.21 3.09 2.36 0.67 1.60 2.07 (1.48) 2.04 4.49
------- ------- ------- ------ ------ ------ ------ -------- ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14) (0.18) (0.14)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62) (0.65) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------ ------ ------ ------ -------- ------ ------
Total Distributions.... (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76) (0.83) (0.14)
------- ------- ------- ------ ------ ------ ------ -------- ------ ------
Net Asset Value, End of
Period................. $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22 $ 11.32 $13.56 $12.35
======= ======= ======= ====== ====== ====== ====== ======== ====== ======
Total Return/2/ ........ 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)% 17.61% 56.74%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61 $ 13.58 $13.40 $ 5.58
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.21% 0.90%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets.... 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.30% 2.74%/3/
Ratio of Net Investment
Income to Average
Net Assets............ 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26% 1.53% 2.63%/3/
Portfolio Turnover
Rate.................. 23.00% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0% 86.0% 207.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was April 25, 1985.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
5
<PAGE>
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
------ ------ ------ ------ ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95 $ 8.00
------ ------ ------ ------ ------- ------ ------ ------- ------
Income From Investment
Operations
Net Investment Income.. 0.38 0.31 0.27 0.30 0.29 0.40 0.28 0.44 0.06
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15 (0.93) 0.89
------ ------ ------ ------ ------- ------ ------ ------- ------
Total From Investment
Operations............ 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43 (0.49) 0.95
------ ------ ------ ------ ------- ------ ------ ------- ------
Less Distributions
Dividends From Net
Investment Income..... (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46) (0.21) 0.00
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00 (0.13) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------- ------ ------ ------- ------
Total Distributions.... (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46) (0.34) 0.00
------ ------ ------ ------ ------- ------ ------ ------- ------
Net Asset Value, End of
Period................. $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95
====== ====== ====== ====== ======= ====== ====== ======= ======
Total Return/2/......... 5.74% 6.69% 30.45% 12.42% (1.30%) 6.14% 18.36% (5.43%) 11.88%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62 $ 6.66 $ 3.71
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27% 1.13%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets.... 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27% 1.84%/3/
Ratio of Net Investment
Income to Average Net
Assets................ 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09% 6.20% 4.25%/3/
Portfolio Turnover
Rate.................. 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0% 27.0% 7.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was January 6, 1987.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
6
<PAGE>
LONG-TERM SUPPLY OF ENERGY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 7.70 $7.81 $7.00
------ ----- -----
Income From Investment
Operations
Net Investment Income........ 0.09 0.08 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 0.24 (0.12) 0.80
------ ----- -----
Total From Investment
Operations.................. 0.33 (0.04) 0.81
------ ----- -----
Less Distributions
Dividends From Net Investment
Income...................... (0.10) (0.07) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. (0.01) 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00 0.00
------ ----- -----
Total Distributions.......... (0.11) (0.07) 0.00
------ ----- -----
Net Asset Value, End of Period. $ 7.92 $7.70 $7.81
====== ===== =====
Total Return/2/................ 4.28% (0.57)% 11.57%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $15.81 $6.83 $1.46
Ratio Net Operating of
Expenses to Average Net
Assets...................... 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... 1.35% 2.03% 7.03%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... 1.18% 1.21% 1.69%/3/
Portfolio Turnover Rate...... 31.00% 6.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
7
<PAGE>
PRODUCTIVITY ENHANCERS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 7.88 $ 6.94 $ 7.00
------- ------ ---------
Income From Investment
Operations
Net Investment Income........ (0.01) 0.00 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 0.35 0.96 (0.07)
------- ------ ---------
Total From Investment
Operations.................. 0.34 0.96 (0.06)
------- ------ ---------
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00 0.00
Dividends in Excess of Net
Investment Income........... 0.00 (0.02) 0.00
Distributions From Net
Realized Gain on Investments
and Options................. (0.10) 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00 0.00
------- ------ ---------
Total Distributions.......... (0.10) (0.02) 0.00
------- ------ ---------
Net Asset Value, End of Period. $ 8.12 $ 7.88 $ 6.94
======= ====== =========
Total Return/2/................ 4.45% 13.81% (0.86)%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $18.27 $15.70 $ 3.37
Ratio of Net Operating
Expenses to Average Net
Assets...................... 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... 1.21% 1.49% 4.23%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... (0.10)% 0.01% 1.29%/3/
Portfolio Turnover Rate...... 276.0% 198.0% 183.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
8
<PAGE>
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 6.95 $ 7.00
------- -------- -------
Income From Investment
Operations
Net Investment Income........ ( ) 0.00 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. ( ) (0.71) (0.05)
------- -------- -------
Total From Investment
Operations.................. ( ) (0.71) (0.05)
------- -------- -------
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00
Dividends in Excess of Net
Investment Income........... ( ) 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- -------- -------
Total Distributions.......... ( ) 0.00 0.00
------- -------- -------
Net Asset Value, End of Period. $ $ 6.24 $ 6.95
======= ======== =======
Total Return/2/................ ( )% (10.15)% (0.71)%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 4.53 $ 2.45
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... ( )% 2.20% 2.83%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... % (0.07)% 0.32%/3/
Portfolio Turnover Rate...... % 28.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
9
<PAGE>
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.01 $7.00
------ ------ -----
Income From Investment
Operations
Net Investment Income........ 0.03 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. (0.02) 0.00
------ ------ -----
Total From Investment
Operations.................. 0.01 0.01
------ ------ -----
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.03) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------ ------ -----
Total Distributions.......... ( ) (0.03) 0.00
------ ------ -----
Net Asset Value, End of Period. $ $ 6.99 $7.01
====== ====== =====
Total Return/2/................ % 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $10.58 $2.39
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.82% 3.87%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.59% 0.77%/3/
Portfolio Turnover Rate...... % 24.0% 14.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
10
<PAGE>
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.61 $7.00
------ ------ -----
Income From Investment
Operations
Net Investment Income........ 0.02 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.52 0.60
------ ------ -----
Total From Investment
Operations.................. 1.54 0.61
------ ------ -----
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.03) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) (0.37) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------ ------ -----
Total Distributions.......... ( ) (0.40) 0.00
------ ------ -----
Net Asset Value, End of Period. $ $ 8.75 $7.61
====== ====== =====
Total Return/2/................ % 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $21.02 $5.79
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.98% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.16% 2.20%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.29% 1.06%/3/
Portfolio Turnover Rate...... % 60.0% 25.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
11
<PAGE>
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.71 $ 7.00
------ ------ ------
Income From Investment
Operations
Net Investment Income........ 0.06 0.02
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.96 0.69
------ ------ ------
Total From Investment
Operations.................. 2.02 0.71
------ ------ ------
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.07) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) (0.02) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------ ------ ------
Total Distributions.......... ( ) (0.09) 0.00
------ ------ ------
Net Asset Value, End of Period. $ $ 9.64 $ 7.71
====== ====== ======
Total Return/2/................ % 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.73% 5.85%3
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.77% 2.48%/3/
Portfolio Turnover Rate...... % 75.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
12
<PAGE>
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.28 $7.00
------ ------ -----
Income From Investment
Operations
Net Investment Income........ 0.05 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 0.41 0.27
------ ------ -----
Total From Investment
Operations.................. 0.46 0.28
------ ------ -----
Less Distributions
Dividends from Net Investment
Income...................... ( ) (0.05) 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions from Net
Realized Gain on Investments
and Options................. 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------ ------ -----
Total Distributions.......... ( ) (0.05) 0.00
------ ------ -----
Net Asset Value, End of Period. $ $ 7.69 $7.28
====== ====== =====
Total Return/2/................ % 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $10.06 $2.04
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.72% 3.97%/3/
Ratio of Net Investment
Income to Average Net
Assets...................... % 0.81% 0.82%/3/
Portfolio Turnover Rate...... % 19.0% 0.0%
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
13
<PAGE>
EARLY LIFE CYCLE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ $ 7.40 $7.00
------- ------- -----
Income From Investment
Operations
Net Investment Income........ ( ) (0.01) 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.36 0.40
------- ------- -----
Total From Investment
Operations.................. 1.35 0.40
------- ------- -----
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00
Dividends in Excess of Net
Investment Income........... 0.00 0.00
Distributions From Net
Realized Gain on Investments
and Options................. ( ) (0.09) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options..... 0.00 0.00
------- ------- -----
Total Distributions.......... ( ) (0.09) 0.00
------- ------- -----
Net Asset Value, End of Period. $ $ 8.66 $7.40
======= ======= =====
Total Return/2/................ % 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 0.95% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.15% 2.70%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... ( )% (0.25)% 0.12%/3/
Portfolio Turnover Rate...... % 20.0%/3/ 4.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
14
<PAGE>
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust (and its predecessor) the Funds' Investment Adviser, was founded in
1853 and offers a variety of specialized fiduciary and financial services to
high-net worth individuals, institutions and corporations. As one of the larg-
est institutions of its type, U.S. Trust prides itself in offering an attentive
and high level of service to each of its clients. The UST Master Funds offer
individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Funds, U.S. Trust follows a long-
term investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. U.S. Trust's ap-
proach begins with the conviction that all worthwhile investments are grounded
in value. The Investment Adviser believes that an investor can identify funda-
mental values that eventually should be reflected in market prices. U.S. Trust
believes that over time, a disciplined search for fundamental value will
achieve better results than attempting to take advantage of short-term price
movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.
Strategies. In order to translate its investment philosophy into more specific
guidance for selection of investments, the Investment Adviser uses three spe-
cific strategies. These strategies, while identified separately, may overlap so
that more than one may be applied in an investment decision.
U.S. Trust's "PROBLEM/OPPORTUNITY STRATEGY" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from complex
problems such as the changing demo-graphics and aging of the U.S. population or
the need to enhance industrial productivity. U.S. Trust's second strategy is a
"TRANSACTION VALUE" comparison of a company's real underlying asset value with
the market price of its shares and with the sale prices for similar assets
changing ownership in public market transactions. Differences between a
company's real asset value and the price of its shares often are corrected over
time by restructuring of the assets or by market recognition of their value.
U.S. Trust's third strategy involves identifying "EARLY LIFE CYCLE" companies
whose products are in their earlier stages of development or that seek to ex-
ploit new markets. Frequently such companies are smaller companies, but early
life cycle companies may also include larger established companies with new
products or markets for existing products. The Investment Adviser believes that
over time the value of such companies should be recognized in the market.
Themes. To complete U.S. Trust's investment philosophy, the three portfolio
strategies discussed above are applied in concert with several "longer-term in-
vestment themes" to identify investment opportunities. The Investment Adviser
believes these longer-term themes represent strong and inexorable trends. The
Investment Adviser also believes that understanding the instigation, catalysts
and effects of these longer-term trends should help to identify companies that
are beneficiaries of these trends.
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment ob-
jective of each Fund, although their achievement cannot be assured. The invest-
ment objective of each Fund is "fundamental", meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). Except as noted below in
"Investment Limitations,"
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the investment policies of each Fund may be changed without a vote of the
holders of a majority of the outstanding Shares of such Fund.
EQUITY FUND
The Equity Fund's investment objective is to seek long-term capital apprecia-
tion. The Equity Fund invests in companies which the Investment Adviser be-
lieves have value currently not recognized in the market prices of the compa-
nies' securities. The Investment Adviser uses the investment philosophy,
strategies and themes discussed above to identify such investment values and
to diversify the Fund's investments over a variety of industries and types of
companies. See "Investment Policies Common to the Equity Fund and the Theme
Funds" for a discussion of various investment policies applicable to the Eq-
uity Fund.
THEME FUNDS
Eight Theme Funds are offered having the common investment objective of long-
term capital appreciation. As noted above, these Theme Funds are based on
themes identified and followed by the Investment Adviser. Each Theme Fund's
key policies are discussed below. Additional policies common to all Theme
Funds are discussed after this section.
LONG-TERM SUPPLY OF ENERGY FUND--invests in companies which the Investment
Adviser believes will benefit from the availability, development and delivery
of secure hydrocarbon and other energy sources. Such companies include those
engaged in the following types of activities: the production, transmission,
marketing, control or measurement of energy or fuels; providing products or
services to companies engaged in such activities; energy-related research, ex-
perimentation and consulting; and environmental activities such as pollution
control and energy conservation. Included in such companies are oil and gas
production and pipeline companies; drilling and drilling service companies;
electric and gas utilities; and other energy resource companies such as coal
producers and newer resources such as geothermal and solar energy producers.
Normally, at least 25% of the Fund's assets will be invested in the crude oil,
petroleum and natural gas industry. However, less than that amount may be so
invested if there have been changes in governmental regulations, world eco-
nomic and political events, exploration or production spending; or supply, de-
mand or prices of crude oil, petroleum, natural gas or other energy sources,
and in the Investment Adviser's opinion, such changes would have an adverse
affect on the securities of companies in that industry. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
Among the characteristics the Investment Adviser currently looks for in en-
ergy and energy-related investments are companies or energy sources which the
Investment Adviser believes are:
- - dedicated to producing supplies of energy at economically acceptable cost;
- - located in politically and economically stable or "secure" areas, i.e, sub-
ject only to minimal risk of disruption for political or ideological rea-
sons, or by economic "warfare" or systemic economic weakness;
- - available in continuous, sufficient quantity to be reliable and economically
significant;
- - involved in energy which is easily and economically transportable and dis-
tributable to where it is consumed.
PRODUCTIVITY ENHANCERS FUND--invests in companies which the Investment Ad-
viser believes will benefit from their roles as innovators, developers and
suppliers of goods and services which enhance service and manufacturing pro-
ductivity or companies that are most effective at obtaining and applying pro-
ductivity enhancement developments. The essential criteria for such products
and services is that they have the ability to increase a user's productivity,
e.g., enable the user to generate equal or greater economic value at lower to-
tal unit cost than alternatives or provide measurable improvement of produc-
tivity by the provider or the user. Such companies may include but are not
limited to production automation manufacturers, computer hardware and software
producers and distributors, communications and mobile telephone providers,
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<PAGE>
and companies involved with cost control, asset redeployment and downsizing
activities and enhancing the utilization of technology. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND--invests in companies
which the Investment Adviser believes will benefit from their provision of
products, technologies and services related to conservation, protection and
restoration of the environment. Such companies may include but are not limited
to companies engaged in waste management and pollution control, prevention and
cleanup activities. The Fund is not intended to be an "environmentally cor-
rect" fund and may invest in companies without regard to whether they are en-
gaged in operations harmful to the environment. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.
The Fund may also invest a portion of its assets in securities of companies
that offer products and services used by individuals in response to ecological
concerns and concerns relating to their social environment. Such investments
may include, without limitation, securities of companies that produce protec-
tive clothing, sunscreens and personal security products.
AGING OF AMERICA FUND--invests in companies which the Investment Adviser be-
lieves will benefit from the changes occurring in the demographic structure of
the U.S. population, particularly its growing proportion of individuals over
the age of 40. In analyzing companies for this Fund, the Investment Adviser
considers carefully the ongoing changes in the mean and median ages of the
U.S. population and the resulting effects on the lifestyles and day-to-day
economic actions of the population as a whole. Companies currently positioned
to benefit from such changes include health care, pharmaceutical, biotechnol-
ogy and similar health-related firms. In addition, certain clothing, financial
services, entertainment, real estate and housing, food and beverage and other
types of companies may be positioned to benefit from the demographic changes.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph.
COMMUNICATION AND ENTERTAINMENT FUND--invests in companies which the Invest-
ment Adviser believes will benefit from the technological and international
transformation of the communications and entertainment industries, particu-
larly the convergence of information, communication and entertainment media.
Such companies may include those engaged in the development, production, sale
and distribution of products or services in the broadcast, radio and televi-
sion, leisure, entertainment, amusement, publishing, telecommunications serv-
ices and equipment, and tele- phone utilities industries. In analyzing compa-
nies for investment, the Investment Adviser may focus on firms which the In-
vestment Adviser believes are innovators of or will benefit from the melding
of computer, communications and entertainment technologies. Under normal con-
ditions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND--invests in companies which the
Investment Adviser believes will benefit from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able. Such companies may include those involved in prospective mergers, con-
solidations, liquidations, spin-offs, financial restructurings and reorganiza-
tions. The business activities of such companies are not limited in any way.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph. The Investment
Adviser's focus is to find companies whose restructuring activities offer sig-
nificant value and investment potential. For example, several years ago
leveraged buy-outs and mergers were prominent trends, while currently a great
deal of value enhancing activity is occurring as companies deleverage or re-
duce their debt burdens in order to increase profitability. There is risk in
these
17
<PAGE>
types of investments. For example, should a company be unsuccessful in reducing
its debt, it may be forced into default on its debt, increasing its debt or
bankruptcy.
GLOBAL COMPETITORS FUND--invests primarily in U.S.-based companies which the
Investment Adviser believes will benefit from their position as effective and
strong competitors on a global basis. Such companies are characterized by their
ability to supply something unique or of greater value, or to deliver goods and
services more efficiently or reliably. These companies develop and implement
international marketing strategies for their goods and services. The range of
businesses encompassed by this policy is broad and, by way of example, may in-
clude companies engaged in soft drink production and sales, clothing manufac-
turers, tobacco product producers, precision instrument and aerospace provid-
ers, and a variety of communications systems, biotechnology and high technology
suppliers. While the Fund will invest primarily in U.S.-based companies with
such features, up to 20% of the Fund's assets may be invested in non-U.S.-based
global competitors. The Fund will not engage in currency hedging in an attempt
to anticipate currency fluctuations with respect to any such foreign invest-
ments. Under normal conditions, the Fund will invest in securities of issuers
from at least three countries and at least 65% of the Fund's total assets will
be invested in companies of the type described in this paragraph.
EARLY LIFE CYCLE FUND--invests primarily in smaller companies which are in the
earlier stages of their development or larger or more mature companies engaged
in new and higher growth potential operations. An early life cycle company is
one which is early in its development as a company, yet has demonstrated or is
expected to achieve substantial long-term earnings growth. More mature or larg-
er, established companies may also be positioned for accelerating earnings be-
cause of rejuvenated management, new products, new markets for existing prod-
ucts or structural changes in the economy. In selecting companies for invest-
ment, the Investment Adviser looks for innovative companies whose potential has
not yet been fully recognized by the securities markets. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
with capitalization of $1 billion or less. The risk and venture oriented nature
of such companies naturally entails greater risk for investors when contrasted
with investing in more established companies.
INVESTMENT POLICIES COMMON TO THE EQUITY FUND AND THE THEME FUNDS
Under normal market and economic conditions, the Equity and each Theme Fund
will invest at least 65% of its total assets in common stock, preferred stock
and securities convertible into common stock. Normally, up to 35% of each such
Fund's total assets may be invested in other securities and instruments includ-
ing, e.g., other investment-grade debt securities, warrants, options, and
futures instruments as described in more detail below. During temporary defen-
sive periods or when the Investment Adviser believes that suitable stocks or
convertible securities are unavailable, each Fund may hold cash or invest some
or all of its assets in U.S. Government securities, high-quality money market
instruments and repurchase agreements collateralized by the foregoing obliga-
tions.
In managing the Equity and Theme Funds, the Investment Adviser seeks to pur-
chase securities having value currently not recognized in the market price of a
security, consistent with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Early Life Cycle Fund emphasizes such companies. Certain securities owned
by the Equity and Theme Funds may be traded only in the over-the-counter market
or on a regional securities exchange,
18
<PAGE>
may be listed only in the quotation service commonly known as the "pink
sheets," and may not be traded every day or in the volume typical of trading on
a national securities exchange. As a result, there may be a greater fluctuation
in the value of a Fund's Shares, and a Fund may be required, in order to meet
redemptions or for other reasons, to sell these securities at a discount from
market prices, to sell during periods when such disposition is not desirable,
or to make many small sales over a period of time.
The Equity and Theme Funds may invest in the securities of foreign issuers.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs represent
receipts typically issued by a U.S. bank or trust company which evidence owner-
ship of underlying securities of foreign issuers. Investments in unsponsored
ADRs involve additional risk because financial information based on generally
accepted accounting principles ("GAAP") may not be available for the foreign
issuers of the underlying securities. ADRs may not necessarily be denominated
in the same currency as the underlying securities into which they may be con-
verted.
INCOME AND GROWTH FUND
The Income and Growth Fund has two investment objectives. Its primary invest-
ment objective is to seek to provide moderate current income and then, as a
secondary objective, to achieve capital appreciation from its investments. In
attempting to achieve these two objectives, the Income and Growth Fund invests,
during normal market and economic conditions, a substantial portion of its as-
sets in common stock, preferred stock and securities convertible into common
stock. The Fund's investments in equity securities will be income-oriented, and
it is expected that a portion of its assets will be invested on a regular basis
in debt obligations.
The Fund may invest in the securities of foreign issuers. The Fund may also
invest indirectly in the securities of foreign issuers through sponsored and
unsponsored ADRs. For information on ADRs, see "Investment Policies Common to
the Equity Fund and the Theme Funds."
In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends and
other distributions which will result in moderate current income when added to
the income from the Fund's non-equity investments. As a general matter, the In-
vestment Adviser will use the three strategies described above in "U.S. Trust's
Investment Philosophy and Strategies"--problem/opportunity, transaction value,
and early life cycle. In applying these strategies, however, the Investment Ad-
viser will place greater emphasis on the current and anticipated income of par-
ticular securities and lesser emphasis on the potential for capital apprecia-
tion. As a result, the Income and Growth Fund can be expected to have a rela-
tively smaller proportion of its assets invested in common shares of early life
cycle companies than the Equity Fund or other Theme Funds. The Investment Ad-
viser may also purchase equity securities for the Income and Growth Fund from
time to time without regard to the strategies outlined above if it determines
that the purchase is in furtherance of the Fund's investment objectives.
Debt obligations may be acquired by the Income and Growth Fund to produce in-
come and (under certain conditions) capital appreciation, and may include both
convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S. Govern-
ment obligations, and other types of instruments listed in the next paragraph.
Except as stated below, investments in debt obligations will be limited to
those that are considered to be investment grade-i.e., debt obligations classi-
fied within the four highest ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if unrated, which
are determined by the Investment Adviser to be of comparable quality. However,
the Investment Adviser may at any time ac
19
<PAGE>
quire other, non-investment grade obligations when it believes that their in-
vestment characteristics make them desirable acquisitions for the Income and
Growth Fund in light of its investment objectives and current portfolio mix, so
long as, under normal market and economic conditions, no more than 5% of the
Fund's total assets are invested in non-investment grade debt obligations. Not-
withstanding the foregoing, the Fund may invest up to 35% of its total assets
in non-investment grade convertible debt obligations. Non-investment grade ob-
ligations (those that are rated "Ba" or lower by Moody's and, at the same time,
"BB" or lower by S&P or unrated obligations), commonly referred to as "junk
bonds", have speculative characteristics. Risks associated with lower-rated
debt securities are (a) the relative youth and growth of the market for such
securities, (b) the sensitivity of such securities to interest rate and eco-
nomic changes, (c) the lower degree of protection of principal and interest
payments, (d) the relatively low trading market liquidity for the securities,
(e) the impact that legislation may have on the high yield bond market (and, in
turn, on the Fund's net asset value and investment practices), and (f) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely effect their ability to serv-
ice their principal and interest payment obligations, to meet projected busi-
ness goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower-rated bonds and adversely effect the value of out-
standing bonds and the ability of the issuers to repay principal and interest.
If the issuer of a debt obligation held by the Fund defaulted, the Fund could
incur additional expenses to seek recovery. Adverse publicity and investor per-
ceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower-rated securities held by the Fund, especially in
a thinly traded market.
Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" 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 condi-
tions. The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating. The rating "C" is typically
applied to debt subordinated to senior debt which is assigned an actual or im-
plied "CCC-" debt rating, and may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are continued. The
rating "CI" is reserved for income bonds on which no interest is being paid.
Debt obligations rated "D" are in default, and payments of interest and/or re-
payment of principal is in arrears. The ratings from "AA" through "CCC" are
sometimes modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Moody's has a similar classifica-
tion scheme for non-investment grade debt obligations. Debt obligations rated
"Ba," "B," "Caa," "Ca" and "C" provide questionable protection of interest and
principal. The rating "Ba" indicates that a debt obligation has some specula-
tive characteristics. The rating "B" indicates a general lack of characteris-
tics of desirable investment. Debt obligations rated "Caa" are of poor quality,
while debt obligations rated "Ca" are considered highly speculative. "C" repre-
sents the lowest rated class of debt obligations. Moody's applies numerical
modifiers 1, 2 and 3 in each generic classification from "Aa" to "B" in its
bond rating system. The modifier "1" indicates that a security ranks in the
higher end of its rating category; the modifier "2" reflects a mid-range rank-
ing; and the modifier "3" indicates that the security ranks at the lower end of
its generic rating category.
In addition, the Income and Growth Fund may invest up to 10% of its total as-
sets in other types of instruments, including warrants, options and other
rights to purchase securities; liquidating trust re-
20
<PAGE>
ceipts; limited partnership interests; certificates of beneficial ownership;
creditor claims; and loan participations. Such instruments may represent owner-
ship or creditor interests in a wide range of assets or businesses, and may be
acquired by the Income and Growth Fund for either income purposes (as would
normally be the case with instruments such as liquidating trust receipts) or
capital appreciation (as would be the case with warrants and options). In cer-
tain instances, there may be no established market for such instruments. The
Income and Growth Fund will, however, at no time invest more than 10% of the
value of its net assets in securities that are illiquid or for which market
quotations are not readily available. Further, certain of these instruments may
have speculative characteristics. For example, certain instruments may be is-
sued by companies that are insolvent or have otherwise defaulted on their debt
obligations. Such companies may be involved in bankruptcy reorganization pro-
ceedings. Warrants and options acquired by the Income and Growth Fund are sub-
ject to the possible loss of the entire premium paid by the Fund if the market
price of the underlying security falls below the exercise price. The Investment
Adviser will purchase such obligations only when it determines that the poten-
tial return justifies the attendant risks. The investment features of the fore-
going instruments and investment risks involving their acquisition are
described further in the Statement of Additional Information. Additionally,
some of the instruments described above may not be "securities" or may not pro-
duce qualifying income for purposes of the provisions of the Internal Revenue
Code of 1986, as amended, applicable to investment companies. See "Taxes--Fed-
eral" below for a discussion of such provisions.
RISK FACTORS
Each Fund is subject to market risk, interest rate risk and in some cases in-
dustry risk. Market risk is the possibility that stock prices will decline over
short or even extended periods. The stock markets tend to be cyclical, with pe-
riods of generally rising prices and periods of generally declining prices.
These cycles will affect the values of each Fund. In addition, the prices of
bonds and other debt instruments generally fluctuate inversely with interest
rate changes. Factors affecting debt securities will affect all of the Funds'
debt holdings.
The Long-Term Supply of Energy Fund will normally concentrate its investments
in the crude oil, petroleum and natural gas industry. Accordingly, it will be
susceptible to industry risk, the possibility that a particular group of stocks
will decline in price due to industry-specific developments.
Energy-related investments are affected generally by supply, demand, and other
competitive factors for the companies' specific products and services. They are
also affected by unpredictable factors such as the supply and demand for oil,
gas, electricity and other energy sources, prices of such energy sources, ex-
ploration and production spending, governmental regulation, and world economic
and political events. In addition, utilities firms in the energy field are sub-
ject to a variety of factors affecting the public utilities industries, includ-
ing: difficulty obtaining adequate returns on invested capital which are typi-
cally subject to the control and scrutiny of public service commissions; re-
strictions on operations and increased costs and delays as a result of environ-
mental considerations; costs of and ability to secure financing for large con-
struction and development projects; difficulties in obtaining secure energy re-
sources; the uncertain effects of conservation efforts; and a variety of issues
concerning financing, governmental approval and environmental aspects of nu-
clear power facilities.
Environmentally-related investments are affected generally by issues and un-
certainties impacting the specialty chemicals, engineering and construction,
machinery and pollution control industries. Such factors include the supply,
demand, and other normal competitive factors for the various portfolio compa-
nies' products and services. The environmental products and services industry
generally has been affected positively by legislation resulting in stricter
governmental regulations and enforcement policies for both commercial and gov-
ernmental generators of waste, as
21
<PAGE>
well as by specific expenditures for cleanup efforts. Chemical products are af-
fected, for example, by product obsolescence and competition; the handling of
hazardous chemicals and products; and the potential for calamitous accidents.
In addition to supply and demand factors, engineering, construction and machin-
ery companies are affected by changes in interest rates and governmental spend-
ing and financing of public works and cleanup projects. Finally, all of these
types of companies are heavily affected by regulation of various governments,
including the federal Environmental Protection Agency and its state counter-
parts. As regulations are developed and enforced, such companies may be re-
quired to alter or cease production of a product or service or to agree to re-
strictions on their operations.
Companies in the various communications and entertainment industries encounter
intense competition, short product life cycles and rapidly changing consumer
tastes. In addition, companies in the telecommunications and utilities indus-
tries are subject to heavy governmental regulation.
Small companies may have limited product lines, markets, or financial re-
sources, or may be dependent upon a small management group, and their securi-
ties may be subject to more abrupt or erratic market movements than larger,
more established companies, both because their securities typically are traded
in lower volume and because the issuers typically are subject to a greater de-
gree to changes in their earnings and prospects.
All Funds may invest in the securities of foreign issuers. Investments in for-
eign securities involve certain risks not ordinarily associated with invest-
ments in domestic securities. Such risks include fluctuations in foreign ex-
change rates, future political and economic developments, and the possible im-
position of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect to certain countries there is the possibility
of expropriation of assets, confiscatory taxation, political or social insta-
bility or diplomatic developments which could adversely affect investments in
those countries. There may be less publicly available information about a for-
eign company than about a U.S. company, and foreign companies may not be sub-
ject to accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securi-
ties markets, while growing in volume, have, for the most part, substantially
less volume than U.S. markets, and securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable U.S.-
based companies. Transaction costs on foreign securities markets are generally
higher than in the United States. There is generally less government supervi-
sion and regulation of foreign exchanges, brokers and issuers than there is in
the United States and a Fund might have greater difficulty taking appropriate
legal action in a foreign court. Dividends and interest payable on a Fund's
foreign portfolio securities may be subject to foreign withholding taxes. To
the extent such taxes are not offset by credits or deductions allowed to in-
vestors under the Federal income tax provisions, they may reduce the net return
to the shareholders.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the Equity
and Theme Funds' shares may be suitable only for those investors who can invest
without concern for current income and are financially able to assume risk in
search of long-term capital gains.
Securities of companies discussed in this section may be more volatile than
the overall market.
PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
All Funds may invest in "money market instruments," which include, among other
things, bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable
22
<PAGE>
time deposits earning a specified return and issued by a U.S. bank which is a
member of the Federal Reserve System or insured by the Bank Insurance Fund of
the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan
association or savings bank which is insured by the Savings Association Insur-
ance Fund of the FDIC. Bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks and obligations of domestic
branches of foreign banks. Investments in bank obligations of foreign branches
of domestic financial institutions or of domestic branches of foreign banks are
limited so that no more than 5% of the value of a Fund's total assets may be
invested in any one branch, and no more than 20% of a particular Fund's total
assets at the time of purchase may be invested in the aggregate in such obliga-
tions (see investment limitation No. 5 below under "Investment Limitations").
Investments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instrument
purchased by a Fund, the Fund may, from time to time as specified in the in-
strument, demand payment of the principal of the instrument or may resell the
instrument to a third party. The absence of an active secondary market, howev-
er, could make it difficult for a Fund to dispose of the instrument if the is-
suer defaulted on its payment obligation or during periods that the Fund is not
entitled to exercise its demand rights, and the Fund could, for this or other
reasons, suffer a loss with respect to such instrument. Any security which can-
not be disposed of within seven days without taking a reduced price will be
considered an illiquid security subject to the 10% limitation discussed below
under "Investment Limitations."
GOVERNMENT OBLIGATIONS
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers Home
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the Federal Na-
tional Mortgage Association, the General Services Administration, the Student
Loan Marketing Association, the Central Bank for Cooperatives, the Federal Home
Loan Mortgage Corporation, the Federal Intermediate Credit Banks and the Mari-
time Administration.
REPURCHASE AGREEMENTS
In order to effectively manage their cash holdings, the Funds may enter into
repurchase agreements. Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Master Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will be
subject to the 10% limit described in Investment Limitation No. 6 below.
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Fund at not
less than the repurchase price. Default or bankruptcy of the seller would, how-
ever, expose a Fund to possible delay in connection with the disposition of the
underlying securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
23
<PAGE>
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its portfo-
lio securities to broker/dealers pursuant to agreements requiring the loans to
be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all out-
standing loans of a Fund exceeds 30% of the value of its total assets. There
may be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the bor-
rower of the securities fail financially. However, loans are made only to bor-
rowers deemed by the Investment Adviser to be of good standing and when, in the
Investment Adviser's judgment, the income to be earned from the loan justifies
the attendant risks.
OPTIONS
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Income and Growth and Theme Funds may purchase put and call options listed
on a national securities exchange and issued by the Options Clearing Corpora-
tion in an amount not exceeding 5% of a Fund's net assets, as described further
in the Statement of Additional Information. Such options may relate to particu-
lar securities or to various stock or bond indices. Purchasing options is a
specialized investment technique which entails a substantial risk of a complete
loss of the amounts paid as premiums to the writer of the options.
In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase trans-
actions with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The aggre-
gate value of the securities subject to options written by each Fund may not
exceed 25% of the value of its net assets. By writing a covered call option, a
Fund forgoes the opportunity to profit from an increase in the market price of
the underlying security above the exercise price except insofar as the premium
represents such a profit, and it will not be able to sell the underlying secu-
rity until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options is not a primary investment technique of the Funds and
such options will normally be written on underlying securities as to which the
Investment Adviser does not anticipate significant short-term capital apprecia-
tion. Additional information on option practices, including particular risks
thereof, is provided in the Funds' Statement of Additional Information.
FUTURES CONTRACTS
The Theme Funds may also enter into interest rate futures contracts, other
types of financial futures contracts and related futures options, as well as
any index or foreign market futures which are available on recognized exchanges
or in other established financial markets.
The Theme Funds will not engage in futures transactions for speculation, but
only as a hedge against changes in market values of securities which a Fund
holds or intends to purchase. The Theme Funds will engage in futures transac-
tions only to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the Securities and Exchange Commission ("SEC"). When investing in
futures contracts, the Funds must satisfy certain asset segregation require-
ments to ensure that the use of futures is unleveraged. When a Fund takes a
long position in a futures contract, it must maintain a segregated account con-
taining cash and/or certain liquid assets
24
<PAGE>
equal to the purchase price of the contract, less any margin or deposit. When
a Fund takes a short position in a futures contract, the Fund must maintain a
segregated account containing cash and/or certain liquid assets in an amount
equal to the market value of the securities underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are
not applicable when a Fund "covers" an options or futures position generally
by entering into an offsetting position. Each Fund will limit its hedging
transactions in futures contracts and related options so that, immediately af-
ter any such transaction, the aggregate initial margin that is required to be
posted by the Fund under the rules of the exchange on which the futures con-
tract (or futures option) is traded, plus any premiums paid by the Fund on its
open futures options positions, does not exceed 5% of the Fund's total assets,
after taking into account any unrealized profits and unrealized losses on the
Fund's open contracts (and excluding the amount that a futures option is "in-
the-money" at the time of purchase). An option to buy a futures contract is
"in-the-money" if the then-current purchase price of the underlying futures
contract exceeds the exercise or strike price; an option to sell a futures
contract is "in-the-money" if the exercise or strike price exceeds the then-
current purchase price of the contract that is the subject of the option. In
addition, the use of futures contracts is further restricted to the extent
that no more than 10% of a Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to correctly anticipate movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation
at all, between movements in the price of the futures contracts (or options)
and movements in the price of the instruments being hedged. Further, there is
no assurance that a liquid market will exist for any particular futures con-
tract (or option) at any particular time. Consequently, a Fund may realize a
loss on a futures transaction that is not offset by a favorable movement in
the price of securities which it holds or intends to purchase or may be unable
to close a futures position in the event of adverse price movements.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in
high-quality, short-term debt securities and which determine their net asset
value per share based on the amortized cost or penny-rounding method. The In-
come and Growth Fund may also purchase securities of unit investment trusts
registered with the SEC as investment companies. In addition to the advisory
fees and other expenses a Fund bears directly in connection with its own oper-
ations, as a shareholder of another investment company, a Fund would bear its
pro rata portion of the other investment company's advisory fees and other ex-
penses. As such, the Fund's shareholders would indirectly bear the expenses of
the Fund and the other investment company, some or all of which would be du-
plicative. Such securities will be acquired by each Fund within the limits
prescribed by the Investment Company Act of 1940 (the "1940 Act") which in-
clude, subject to certain exceptions, a prohibition against a Fund investing
more than 10% of the value of its total assets in such securities.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place in the future, beyond the normal set-
tlement date, at a stated price and yield. Securities purchased on a "forward
commitment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not
25
<PAGE>
exceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the particular Fund. Portfolio investments may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such in-
vestments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal").
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding Shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding. Optioned stock held in escrow is not deemed to be a
pledge; and
3. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (ii) each Fund may
lend portfolio securities in an amount
26
<PAGE>
not exceeding 30% of its total assets, and (iii) the Income and Growth Fund
may purchase or hold creditor claims, loan participations and other instru-
ments in accordance with its investment objectives and policies.
Each Fund other than the Long-Term Supply of Energy Fund may not:
4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Equity and Income and
Growth Funds, there is no limitation with respect to securities issued or
guaranteed by the U.S. Government or domestic bank obligations, (b) with re-
spect to each Theme Fund, there is no limitation with respect to securities
issued or guaranteed by the U.S. Government, and (c) neither all finance com-
panies, as a group, nor all utility companies, as a group, are considered a
single industry for purposes of this policy.
Each of the Equity and Income and Growth Funds may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase (i)
more than 5% of the value of its total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Theme Funds may not invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks if immediately after such
purchase (i) more than 5% of the value of their respective total assets would
be invested in obligations of any one foreign branch of the financial institu-
tion or domestic branch of a foreign bank; or (ii) more than 20% of their re-
spective total assets would be invested in foreign branches of financial insti-
tutions or in domestic branches of foreign banks. The Theme Funds may not know-
ingly invest more than 10% of the value of their respective total assets in il-
liquid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities and other securities for which mar-
ket quotations are not readily available. These investment policies may be
changed by Master Fund's Board of Directors upon reasonable notice to share-
holders.
The Equity and Income and Growth Funds will not invest more than 25% of the
value of their respective total assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of a Fund's portfolio securities will not con-
stitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund are
priced at the close of regular trading hours on the New York Stock Exchange
(the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value and pric-
ing for each Fund
27
<PAGE>
are determined on each day the Exchange and the Investment Adviser are open
for trading ("Business Day"). Currently, the holidays which the Funds observe
are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanks-
giving Day and Christmas. Net asset value per Share for purposes of pricing
sales and redemptions is calculated by dividing the value of all securities
and other assets allocable to a Fund, less the liabilities charged to the
Fund, by the number of its outstanding Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. Restricted securities, securities for which market quo-
tations are not readily available, and other assets are valued at fair value,
pursuant to guidelines adopted by Master Fund's Board of Directors.
Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Master Fund's administrators have undertaken to price the se-
curities in the Funds' portfolios, and may use one or more independent pricing
services in connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Master Fund's spon-
sor and distributor, (the "Distributor"), a wholly-owned subsidiary
of . The Distributor is a registered broker/dealer. Its principal
offices are at and it may be reached at (800) 233-1136 in connec-
tion with all initial purchase information for Direct Investors (as defined
below).
Under Master Fund's Distribution Agreement and Distribution Plan, adopted
pursuant to Rule 12b-1 under the 1940 Act, the Distribution Shares of each
Fund reimburse the Distributor monthly for distribution expenses in an amount
not to exceed .75% of the average daily net asset value of the Fund's out-
standing Distribution Shares. Distribution Shares of each Fund currently bear
the expense of such distribution fees at the annual rate of .50% of the aver-
age daily net asset value of the Fund's outstanding Distribution Shares. Dis-
tribution expenses payable by the Distributor under the Distribution Plan in-
clude direct and indirect marketing expenses such as: i) the expense of
28
<PAGE>
preparing, printing and distributing promotional materials and prospectuses
(other than prospectuses used for regulatory purposes or for distribution to
existing shareholders); ii) the expense of other advertising via radio, televi-
sion or other print or electronic media; and iii) the expense of payments to
financial institutions that are not affiliated with the Distributor ("Distribu-
tion Organizations") for distribution assistance.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by in-
stitutions ("Institutional Investors" and, collectively with Direct Investors,
"Investors"). Shares may also be purchased by customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and other institu-
tions ("Shareholder Organizations") that have entered into shareholder servic-
ing agreements with Master Fund. A Shareholder Organization may elect to hold
of record Shares for its Customers and to record beneficial ownership of Shares
on the account statements provided by it to its Customers. If it does so, it is
the Shareholder Organization's responsibility to transmit to the Distributor
all purchase orders for its Customers and to transmit, on a timely basis, pay-
ment for such orders to Mutual Funds Service Company ("MFSC"), the Funds' sub-
transfer agent, in accordance with the procedures agreed to by the Shareholder
Organization and the Distributor. Confirmations of all such Customer purchases
and redemptions will be sent by MFSC to the particular Shareholder Organiza-
tion. As an alternative, a Shareholder Organization may elect to establish its
Customers' accounts of record with MFSC. In this event, even if the Shareholder
Organization continues to place its Customers' purchase and redemption orders
with the Funds, MFSC will send confirmations of such transactions and periodic
account statements directly to Customers. A Shareholder Organization may also
elect to establish its Customers as record holders.
Master Fund enters into shareholder servicing agreements with Shareholder Or-
ganizations which agree to provide their Customers various shareholder adminis-
trative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expense of fees payable
to Service Organizations for such services. See "Management of the Funds--Serv-
ice Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call the Distributor at the phone
number listed above.) An investor purchasing Shares through a registered in-
vestment adviser or certified financial planner may incur transaction charges
in connection with such purchases. Such investors should contact their regis-
tered investment adviser or certified financial planner for further information
on transaction fees. Investors may also purchase Shares directly from the Dis-
tributor in accordance with procedures described below under "Purchase Proce-
dures."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGES REALLOWANCE TO DEALERS
------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- ----------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50 4.71 4.00
$50,000 to $99,999...... 4.00 4.17 3.50
$100,000 to $249,999.... 3.50 3.63 3.00
$250,000 to $499,999.... 3.00 3.09 2.50
$500,000 to $999,999.... 2.00 2.05 1.50
$1,000,000 to
$1,999,999............. 1.00 1.00 .50
$2,000,000 and over..... .50 .50 .25
</TABLE>
29
<PAGE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any dealer that sponsors sales con-
tests or recognition programs conforming to criteria established by the Dis-
tributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the dealer at the public offering price during such programs. Also, the Dis-
tributor in its discretion may from time to time, pursuant to objective crite-
ria established by the Distributor, pay fees to qualifying dealers for certain
services or activities which are primarily intended to result in sales of
Shares of the Funds. If any such program is made available to any dealer, it
will be made available to all dealers on the same terms and conditions. Pay-
ments made under such programs will be made by the Distributor out of its own
assets and not out of the assets of the Funds. These programs will not change
the price of Shares or the amount that the Funds will receive from such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations and
partnerships (excluding full service broker/dealers and financial planners,
registered investment advisers and depository institutions not covered by the
exemptions in (d) and (e) below); (d) financial planners and registered invest-
ment advisers not affiliated with or clearing purchases through full service
broker/dealers; (e) purchases of Shares by depository institutions for their
own account as principal; (f) exchange transactions (described below under "In-
vestor Programs--Exchange Privilege") where the Shares being exchanged were ac-
quired in connection with the distribution of assets held in trust, agency or
custodial accounts maintained with the trust department of a bank; (g) corpo-
rate/ business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh ac-
counts) sponsored by the Distributor and IRA accounts sponsored by the Invest-
ment Adviser; (h) company-sponsored employee pension or retirement plans making
direct investments in the Funds; (i) purchases of Shares by officers, trustees,
directors, employees and retirees of Master Fund, UST Master Tax-Exempt Funds,
Inc. ("Master Tax-Exempt Fund"), the Investment Adviser, or of any direct or
indirect affiliate of any of them; (j) purchases of Shares by all beneficial
shareholders of Master Fund or Master Tax-Exempt Fund as of May 22, 1989; (k)
purchases of Shares by investment advisers registered under the Investment Ad-
visers Act of 1940 for their customers through an omnibus account established
with United States Trust Company of New York; (l) purchases of Shares by direc-
tors, officers and employees of brokers and dealers selling shares pursuant to
a selling agreement with Master Fund and Master Tax-Exempt Fund; (m) purchases
of shares by investors who are members of affinity groups serviced by
USAffinity Investments Limited Partnership; and (n) customers of certain finan-
cial institutions who purchase Shares through a registered representative of
UST Financial Services Corp. on the premises of their financial institutions.
In addition, no sales load is charged on the reinvestment of dividends or dis-
tributions or in connection with certain share exchange transactions. Investors
who have previously redeemed shares in an "Eligible Fund" (as defined below) on
which a sales load has been paid also have a one-time privilege of purchasing
shares of another "Eligible Fund" at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30 calen-
dar days from the date of redemption and only with respect to the amount of the
redemption. These exemptions to the imposition of a sales load are due to the
nature of the investors and/or reduced sales effort that will be needed in ob-
taining investments.
30
<PAGE>
QUANTITY DISCOUNTS
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify MFSC at
the time of purchase that he or she would like to take advantage of any of the
discount plans described below. Upon such notification, the investor will re-
ceive the lowest applicable sales charge. Quantity discounts may be modified or
terminated at any time and are subject to confirmation of an investor's hold-
ings through a check of appropriate records. For more information about quan-
tity discounts, please contact the Distributor or your Shareholder Organiza-
tion.
Rights of Accumulation. A reduced sales load applies to any purchase of shares
of any portfolio of Master Fund and Master Tax-Exempt Fund that is sold with a
sales load ("Eligible Fund") where an investor's then current aggregate invest-
ment is $50,000 or more. "Aggregate investment" means the total of: (a) the
dollar amount of the then current purchase of shares of an Eligible Fund, and
(b) the value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales load has been
paid. If, for example, an investor beneficially owns shares of one or more Eli-
gible Funds with an aggregate current value of $49,000 on which a sales load
has been paid and subsequently purchases shares of an Eligible Fund having a
current value of $1,000, the load applicable to the subsequent purchase would
be reduced to 4.00% of the offering price. Similarly, with respect to each sub-
sequent investment, all shares of Eligible Funds that are beneficially owned by
the investor at the time of investment may be combined to determine the appli-
cable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below and
in the Letter of Intent. To compute the applicable sales load, the offering
price of shares of an Eligible Fund on which a sales load has been paid, bene-
ficially owned by an investor on the date of submission of the Letter of In-
tent, may be used as a credit toward completion of the Letter of Intent. Howev-
er, the reduced sales load will be applied only to new purchases.
MFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load re-
duction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the total purchases. If such re-
mittance is not received within 20 days, MFSC, as attorney-in-fact pursuant to
the terms of the Letter of Intent and at the Distributor's direction, will re-
deem an appropriate number of shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind an investor to purchase the full
amount indicated at the sales load in effect at the time of signing, but an in-
vestor must complete the intended purchase in accordance with the terms of the
Letter of Intent to obtain the reduced sales load. To apply, an investor must
indicate his or her intention to do so under a Letter of Intent at the time of
purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual
31
<PAGE>
and/or spouse purchasing securities for his, her or their own account or for
the account of any minor children, or the aggregate investments of a trustee or
custodian of any qualified pension or profit sharing plan or IRA established
(or the aggregate investment of a trustee or other fiduciary) for the benefit
of the persons listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to UST Master Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from MFSC;
or (c) a letter stating the amount of the investment, the name of the Fund and
the account number in which the investment is to be made. Institutional Invest-
ors may purchase Shares by transmitting their purchase orders to MFSC by tele-
phone c/o the Distributor at (800) 842-3863 or by terminal access. Institu-
tional Investors must pay for Shares with Federal funds or funds immediately
available to MFSC.
Purchases by Wire
Direct Investors may also purchase Shares by wiring Federal funds to MFSC.
Prior to making an initial investment by wire, a Direct Investor must telephone
MFSC at (800) 446-1012 (from overseas, call (617) 956-9744), and an Institu-
tional Investor must telephone MFSC c/o the Distributor at (800) 842-3863 for
instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
UST Master Funds
Wire Control Number
Account Registration (including account number)
Direct Investors making initial investments by wire must promptly complete the
Application accompanying this Prospectus and forward it to MFSC. Redemptions by
Direct Investors will not be processed until the completed Application for pur-
chase of Shares has been received by MFSC and accepted by the Distributor. In-
vestors making subsequent investments by wire should follow the above instruc-
tions.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Master Fund re-
serves the right to reject any purchase order, in whole or in part, or to waive
any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder
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<PAGE>
Organizations. It is the responsibility of the Shareholder Organizations to
transmit redemption orders to MFSC and credit such Customer accounts with the
redemption proceeds on a timely basis. Redemption orders for Institutional In-
vestors must be transmitted to MFSC by telephone c/o the Distributor at (800)
842-3863 or by terminal access. No charge for wiring redemption payments to
Shareholder Organizations or Institutional Investors is imposed by Master Fund,
although Shareholder Organizations may charge a Customer's account for wiring
redemption proceeds. Information relating to such redemption services and
charges, if any, is available from the Shareholder Organizations. An investor
redeeming Shares through a registered investment adviser or certified financial
planner may incur transaction charges in connection with such redemptions. Such
investors should contact their registered investment adviser or certified fi-
nancial planner for further information on transaction fees. Investors may re-
deem all or part of their Shares in accordance with any of the procedures de-
scribed below (these procedures also apply to Customers of Shareholder Organi-
zations for whom individual accounts have been established with MFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
UST Master Funds c/o Mutual Funds Service Company P.O. Box 2798 Boston, MA
02208-2798
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. A redemption request for an amount in excess of $50,000 per account, or
for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by MFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC at (800) 446-1012 (from over-
seas, call (617) 956-9744).
REDEMPTION BY WIRE OR TELEPHONE
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing MFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Customers of cer-
tain Shareholder Organizations who are shareholders of record may redeem Shares
by instructing MFSC by telephone to mail a check for redemption proceeds of
$500 or more to the shareholder of record at his or her address of record. In-
stitutional Investors may also redeem Shares by instructing MFSC by telephone
c/o
33
<PAGE>
the Distributor at (800) 842-3863 or by terminal access. Only redemptions of
$500 or more will be wired to a Direct Investor's account. An $8.00 fee for
each wire redemption by a Direct Investor is deducted by MFSC from the proceeds
of the redemption. The redemption proceeds for Direct Investors must be paid to
the same bank and account as designated on the Application or in written in-
structions subsequently received by MFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Master Fund, c/o
MFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further docu-
mentation may be requested.
MFSC and the Distributor reserve the right to re- fuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Master Fund,
MFSC or the Distributor. MASTER FUND, MFSC, AND THE DISTRIBUTOR WILL NOT BE LI-
ABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELEPHONE IN-
STRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER FUND WILL USE SUCH PROCEDURES
AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND RE-
QUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Master Fund and MFSC reserve the right not to honor the redemp-
tion until MFSC is reasonably satisfied that the check has been collected in
accordance with the applicable banking regulations which may take up to 15
days. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If a Direct Investor's purchase check is not collected, the pur-
chase will be cancelled and MFSC will charge a fee of $25.00 to the Direct In-
vestor's account.
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund after 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Organ-
ization to maintain a minimum balance in his or her account at the institution
with respect to Shares of a Fund, and the balance in such account falls below
that minimum, the Customer may be obliged by the Shareholder Organization to
redeem all or part of his or her Shares to the extent necessary to maintain the
required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received prior to the
close of regular trading hours on the Exchange (currently 4:00 p.m., Eastern
Time) on any Business Day are priced according to the net asset value deter-
mined on that day. Purchase orders received after the close of regular trading
hours on the Exchange are priced at the net asset value per Share determined on
the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Master Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of any other
portfolio offered by Master Fund or Master Tax-Exempt Fund, provided that such
other shares may legally be sold in the state of the Investor's residence.
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<PAGE>
Master Fund currently offers, in addition to the Equity, Theme and Income and
Growth Funds, several additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market investments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Master Tax-Exempt Fund currently offers five portfolios as follows:
Short-Term Tax-Exempt Fund, a diversified tax-exempt money market fund seek-
ing a moderate level of current interest income exempt from Federal income
taxes through investing primarily in high-quality municipal obligations ma-
turing within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize over time
current income exempt from Federal income taxes, investing primar-
35
<PAGE>
ily in municipal obligations and having a dollar-weighted average maturity of
10 to 30 years; and
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of Master Fund or Master Tax-Exempt Fund. The redemption will be made at the
per Share net asset value of the Shares being redeemed next determined after
the exchange request is received. The shares of the portfolio to be acquired
will be purchased at the per share net asset value of those shares (plus any
applicable sales load) next determined after acceptance of the exchange re-
quest. In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Master Fund and Master Tax-Exempt Fund reserve the right
to limit the number of exchange requests of Investors and customers of Share-
holder Organizations to no more than six per year. No sales load will be pay-
able on shares to be acquired through an exchange to the extent that a sales
load was previously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in the Funds. For fur-
ther information regarding Master Fund's exchange privilege, shareholders
should contact the Distributor at (800) 233-1136 (from overseas, call ((619)
456-9394). Investors exercising the exchange privilege with the other portfo-
lios of Master Fund or Master Tax-Exempt Fund should request and review the
prospectuses of such funds. Such prospectuses may be obtained by calling the
numbers listed above. Master Fund may modify or terminate the exchange program
at any time upon 60 days' written notice to shareholders, and may reject any
exchange request. MASTER FUND, MFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE
FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REA-
SONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE IN-
STRUCTIONS ARE GENUINE, MASTER FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED
REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION
AS TO ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Appli-
cation contained in this Prospectus and mail it to MFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling the Distributor at (800) 233-1136 (from overseas, call
(619) 456-9394.)
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype
36
<PAGE>
retirement plans offered by United States Trust Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Purchase
Plans and Keogh Plans are not subject to the minimum investment and forced re-
demption provisions described above. The minimum intitial investment for IRAs
is $250 per Fund and the minimum subsequent investment is $50 per Fund.
Detailed information concerning eligibility, service fees and other matters re-
lated to these plans is available from the Distributor by calling (800) 233-
1136 (from overseas, call (619) 456-9394). Customers of Shareholder Organiza-
tions may purchase Shares of the Funds pursuant to retirement plans if such
plans are offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (minimum
of $50 per Fund per transaction) at regular intervals selected by the Investor.
The minimum initial investment for an Automatic Investment Program account is
$50 per Fund. Provided the Investor's financial institution allows automatic
withdrawals, Shares are purchased by transferring funds from an Investor's
checking, bank money market or NOW account designated by the Investor. At the
Investor's option, the account designated will be debited in the specified
amount, and Shares will be purchased, once a month, on either the first or fif-
teenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help Investors to reduce their average cost per share because
the agreed upon fixed investment amount allows more Shares to be purchased dur-
ing periods of lower share prices and fewer Shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be fol-
lowed on a sustained, consistent basis. Investors should be aware, however,
that Shares bought using Dollar Cost Averaging are purchased without regard to
their price on the day of investment or to market trends. In addition, while
Investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an Investor ultimately redeems his Shares at a price which is lower
than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
MFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to MFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Master Fund may modify or terminate this privilege
at any time or charge a service fee, although no such fee currently is contem-
plated. An Investor may also implement the Dollar Cost Averaging method on his
own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
quarterly. For dividend purposes, a Fund's investment income is reduced by ac-
crued expenses directly attributable to that Fund and the general expenses of
Master Fund prorated to that Fund on the basis of its relative net assets. Net
realized capital gains are distributed at least annually. Dividends and distri-
butions will reduce the net asset
37
<PAGE>
value of each of the Funds by the amount of the dividend or distribution. All
dividends and distributions paid on Shares held of record by the Investment Ad-
viser and its affiliates or correspondent banks will be paid in cash. Direct
and Institutional Investors and Customers of other Shareholder Organizations
will receive dividends and distributions in additional Shares of the Fund on
which the dividend or distribution is paid (as determined on the payable date),
unless they have requested in writing (received by MFSC at Master Fund's ad-
dress prior to the payment date) to receive dividends and distributions in
cash. Reinvested dividends and distributions receive the same tax treatment as
those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders an amount equal to at
least 90% of its investment company taxable income for each taxable year. In
general, a Fund's investment company taxable income will be its income (includ-
ing dividends and interest), subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. Each Fund intends to distribute
substantially all of its investment company taxable income each year. Such div-
idends will be taxable as ordinary income to Fund shareholders who are not cur-
rently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distribu-
tions to IRAs and qualified pension plans are deferred under the Code.) The
dividends received deduction for corporations will apply to such ordinary in-
come distributions to the extent of the total qualifying dividends received by
a Fund from domestic corporations for the taxable year.
Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to them.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares for
Shares of another Fund within 90 days of the purchase and is able to reduce the
sales charges applicable to the new Shares (by virtue of the exchange privi-
lege), the
38
<PAGE>
amount equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares, but may be included (subject to the same limi-
tation) in the tax basis of the new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign cur-
rencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any in-
come derived by a Fund from a partnership or trust is treated as derived with
respect to the Fund's business of investing in stock, securities or currencies
only to the extent that such income is attributable to items of income which
would have been qualifying income if realized by the Fund in the same manner as
by the partnership or trust. Some of the investments that the Income and Growth
Fund may make (such as liquidating trust receipts and creditor claims) may not
be securities or may not produce qualifying income. Therefore, it may be neces-
sary for the Investment Adviser to restrict the investments of that Fund to en-
sure that non-qualifying income does not exceed 10% of that Fund's total gross
income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situations.
Shareholders will be advised annually as to the Federal income tax consequences
of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from those
of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Mas-
ter Fund's Board of Directors. The Statement of Additional Information contains
the names of and general background information concerning Master Fund's direc-
tors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust (and its predecessor) is a state-chartered bank and trust
company created by Special Act of the New York Legislature in 1853. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment man-
agement, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. The Investment Adviser is a
member bank of the Federal Reserve System and the Federal Deposit Insurance
Corporation and is one of the twelve members of the New York Clearing House As-
sociation.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $ billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
39
<PAGE>
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Equity Fund's portfolio manager, David A. Tillson, is the person primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Tillson, a Senior Vice President and Senior Portfolio Manager, has been
with U.S. Trust since 1993, and has been the Fund's portfolio manager since De-
cember 1994. Prior to joining U.S. Trust, Mr. Tillson was the founder and Pres-
ident of TDA Capital Management Company, and a Senior Vice President of Matrix
Asset Advisors until 1993. He was also a Vice President and Senior Portfolio
Manager with V C S & O Asset Management until 1990.
The Income and Growth and Long-Term Supply of Energy Funds' portfolio manager,
Richard L. Bayles, is the person primarily responsible for the day-to-day man-
agement of the Funds' investment portfolios. Mr. Bayles, a Senior Vice Presi-
dent and Senior Portfolio Manager of U.S. Trust, has been with U.S. Trust since
1990 and has been the Income and Growth Fund's portfolio manager since 1990 and
the Long-Term Supply of Energy Fund's portfolio manager since its inception.
Prior to his reassociation with U.S. Trust, Mr. Bayles was a Managing Director
at John W. Bristol and Company, an investment advisory firm, from 1987 to 1990.
The Productivity Enhancers Fund's portfolio manager, Ronald C. Steele, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Steele, a Senior Vice President and Senior Portfolio
Manager of U.S. Trust, has been the Fund's portfolio manager since its incep-
tion.
The Environmentally-Related Products and Services Fund's portfolio manager,
Victor Sapuppo, is the person primarily responsible for the day-to-day manage-
ment of the Fund's investment portfolio. Mr. Sapuppo, Vice President and Senior
Portfolio Manager of the Personal Equity and Balanced Investment Division of
U.S. Trust, has been with U.S. Trust since 1962 and has been the Fund's portfo-
lio manager since its inception.
The Aging of America Fund's portfolio manager, Roger F. Schaefer, is the per-
son primarily responsible for the day-to-day management of the Fund's invest-
ment portfolio. Mr. Schaefer, a Vice President and Senior Portfolio Manager of
U.S. Trust, has been with U.S. Trust since 1970 and has been the Fund's portfo-
lio manager since its inception.
The Communication and Entertainment Fund's portfolio manager, John J.
Apruzzese, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Apruzzese, a Senior Vice President, De-
partment Manager and Senior Portfolio Manager of U.S. Trust, has been with U.S.
Trust since 1984 and has been the Fund's portfolio manager since its inception.
The Business and Industrial Restructuring Fund's portfolio manager, David J.
Williams, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Williams, Senior Vice President, Depart-
ment Manager and Senior Portfolio Manager of the Personal Equity and Balanced
Investment Division of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
The Global Competitors Fund's portfolio manager, Wendy S. Popowich, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Ms. Popowich, a Vice President and Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since 1983
and has been the Fund's portfolio manager since its inception.
The Early Life Cycle Fund's portfolio manager, Timothy W. Evnin, is the person
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Evnin, a Vice President and
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<PAGE>
Portfolio Manager of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of: .75% of the average daily
net assets of the Equity and the Income and Growth Funds; and .60% of the aver-
age daily net assets of each Theme Fund. The advisory fee rates payable by the
Equity and Income and Growth Funds are higher than the rates payable by most
mutual funds. The Board of Directors believes, based on information supplied to
it by the Investment Adviser, that this fee is comparable to the rate paid by
many other funds with similar investment objectives and policies and is appro-
priate for the Funds in light of their investment objectives and policies. For
the fiscal year ended March 31, 1995, the Investment Adviser received an advi-
sory fee at the effective annual rates of .72%, .72%, .42%, .47%, 0%, .44%,
.53%, .52%, .50% and .52% of the average daily net assets of the Equity, Income
and Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmental-
ly-Related Products and Services, Aging of America, Communication and Enter-
tainment, Business and Industrial Restructuring, Global Competitors and Early
Life Cycle Funds, respectively. For the same period, the Investment Adviser
waived advisory fees at the effective annual rates of .03%, .03%, .18%, .13%,
.60%, .18%, .07%, .08%, .10% and .08% of the average daily net assets of the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors
and Early Life Cycle Funds, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the advi-
sory fees payable to it by a Fund, which waiver may be terminated at any time.
See "Management of the Funds--Service Organizations" for additional information
on fee waivers.
ADMINISTRATORS
Mutual Funds Service Company and Federated Investors, Inc. serve as the Funds'
administrators (the "Administrators") and provide them with general administra-
tive and operational assistance. The Administrators also serve as administra-
tors of the other portfolios of Master Fund and Master Tax-Exempt Fund, which
are also advised by the Investment Adviser and distributed by the Distributor.
For the services provided to all portfolios of Master Fund (except the Interna-
tional, Emerging Americas, Pacific/Asia and Pan European Funds) and Master Tax-
Exempt Fund, the Administrators are entitled jointly to annual fees, computed
daily and paid monthly, based on the combined aggregate average daily net as-
sets of the two companies (excluding the International, Emerging Americas,
Pacific/Asia and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF MASTER FUND
(EXCLUDING THE INTERNATIONAL, EMERGING AMERICAS,
PACIFIC/ASIA AND PAN EUROPEAN FUNDS) ANNUAL
AND MASTER TAX-EXEMPT FUND FEE
------------------------------------------------ ------
<S> <C>
first $200 million....................................................... .200%
next $200 million........................................................ .175%
over $400 million........................................................ .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the two
investment companies are determined in proportion to their relative average
daily net assets at the time of determination. After those allocations have
been made, the Administrators are entitled jointly to an annual minimum fee of
$50,000 from each Theme Fund for each year after they have commenced opera-
tions. From time to time, the Administrators may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
ministration fee payable to them by
41
<PAGE>
a Fund, which waivers may be terminated at any time. See "Management of the
Funds--Service Organizations" for additional information on fee waivers. For
the fiscal year ended March 31, 1995, MFSC and Concord Holding Corporation
("Concord"), the former co-administrator, received an aggregate administration
fee (under the same compensation arrangements noted above) at the effective an-
nual rates of .154%, .154%, .171%, .154%, .124%, .155%, .154%, .154%, .155% and
.154% of the average daily net assets of the Equity, Income and Growth, Long-
Term Supply of Energy, Productivity Enhancers, Environmentally-Related Products
and Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds, re-
spectively. For the same period, MFSC And Concord waived fees at the effective
annual rates of .192%, .090%, .829%, .115%, .009%, .026%, and .106%, of the av-
erage daily net assets of the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring and
Global Competitors Funds, respectively.
SERVICE ORGANIZATIONS
Master Fund will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services to
its Customers beneficially owning Shares. As a consideration for the adminis-
trative services provided to Customers, a Fund will pay the Service Organiza-
tion an administrative service fee at the annual rate of up to .40% of the av-
erage daily net asset value of its Shares held by the Service Organization's
Customers. Such services, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
may include assisting in processing purchase, exchange and redemption requests;
transmitting and receiving funds in connection with Customer orders to pur-
chase, exchange or redeem Shares; and providing periodic statements. Under the
terms of the Servicing Agreement, Service Organizations will be required to
provide to Customers a schedule of any fees that they may change in connection
with a Customer's investment. Until further notice, the Investment Adviser and
Administrators have voluntarily agreed to waive fees payable by a Fund in an
amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distribut-
ing securities such as Shares of the Funds, but such banking laws and regula-
tions do not prohibit such a holding company or affiliate or banks generally
from acting as investment adviser, transfer agent, or custodian to such an in-
vestment company, or from purchasing shares of such company for and upon the
order of customers. The Investment Adviser, MFSC and certain Shareholder Orga-
nizations may be subject to such banking laws and regulations. State securities
laws may differ from the interpretations of Federal law discussed in this para-
graph and banks and financial institutions may be required to register as deal-
ers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would af-
fect their net asset values per Share or result in financial loss to any share-
holder.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
UST Master Funds, Inc. was organized as a Maryland corporation on August 2,
1984. Currently, Master Fund has authorized capital of 35 billion shares of
Common Stock, $.001 par value per share, classified into 34 series of shares
representing interests in 20 investment portfolios. This Prospectus describes
the Equity, Income and Growth, Early Life Cycle, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring
and Global Competitors Funds. Master Fund offers Shares and Distribution
Shares representing interest in each of those Funds. Shares and Distribu-
tion Shares have different expenses, which may affect performance. Contact the
distributor at (800) 233-1136 for information regarding each of those Fund's
Distribution Shares, which are offered through separate prospectuses.
Each Share (irrespective of series designation) represents an equal propor-
tionate interest in the particular Fund with other Shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such Fund as are declared in the discretion of Master
Fund's Board of Directors. Master Fund's Charter authorizes the Board of Direc-
tors to classify or reclassify any class of shares into one or more additional
classes or series.
Shareholders are entitled to one vote for each full Share held, and fractional
votes for fractional Shares held, and will vote in the aggregate and not by
class, except as otherwise expressly required by law. Holders of a Fund's
Shares in the respective Fund will vote in the aggregate, and not by series, on
all matters, except where otherwise required by law and except that only Dis-
tribution Shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's Distribution Plan.
The Shares, unlike the Distribution Shares, do not bear any expenses un-
der a distribution plan adopted under Rule 12b-1 under the 1940 Act and can be
exchanged into the other investment portfolios of Master Fund and Master Tax-
Exempt Fund.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of May 19, 1995, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have discretion to vote or invest such
Shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase") serves as the custodian of the Funds'
assets and as their transfer and dividend disbursing agent. Communications to
the custodian and transfer agent should be directed to Chase at .
[U.S. Trust has entered into an International Custodian Agreement with Morgan
Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, NY 11201, providing for
the custody of foreign securities held by the Funds.]
Chase has also entered into a sub-transfer agency arrangement with MFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
43
<PAGE>
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of the Equity and Theme Funds
may be also compared to the Standard & Poor's 500 Stock Index ("S&P 500"), an
index of unmanaged groups of common stocks, the Consumer Price Index, or the
Dow Jones Industrial Average, a recognized unmanaged index of common stocks of
30 industrial companies listed on the New York Stock Exchange.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares and also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be con-
sidered as representative of a Fund's future performance. Shareholders should
remember that performance is generally a function of the kind and quality of
the instruments held in a portfolio, portfolio maturity, operating expenses,
and market conditions. Any fees charged by Shareholder Organizations with re-
spect to accounts of Customers that have invested in Shares will not be in-
cluded in calculations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Master Fund or a particular Fund means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change
in a fundamental investment policy, the affirmative vote of the lesser of (a)
more than 50% of the outstanding shares of Master Fund or such Fund, or (b) 67%
or more of the shares of Master Fund or such Fund present at a meeting if more
than 50% of the outstanding shares of Master Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at the
address or telephone number listed under "Distributor."
44
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Funds Service Company c/o Mutual Funds Service Company--
P.O. Box 2798 Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus enti-
tled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per Fund.
Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organiza-
tions, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
45
<PAGE>
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
[LOGO OF
UST MASTER MUTUAL FUNDS SERVICE COMPANY
FUNDS CLIENT SERVICES
APPEARS P.O. Box 2798
HERE] Boston, MA 02208-2798
(800) 446-1012 NEW ACCOUNT APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other________________________
Note: Joint tenant registration will be as "joint tenants with right of
survivorship" unless otherwise specified. Trust registrations should specify
name of the trust, trustee(s), beneficiary(ies), and the date of the trust
instrument. Registration for Uniform Gifts/Transfers to Minors should be in
the name of one custodian and one minor and include the state under which
the custodianship is created (using the minor's Social Security Number
("SSN")). For IRA accounts a different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Indentification #
( )
------------------------------ -----------------------------
Name Telephone #
------------------------------
Address
------------------------------ [_] U.S. Citizen
City/State/Zip [_] Other (specify)__________
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
FUND INITIAL INVESTMENT
[_] Equity Fund $ ____________ 800
[_] Income and Growth Fund $ ____________ 801
[_] Long-Term Energy Fund $ ____________ 813
[_] Productivity Enhancers Fund $ ____________ 814
[_] Environmental Fund $ ____________ 815
[_] Aging of America Fund $ ____________ 816
[_] Communication & Entertainment Fund $ ____________ 817
[_] Business & Industrial Restructuring Fund $ ____________ 818
[_] Global Competitors Fund $ ____________ 819
[_] Early Life Cycle Fund $ ____________ 812
[_] Other $ ____________
TOTAL INITIAL INVESTMENT: $ ____________
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds."
B. BY WIRE: A bank wire in the amount of $ has been sent to the Fund from
------------------ ---------------------
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $500 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*____________________________________________________
Name of Bank _____________________________________________________________
Bank A.B.A. Number____________________ Account Number ___________________
Bank Address _____________________________________________________________
City/State/Zip ___________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by UST
Distributors, Inc. Listed below are the numbers of each of
my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER UST MASTER FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Master Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an aggregate
amount in Eligible Funds of Master Fund and Master Tax-Exempt
Fund at least equal to (check appropriate box):
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000
[_] $1,000,000 [_] $2,000,000
By signing this application, I hereby authorize MFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the UST Master Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
UST Distributors, Inc., and with the Prospectus and Statement
of Additional Information of each Fund purchased. We agree to
notify MFSC of any purchases made under the Letter of Intent
or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
[LOGO OF MUTUAL FUNDS SERVICE COMPANY
MASTER CLIENT SERVICES
FUNDS P.O. Box 2798
APPEARS Boston, MA 02208-2798
HERE] (800) 446-1012 SUPPLEMENTAL APPLICATION
SPECIAL INVESTMENT AND WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name ________________________________________________________________
Owner Name _______________________________________________________________
Street Address ___________________________________________________________
Resident of [_] U.S. [_] Other _________________________________________
Account Number ___________________________________________________________
Social Security or Taxpayer ID Number ____________________________________
City, State, Zip Code ____________________________________________________
[_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50 per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
---------------------- -------------------------------- -------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by MFSC, acting as my agent for the
purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ____________________ ___________ X ____________________ ___________
Signature Date Signature Date
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 15
INVESTMENT OBJECTIVES AND POLICIES......................................... 15
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 22
INVESTMENT LIMITATIONS..................................................... 26
PRICING OF SHARES.......................................................... 27
HOW TO PURCHASE AND REDEEM SHARES.......................................... 28
INVESTOR PROGRAMS.......................................................... 34
DIVIDENDS AND DISTRIBUTIONS................................................ 37
TAXES...................................................................... 37
MANAGEMENT OF THE FUNDS.................................................... 39
DESCRIPTION OF CAPITAL STOCK............................................... 42
CUSTODIAN AND TRANSFER AGENT............................................... 43
PERFORMANCE INFORMATION.................................................... 43
MISCELLANEOUS.............................................................. 44
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 45
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF AD-
DITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MASTER
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
MASTER FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTEQP894
[LOGO OF UST MASTER FUNDS APPEARS HERE]
MASTER FUNDS, INC.
EQUITY FUND
INCOME AND GROWTH FUND
LONG-TERM SUPPLY OF ENERGY FUND
PRODUCTIVITY ENHANCERS FUND
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
AGING OF AMERICA FUND
COMMUNICATION AND ENTERTAINMENT FUND
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
GLOBAL COMPETITORS FUND
EARLY LIFE CYCLE FUND
Prospectus
August 1, 1995
<PAGE>
CROSS-REFERENCE SHEET
UST MASTER FUNDS, INC.
(INTERNATIONAL FUND, EMERGING AMERICAS FUND, PACIFIC ASIA FUND, PAN EUROPEAN
FUND)
<TABLE>
<CAPTION>
FORM N-1A, PART A, ITEM PROSPECTUS CAPTION
----------------------- ------------------
<C> <S> <C>
1. Cover Page.......................... Cover Page
2. Synopsis............................ Prospectus Summary and
Expense Summary
3. Financial Highlights................ Selected Per Share Data and Ratios;
Performance Information
4. General Description of Registrant... Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment Limitations;
Description of Capital Stock
5. Management of the Fund.............. Management of the Fund; Custodian
and Transfer Agent
6. Capital Stock and Other Securities.. How to Purchase and Redeem Shares;
Dividends and Distributions; Taxes;
Description of Capital Stock;
Miscellaneous
7. Purchase of Securities Being Pricing of Shares; How to Purchase
Offered............................ and Redeem Shares; Investor Programs
8. Redemption or Repurchase............ How to Purchase and Redeem Shares
9. Pending Legal Proceedings........... Inapplicable
</TABLE>
<PAGE>
[LOGO OF UST MASTER
FUNDS APPEAR HERE]
MASTER FUNDS, INC.
A Management Investment Company
- -------------------------------------------------------------------------------
International Funds For initial purchase information, call (800) 233-1136.
73 Tremont Street (From overseas, call (619) 456-9394.)
MA 02108-3913
For current prices and yield information, call
(800) 233-9180.
For existing account information, call (800) 446-1012.
(From overseas, call (617) 956-9744.)
- -------------------------------------------------------------------------------
This Prospectus describes the [Distribution Shares] ("Shares") offered by sev-
eral separate portfolios offered to investors by UST Master Funds, Inc. ("Mas-
ter Fund"), an open-end, management investment company. Master Fund also is-
sues an additional series of shares in the portfolios (" Shares"), which
are offered under a separate prospectus. Each portfolio (each a "Fund" and
collectively the "Funds") has its own investment objective and policies as
follows:
INTERNATIONAL FUND seeks total return on its assets through capital apprecia-
tion and income derived primarily from investments in a diversified portfolio
of marketable foreign equity securities.
EMERGING AMERICAS FUND seeks long-term capital appreciation through invest-
ments in companies and securities of governments based in all countries in the
Western Hemisphere, except the U.S.
PACIFIC/ASIA FUND seeks long-term capital appreciation through investments in
companies and securities of governments based in all countries in Asia and on
the Asian side of the Pacific Ocean.
PAN EUROPEAN FUND seeks long-term capital appreciation through investments in
companies and securities of governments based in Europe.
Master Fund is sponsored and distributed by UST Distributors, Inc. and ad-
vised by United States Trust Company of New York (the "Investment Adviser" or
"U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1995 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available upon request without
charge by writing to Master Fund at its address shown above or by calling
(800) 233-1136. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1995
<PAGE>
PROSPECTUS SUMMARY
UST MASTER FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Master Fund
currently offers 20 Funds with combined assets of approximately $2.5 billion.
See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York serves as the
Funds' investment adviser. U.S. Trust and its predecessor, founded in 1853, is
a trust company offering a variety of specialized financial and fiduciary serv-
ices to high-net worth individuals, institutions and corporations. Master Fund
offers investors access to U.S. Trust's services. The International and Pan Eu-
ropean Funds receive sub-advisory services from Foreign and Colonial Asset Man-
agement ("FACAM"), and the Emerging Americas and Pacific/Asia Funds receive
sub-advisory services from Foreign & Colonial Emerging Markets Limited
("FCEML"). FACAM and FCEML are U.S. Trust affiliates. See "Management of the
Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund invests principally
in the equity securities of foreign companies. The Funds also may invest in
warrants, convertible securities, bonds and other securities of foreign compa-
nies and governments. The Funds' investment objectives and policies are summa-
rized on the cover and explained in greater detail later in this Prospectus.
See "Investment Objectives and Policies," "Portfolio Instruments and Other In-
formation" and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load is
not applicable to investors making their investments through a variety of in-
stitutions, such as U.S. Trust, other banks and trust companies. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropriate
sales agreements with Master Fund. See "How to Purchase and Redeem Shares."
HOW TO REDEEM: Redemptions may be requested directly from Master Fund by
mail, wire or telephone. Investors investing through another institution should
request redemptions through their Shareholder Organization. See "How to Pur-
chase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to mar-
ket risk and currency risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. Stock markets tend to be cy-
clical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. In addition,
since the Funds invest in foreign securities, the Funds are subject to the
risks of fluctuations of the value of foreign currencies relative to the U.S.
dollar and other risks associated with such investments. Finally, while the In-
ternational Fund diversifies its investments in a variety of companies and
countries, the Emerging Americas, Pacific/Asia and Pan European Funds (collec-
tively, the "Regional Funds") focus their investment activities in their desig-
nated regions. As a result each Regional Fund is susceptible to regional eco-
nomic, market, political and other more localized risks. Although each Fund
generally seeks to invest for the long term, each Fund may engage in short-term
trading of portfolio securities. A high rate of portfolio turnover may involve
correspondingly greater transaction costs which must be borne directly by a
Fund and ultimately by its shareholders. Investments in the Funds should not be
considered a complete investment program. See "Investment Objectives and Poli-
cies--Risk Factors" and "Portfolio Instruments and Other Investment Informa-
tion."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING AMERICAS PACIFIC/ASIA PAN EUROPEAN
FUND FUND FUND FUND
------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load
(as a percentage of
offering price)........ 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None
Deferred Sales Load..... None None None None
Redemption Fees/1/...... None None None None
Exchange Fees........... None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............ .94% .93% .95% .94%
12b-1 Fees/3/........... .50% .50% .50% .50%
Other Operating Expenses
Administrative Servic-
ing Fee............... .06% .06% .05% .06%
Other Expenses......... .47% .51% .47% .51%
Total Fund Operating Ex-
penses (after fee waiv-
ers)/2/................ 1.97% 2.00% 1.97% 2.01%
</TABLE>
- -------
/1/ The Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See
"Redemption Procedures."
/2/ The Investment Adviser and Administrators may, from time to time,
voluntarily waive a portion of their respective fees which waivers may be
terminated at any time. Until further notice, the Investment Adviser and/or
Administrators intend to voluntarily waive fees in an amount equal to the
Administrative Servicing Fee; and to further waive fees and reimburse
expenses to the extent necessary for the Shares of the Emerging Americas,
Pacific/Asia and Pan European Funds to maintain an annual expense ratio,
net of 12b-1 fees, of not more than 1.67%. Without such fee waivers,
"Advisory Fees" would be 1.00%, 1.00%, 1.00% and 1.00% and total operating
expenses would be 2.28%, 2.32%, 2.21%, and 2.32% for each of the
International, Emerging Americas, Pacific/Asia and Pan European Funds.
/3/ The Distribution Shares offered by this Prospectus represent equal pro rata
interests in each Fund except that because the beneficial owners of
Distribution Shares bear a distribution fee, the net yield on Distribution
Shares can be expected, at any given time, to be lower than the net yield
on the other Shares of a Fund. As a result of the payment of sales charges
and distribution fees, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales load permitted by the
National Association of Securities Dealers, Inc. ("NASD"). The NASD has
adopted rules which generally limit the aggregate sales charges and
payments under Master Fund's Distribution Plan to a certain percentage of
total new gross share sales, plus interest. Master Fund would stop
accruing Distribution Plan fees if, to the extent, and for as long as,
such limit would otherwise be exceeded.
3
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns; and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
International Fund.............................. $66 $111 $159 $289
Emerging Americas Fund.......................... 67 112 160 292
Pacific/Asia Fund............................... 66 111 159 289
Pan European Fund............................... 67 112 161 293
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or indirect-
ly. The expense summary sets forth advisory and other expenses payable with re-
spect to Shares of the Funds for the fiscal year ended March 31, 1995,
as restated to reflect the additional cost of distribution fees. For more com-
plete descriptions of the Funds' operating expenses, see "Management of the
Funds" in this Prospectus and the financial statements and notes incorporated
by reference in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding
throughout each period and other performance information, with respect to the
International Fund, the last five years of which has been derived from the fi-
nancial statements included in Master Fund's Annual Report to Shareholders for
the year ended March 31, 1995 (the "Financial Statements"). The following ta-
bles should be read in conjunction with the Financial Statements and notes
thereto. More information about the performance of each Fund is also contained
in the Annual Report to Shareholders which may be obtained from Master Fund
without charge.
Prior to the date of this Prospectus, each Fund offered a single series of
shares, the Shares. As of the date of this Prospectus, the Funds began of-
fering a new series of shares designated as Distribution Shares. Shares and
Distribution Shares represent equal pro rata interests in each Fund, except
they bear different expenses which reflect the difference in the level of serv-
ices provided to them.
INTERNATIONAL FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988/1/
------ ------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of period......... $ $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85 $ 8.00
------ ------ ------ ------- ------- ------ ------ -------
Income From Investment
Operations
Net Investment Income.. 0.05 0.15 0.08 0.13 0.15 0.05 0.05
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 1.88 0.25 (0.45) (0.64) 1.47 0.77 (0.16)
------ ------ ------ ------- ------- ------ ------ -------
Total From Investment
Operations............ 1.93 0.40 (0.37) (0.51) 1.62 0.82 (0.11)
------ ------ ------ ------- ------- ------ ------ -------
Less Distributions
Dividends From Net
Investment Income..... (0.02) (0.01) (0.11) (0.11) (0.16) (0.06) (0.03)
Dividends in Excess of
Net Investment Income. (0.12) 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments........... (0.01) 0.00 0.00 (0.47) (0.23) 0.00 (0.01)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------- ------- ------ ------ -------
Total Distributions.... (0.15) (0.01) (0.11) (0.58) (0.39) (0.06) (0.04)
------ ------ ------ ------- ------- ------ ------ -------
Net Asset Value, End of
Period................. $ $10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85
====== ====== ====== ======= ======= ====== ====== =======
Total Return/2/......... % 22.34% 4.85% (4.35)% (5.20)% 18.91% 10.59% (1.28)%
Ratios/Supplemental Data
Net Assets, End of Pe-
riod (in millions).... $ $55.74 $30.37 $ 46.92 $ 31.87 $21.49 $13.01 $ 8.56
Ratio of Net Operating
Expenses to Average
Net Assets............ % 1.53% 1.50% 1.52% 1.61% 1.34% 1.28% 1.09%/3/
Ratio of Gross Operat-
ing Expenses to Aver-
age Net Assets........ % 1.53% 1.50% 1.52% 1.61% 1.58% 1.93% 2.81%/3/
Ratio of Net Investment
Income to Average Net
Assets................ % 0.18% 1.27% 0.94% 1.57% 1.55% 0.75% 1.13%/3/
Portfolio Turnover
Rate.................. % 64.0% 31.0% 32.0% 47.0% 50.0% 80.0% 55.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was July 21, 1987.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
5
<PAGE>
EMERGING AMERICAS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ $ 7.12 $ 7.00
------ ------- -------
Income From Investment
Operations
Net Investment Income........ 0.05 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 2.24 0.12
------ ------- -------
Total From Investment
Operations.................. 2.29 0.12
------ ------- -------
Less Distributions
Dividends From Net Investment
Income...................... (0.03) 0.00
Dividends in Excess of Net
Investment Income........... (0.02) 0.00
Distributions From Net
Realized Gain on
Investments................. (0.06) 0.00
Distributions in Excess of
Net Realized Gain on
Investments................. 0.00 0.00
------ ------- -------
Total Distributions.......... (0.11) 0.00
------ ------- -------
Net Asset Value, End of Period. $ $ 9.30 $ 7.12
====== ======= =======
Total Return/2/................ % 32.25% 1.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 39.28 $ 3.83
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 1.49% 1.67%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.71% 2.56%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... % 0.29% (0.04)%/3/
Portfolio Turnover Rate...... % 51.0% 76.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
6
<PAGE>
PACIFIC/ASIA FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ $ 7.54 $ 7.00
--- ------ ------
Income From Investment
Operations
Net Investment Income........ 0.08 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 2.81 0.54
--- ------ ------
Total From Investment Opera-
tions....................... 2.89 0.54
--- ------ ------
Less Distributions
Dividends From Net Investment
Income...................... (0.05) 0.00
Dividends in Excess of Net
Investment Income........... (0.06) 0.00
Distributions From Net Real-
ized Gain on Investments.... (0.28) 0.00
Distributions in Excess of
Net Realized Gain on
Investment.................. 0.00 0.00
--- ------ ------
Total Distributions.......... (0.39) 0.00
--- ------ ------
Net Asset Value, End of Period. $ $10.04 $ 7.54
=== ====== ======
Total Return/2/................ % 38.11% 7.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $53.03 $ 9.67
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 1.53% 1.67%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.77% 2.00%/3/
Ratio of Net Investment In-
come to Average Net Assets.. % 0.54% 0.27%/3/
Portfolio Turnover Rate...... % 68.0% 1.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
7
<PAGE>
PAN EUROPEAN FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ $ 7.34 $ 7.00
--- ------ -------
Income From Investment Opera-
tions
Net Investment Income........ 0.03 0.00
Net Gains or (Losses) on Se-
curities (both realized and
unrealized)................. 0.70 0.34
--- ------ -------
Total From Investment Opera-
tions....................... 0.73 0.34
--- ------ -------
Less Distributions
Dividends From Net Investment
Income...................... 0.00 0.00
Dividends in Excess of Net
Investment Income........... (0.04) 0.00
Distributions From Net Real-
ized Gain on Investments.... 0.00 0.00
Distributions in Excess of
Net Realized Gain on Invest-
ment........................ 0.00 0.00
--- ------ -------
Total Distributions.......... (0.04) 0.00
--- ------ -------
Net Asset Value, End of Period. $ $ 8.03 $ 7.34
=== ====== =======
Total Return/2/................ % 10.05% 4.86%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $36.68 $ 3.80
Ratio of Net Operating Ex-
penses to Average Net As-
sets........................ % 1.61% 1.67%/3/
Ratio of Gross Operating Ex-
penses to Average Net As-
sets........................ % 1.72% 3.13%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... % 0.06% (0.33%)/3/
Portfolio Turnover Rate...... % 30.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objectives of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental", meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). Except as noted below
in "Investment Limitations," the investment policies of each Fund may be
changed without a vote of the holders of a majority of the outstanding Shares
of such Fund.
INTERNATIONAL FUND
The International Fund's investment objective is to seek total return on its
assets through capital appreciation and income derived primarily from invest-
ments in a diversified portfolio of marketable foreign equity securities.
In seeking to achieve this investment objective, the International Fund will
invest primarily in equity securities of foreign issuers who will, in the
opinion of Foreign and Colonial Asset Management, the Fund's sub-adviser (the
"Sub-Adviser" or "FACAM") and the Investment Adviser, benefit from global eco-
nomic trends, promising technologies or products and specific country opportu-
nities resulting from changing geo-political, economic or currency relation-
ships. In making investment decisions, the Sub-Adviser and Investment Adviser
will seek to identify values not recognized in the market price of a security.
The primary emphasis will be on the achievement of a higher total return fo-
cusing, as circumstances warrant, solely on either growth of capital or gener-
ation of current income or any combination thereof.
The International Fund does not intend to have, at any time, a specified per-
centage of its assets invested either for growth or for income, and all or any
portion of its assets may be allocated among these two components based on the
Investment Adviser's and Sub-Adviser's analysis of the prevailing market con-
ditions. Although the Fund will seek to realize its investment objective pri-
marily through investments in foreign equity securities, it may, from time to
time, assume a defensive position by allocating all or any portion of its as-
sets to foreign debt obligations. In determining investment strategy and allo-
cating investments, the Sub-Adviser and Investment Adviser will continuously
analyze a broad range of international equity and fixed-income securities in
order to assess the level of return, and degree of risk, that can be expected
from each type of investment and from each market.
The International Fund's investments will generally be diversified among geo-
graphic regions and countries. While there are no prescribed limits on geo-
graphic distribution, the Fund will normally include in its portfolio securi-
ties of issuers collectively having their principal business in no fewer than
three foreign countries. The Fund's assets may be invested in securities of
issuers located in the Pacific Basin (e.g. Japan, Hong Kong, Singapore, Malay-
sia), Europe, Australia, Latin America and Canada. The Fund may also, from
time to time, invest in other regions, seeking to capitalize on investment op-
portunities emerging in other parts of the world.
REGIONAL FUNDS:
The investment objective of each Regional Fund is long-term capital apprecia-
tion. In seeking to achieve this investment objective, each Regional Fund will
invest primarily in equity securities of foreign issuers who will, in the
opinion of the particular Fund's Sub-Adviser and the Investment Adviser, bene-
fit from global and regional economic trends, promising technologies or prod-
ucts and specific country and regional opportunities resulting from changing
geo-political, economic or currency relationships. In making investment deci-
sions, the particular Fund's Sub-Adviser and the Investment Adviser will seek
to identify values not recognized in the market price of a security.
9
<PAGE>
Although each Regional Fund will seek to realize its investment objective pri-
marily through investments in foreign equity and government securities, it may,
from time to time, assume a defensive position by allocating all or any portion
of its assets to U.S. Government or foreign debt obligations. The Regional
Funds will limit their investments in foreign debt obligations to those rated
within the top three ratings by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") or, if unrated, determined by the In-
vestment Advisory or the sub-adviser to be of comparable quality. No Regional
Fund currently expects to invest more than 25% of its total assets in the secu-
rities issued by any single foreign government. Any such investment would sub-
ject the particular Regional Fund to the risks presented by investing in secu-
rities of such foreign government to a greater extent than it would if that
Fund's assets were not so concentrated. In determining investment strategy and
allocating investments, the particular Fund's Sub-Adviser and the Investment
Adviser will continuously analyze a broad range of international equity and
fixed-income securities in order to assess the level of return, and degree of
risk, that can be expected from each type of investment and from each market.
Under normal circumstances, each Regional Fund will invest at least 65% of its
total assets in securities of issuers based in its targeted region. A company
is "based in" a region if it derives more than half of its assets, revenues or
profits from such region. The Regional Funds and their targeted regions are as
follows:
EMERGING AMERICAS FUND. The Emerging Americas Fund invests primarily in secu-
rities of companies and governments based in all countries of the Western Hemi-
sphere except the U.S. Currently, the Investment Adviser believes that such
countries may include Canada, Mexico, the Bahamas, Costa Rica, Venezuela, Co-
lombia, Peru, Brazil, Argentina and Chile. Under normal conditions, the Fund
will invest at least 65% of its total assets in securities of issuers based in
countries other than Canada. The Fund may also invest in Brady Bonds, which are
securities issued in various currencies (primarily the dollar) that have been
created through the exchange of existing commercial bank loans to Latin Ameri-
can public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S. Secre-
tary of the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds have
been issued only recently and for that reason do not have a long payment histo-
ry. Brady Bonds may be collateralized or uncollateralized, are issued in vari-
ous currencies (primarily the dollar) and are actively traded in the over-the-
counter secondary market for Latin American debt instruments. Brady Bonds are
neither issued nor guaranteed by the U.S. Government. Additional information on
Brady Bonds is included in the Statement of Additional Information.
PACIFIC/ASIA FUND. The Pacific/Asia Fund invests primarily in securities of
companies and governments based in Asia and on the Asian side of the Pacific
Ocean. Currently, the Investment Adviser believes that such countries may in-
clude Australia, New Zealand, Hong Kong, India, Japan, Indonesia, the Philip-
pines, Malaysia, Singapore, Taiwan, China, Thailand, South Korea, Sri Lanka and
Pakistan.
PAN EUROPEAN FUND. The Pan European Fund invests primarily in securities of
companies and governments based in Europe. Currently, the Investment Adviser
believes that such countries may include Ireland, the United Kingdom, Norway,
Sweden, Finland, Holland, Belgium, Luxembourg, France, Portugal, Spain, Den-
mark, Germany, Poland, Czech Republic, Slovakia, Hungary, Switzerland, Austria,
Greece, Turkey and Italy. As other formerly communist and Eastern European
countries become economically viable, investments may be made there as well.
INVESTMENT POLICIES COMMON TO ALL FUNDS
Under normal market and economic conditions, at least 75% of each Fund's as-
sets will be invested in foreign securities. Foreign securities include common
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stock, preferred stock, securities convertible into common stock, warrants,
bonds, notes and other debt obligations issued by foreign entities, as well as
shares of U.S. registered investment companies that invest primarily in foreign
securities. Foreign debt securities purchased by a Fund may include obligations
issued in the Eurocurrency markets and obligations of foreign governments and
their political subdivisions. In addition, each Fund may invest in U.S. Govern-
ment obligations, including the when-issued securities of such issuers, and ob-
ligations issued by U.S. companies which are either denominated in foreign cur-
rency and sold abroad or, if denominated in U.S. dollars, payment on which is
determined by reference to some other foreign currency.
Each Fund may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"). Investments in unsponsored ADRs involve addi-
tional risk because financial information based on generally accepted account-
ing principles ("GAAP") may not be available for the foreign issuers of the un-
derlying securities. ADRs and EDRs may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Under unusual economic and market conditions, each Fund may restrict the secu-
rities markets in which its assets are invested and may invest all or a major
portion of its assets in U.S. Government obligations or in U.S. dollar-denomi-
nated securities of U.S. companies. Up to 25% of each Fund's assets may also be
held on a continuous basis in cash or invested in U.S. money market instruments
(see below under "Money Market Instruments") to meet redemption requests or to
take advantage of emerging investment opportunities. To the extent described
below under "Portfolio Instruments and Other Investment Information," each Fund
may purchase shares of other investment companies and may engage in repurchase
agreements, securities lending, forward currency contracts and futures con-
tracts, options on futures and covered call options.
Convertible and non-convertible debt securities purchased by each Fund will be
rated "investment grade," or, if unrated, deemed by the particular Sub-Adviser
and the Investment Adviser to be comparable to securities rated "investment
grade," by Moody's or S&P. Debt obligations rated in the lowest of the top four
"investment grade" ratings ("Baa" by Moody's and "BBB" by S&P) are considered
to have some speculative characteristics and may be more sensitive to adverse
economic change than higher rated securities. Each Fund will sell in an orderly
fashion as soon as possible any convertible and non-convertible debt securities
it holds if they are downgraded below "Baa" by Moody's or below "BBB" by S&P.
Foreign securities are generally unrated. In purchasing foreign equity securi-
ties, the particular Fund's Sub-Adviser will look generally to established for-
eign companies. Each Fund may purchase securities both on recognized stock ex-
changes and in over-the-counter markets. Most of the Funds' portfolio transac-
tions will be effected in the primary trading market for the given security.
Each Fund also may invest up to 5% of its total assets in gold bullion. Invest-
ments in gold will not produce dividends or interest income, and the Funds can
look only to price appreciation for a return on such investments.
RISK FACTORS
Generally. Each Fund is subject to market risk, interest rate risks and the
risks of investing in foreign securities. Market risk is the possibility that
stock prices will decline over short or even extended periods. The stock mar-
kets tend to be cyclical, with periods of generally rising prices and periods
of generally declining prices. These cycles will affect the values of each
Fund. In addition, to the extent that the Funds invest in fixed-income securi-
ties, their holdings of debt securities are sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of
11
<PAGE>
bonds and debt securities fluctuate inversely with interest rate changes.
Investments in securities of foreign issuers involve certain risks not ordi-
narily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Since each Fund will invest
heavily in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will, to the extent a Fund
does not adequately hedge against such fluctuations, affect the value of secu-
rities in the portfolio and the unrealized appreciation or depreciation of in-
vestments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or
as uniform as those of U.S.-based companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable U.S.-based companies.
Transaction costs on foreign securities markets are generally higher than in
the United States. There is generally less government supervision and regula-
tion of foreign exchanges, brokers and issuers than there is in the U.S. The
Funds might have greater difficulty taking appropriate legal action in a for-
eign court than in a U.S. court.
Dividends and interest payable on a Fund's foreign portfolio securities may
be subject to foreign withholding taxes. To the extent such taxes are not off-
set by credits or deductions allowed to investors under the Federal income tax
provisions--see "Taxes--Federal"--they may reduce the net return to the Fund's
shareholders. Investors should also understand that the expense ratio of the
Funds can be expected to be higher than those of funds investing in domestic
securities. The costs attributable to investing abroad are usually higher for
several reasons, such as the higher cost of investment research, higher cost
of custody of foreign securities, higher commissions paid on comparable trans-
actions on foreign markets and additional costs arising from delays in settle-
ments of transactions involving foreign securities.
Emerging Americas Fund. The Latin American economies have experienced consid-
erable difficulties in the past decade. Although there have been significant
improvements in recent years, the Latin American economies continue to experi-
ence significant problems, including high inflation rates and high interest
rates. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain Latin American countries. The emergence of the Latin American econ-
omies and securities markets will require continued economic and fiscal disci-
pline which has been lacking at times in the past, as well as stable political
and social conditions. There is no assurance that economic initiatives will be
successful. Recovery may also be influenced by international economic condi-
tions, particularly those in the United States, and by world prices for oil
and other commodities.
Pan European Fund. Political and economic developments in Europe, especially
as they relate to changes in the structure of the European Economic Community
and the anticipated development of a unified common market, may have profound
effects upon the value of a large segment of the Fund's investment portfolio.
For example, continued progress in the evolution of a unified European common
market may be slowed by unanticipated political or social events and may,
therefore, adversely affect the value of certain of
12
<PAGE>
the securities held by the Fund. In addition, Germany is currently experienc-
ing significant economic stress associated with its recent unification. These
pressures are affecting other European countries to varying degrees and have
caused considerable currency volatility within the European monetary system.
Pacific/Asia Fund. The extent of economic development, political stability
and market depth of different countries in the Pacific/Asia region varies
widely. Certain countries in the region are either comparatively underdevel-
oped or are in the process of becoming developed, and investments in the secu-
rities of issuers in such countries typically involve greater potential for
gain or loss than investments in securities of issuers in more developed coun-
tries. Certain countries in the region also depend to a large degree upon ex-
ports of primary commodities and, therefore, are vulnerable to changes in com-
modity prices which, in turn, may be affected by a variety of factors. The
Fund may be particularly sensitive to changes in the economies of certain
countries in the Pacific/Asia region resulting from any reversal of economic
liberalization, political unrest or the imposition of sanctions by the United
States or other countries.
Latin America, Eastern Europe and the Pacific/Asia Region. Certain of the
risks associated with international investments are heightened with respect to
investments in developing countries and fledgling democracies in Latin Ameri-
ca, Eastern Europe and the Pacific/Asia region. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets. In addition, the de-
veloping countries and emerging democracies in those regions may have econo-
mies based on only a few industries and small securities markets with a low
volume of trading. Certain countries may also impose substantial restrictions
on investments in their capital markets by foreign entities, including re-
strictions on investments in issuers of industries deemed sensitive to rele-
vant national interests. These factors may limit the investment opportunities
available to the Funds and result in a lack of liquidity and a high price vol-
atility with respect to securities of issuers from the developing countries
and emerging democracies in those regions.
Countries in Latin America, Eastern Europe and the Pacific/Asia region may
also impose restrictions on the Funds' ability to repatriate investment income
or capital. Even where there is no outright restriction on repatriation of in-
vestment income or capital, the mechanics of repatriation may affect certain
aspects of the operations of the Funds. For example, funds may be withdrawn
from the People's Republic of China only in U.S. or Hong Kong dollars and only
at an exchange rate established by the government once each week.
Some of the currencies of developing countries and emerging democracies in
Latin America, Eastern Europe and the Pacific/Asia region have experienced de-
valuations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain countries in these regions
face serious exchange constraints.
Lastly, governments of many developing countries and emerging democracies in
Latin America, Eastern Europe and the Pacific/Asia region exercise substantial
influence over many aspects of the private sector. In some countries, the gov-
ernment owns or controls many companies, including the largest in the country.
As such, government actions in the future could have a significant effect on
economic conditions in developing countries and emerging democracies in these
regions, which could affect private sector companies, the Fund and the value
of the Fund's portfolio securities. Furthermore, certain countries in Latin
America, Eastern Europe and the Pacific/Asia region are among the largest
debtors to commercial banks and foreign governments. Trading in debt obliga-
tions issued or guaranteed by those governments or their agencies and instru-
mentalities involves a high degree of risk.
* * *
Because of the Funds' investment policies and the considerations discussed
above, investments in
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<PAGE>
Shares of the Funds may not be appropriate for all investors and should not be
considered a complete investment program.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
"Money market instruments" which may be purchased by each Fund in accordance
with its policies set forth above include, among other things, bank obliga-
tions, commercial paper and corporate bonds with remaining maturities of 13
months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. Bank
obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Investments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at time of purchase.
Investments by a Fund in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" by Moody's. In addition, each Fund
may acquire unrated commercial paper and corporate bonds that are determined by
the Investment Adviser at the time of purchase to be of comparable quality to
rated instruments that may be acquired by each Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instrument
purchased by a Fund, each Fund may, from time to time as specified in the in-
strument, demand payment of the principal of the instrument or may resell the
instrument to a third party. The absence of an active secondary market, howev-
er, could make it difficult for a Fund to dispose of the instrument if the is-
suer defaulted on its payment obligation or during periods when a Fund is not
entitled to exercise its demand rights, and a Fund could, for this or other
reasons, suffer a loss with respect to such instrument.
REPURCHASE AGREEMENTS
In order to effectively manage its cash holdings, each Fund may enter into re-
purchase agreements. The Funds will enter into repurchase agreements only with
financial institutions that are deemed to be creditworthy by the Investment Ad-
viser, pursuant to guidelines established by Master Fund's Board of Directors.
The Funds will not enter into repurchase agreements with the Investment Adviser
or Sub-Advisers or any of their affiliates. Repurchase agreements with remain-
ing maturities in excess of seven days will be considered illiquid securities
and will be subject to the 10% limit described in Investment Limitation No. 5
below.
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Fund at not
less than the repurchase price. Default or bankruptcy of the seller would, how-
ever, expose a Fund to possible delay in connection with the disposition of the
underlying securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its portfo-
lio securities to broker/ dealers pursuant to agreements requiring the loans to
be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or in-
14
<PAGE>
strumentalities, or an irrevocable letter of credit issued by a bank, or any
combination thereof. Such loans will not be made if, as a result, the aggregate
of all outstanding loans of a Fund exceeds 30% of the value of its total as-
sets. There may be risks of delay in receiving additional collateral or in re-
covering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Investment Adviser to be of good standing when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
FORWARD CURRENCY TRANSACTIONS
Each Fund will conduct its currency exchange transactions either on a spot
(i.e. cash) basis at the rate prevailing in the currency exchange markets, or
by entering into forward currency contracts. A forward foreign currency con-
tract involves an obligation to purchase or sell a specific currency for a set
price at a future date. In this respect, forward currency contracts are similar
to foreign currency futures contracts described below; however, unlike futures
contracts, which are traded on recognized commodities exchanges, forward cur-
rency contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Also,
forward currency contracts usually involve delivery of the currency involved
instead of cash payment as in the case of futures contracts.
A Fund's participation in forward currency contracts will be limited to hedg-
ing involving either specific transactions or portfolio positions. Transaction
hedging involves the purchase or sale of foreign currency with respect to spe-
cific receivables or payables of the Fund generally arising in connection with
the purchase or sale of its portfolio securities. The purpose of transaction
hedging is to "lock in" the U.S. dollar equivalent price of such specific secu-
rities. Position hedging is the sale of foreign currency with respect to port-
folio security positions denominated or quoted in that currency. The Funds will
not speculate in foreign currency exchange transactions. Transaction and
position hedging will not be limited to an overall percentage of a Fund's as-
sets, but will be employed as necessary to correspond to particular transac-
tions or positions. A Fund may not hedge its currency positions to an extent
greater than the aggregate market value (at the time of entering into the for-
ward contract) of the securities held in its portfolio denominated, quoted in,
or currently convertible into that particular currency. When the Funds engage
in forward currency transactions, certain asset segregation requirements must
be satisfied. When a Fund takes a long position in a forward currency contract,
it must maintain a segregated account containing cash and/or certain liquid as-
sets equal to the purchase price of the contract, less any margin or deposit.
When a Fund takes a short position in a forward currency contract, the Fund
must maintain a segregated account containing cash and/or certain liquid assets
in an amount equal to the market value of the currency underlying such contract
(less any margin or deposit), which amount must be at least equal to the market
price at which the short position was established. Asset segregation require-
ments are not applicable when a Fund "covers" a forward currency position gen-
erally by entering into an offsetting position. Additional information on for-
ward currency transactions, including a discussion of risks involved in such
transactions (which are similar to those described below under "Futures Con-
tracts"), is included in the Statement of Additional Information.
FUTURES CONTRACTS
Each Fund may also enter into interest rate futures contracts, other types of
financial futures contracts (such as foreign currency futures contracts, which
are similar to forward currency contracts described above) and related futures
options, as well as any index or foreign market futures which are available on
recognized exchanges or in other established financial markets.
15
<PAGE>
The Funds will not engage in futures transactions for speculation, but only as
a hedge against changes in market values of securities which a Fund holds or
intends to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to ensure
that the use of futures is unleveraged. When a Fund takes a long position in a
futures contract, it must maintain a segregated account containing cash and/or
certain liquid assets equal to the purchase price of the contract, less any
margin or deposit. When a Fund takes a short position in a futures contract,
the Fund must maintain a segregated account containing cash and/or certain liq-
uid assets in an amount equal to the market value of the securities underlying
such contract (less any margin or deposit), which amount must be at least equal
to the market price at which the short position was established. Asset segrega-
tion requirements are not applicable when a Fund "covers" an options or futures
position generally by entering into an offsetting position. Each Fund will
limit its hedging transactions in futures contracts and related options so
that, immediately after any such transaction, the aggregate initial margin that
is required to be posted by a Fund under the rules of the exchange on which the
futures contract (or futures option) is traded, plus any premiums paid by such
Fund on its open futures options positions, does not exceed 5% of such Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts (and excluding the amount that a futures
option is "in-the-money" at the time of purchase). An option to buy a futures
contract is "in-the-money" if the then-current purchase price of the underlying
futures contract exceeds the exercise or strike price; an option to sell a
futures contract is "in-the-money" if the exercise or strike price exceeds the
then-current purchase price of the contract that is the subject of the option.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the In-
vestment Adviser and Sub-Adviser to correctly anticipate movements in the di-
rection of the market. In addition, there may be an imperfect correlation, or
no correlation at all, between movements in the price of the futures contracts
(or options) and movements in the price of the instruments being hedged. Fur-
ther, there is no assurance that a liquid market will exist for any particular
futures contract (or option) at any particular time. Consequently, a Fund may
realize a loss on a futures transaction that is not offset by a favorable move-
ment in the price of securities which it holds or intends to purchase or may be
unable to close a futures position in the event of adverse price movements.
COVERED CALL OPTIONS
To further increase return on its portfolio securities in accordance with its
investment objective and policies, each Fund may engage in writing covered call
options (options on securities owned by such Fund) and enter into closing pur-
chase transactions with respect to such options. Such options must be listed on
a national securities exchange and issued by the Options Clearing Corporation
or be traded on foreign exchanges. The aggregate value of the securities sub-
ject to options written by the Fund may not exceed 25% of the value of its net
assets. By writing a covered call option, a Fund forgoes the opportunity to
profit from an increase in the market price of the underlying security above
the exercise price except insofar as the premium represents such a profit, and
it will not be able to sell the underlying security until the option expires or
is exercised or the Fund effects a closing purchase transaction by purchasing
an option of the same series. The use of covered call options is not a primary
investment technique of the Funds and such options will normally be written on
underlying securities as to which the Investment Adviser and Sub-Adviser do not
anticipate significant short-term capital appreciation. Additional information
on option-writing practices, including particular risks thereof, is provided in
the Statement of Additional Information.
16
<PAGE>
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in high-
quality, short-term debt securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. Each Fund may
also purchase shares of investment companies investing primarily in foreign se-
curities, including so called "country funds" which have portfolios consisting
exclusively of securities of issuers located in one foreign country. The Re-
gional Funds will limit their investments in such country funds to those funds
which invest in the appropriate regions in light of a Regional Fund's policies.
Securities of other investment companies will be acquired by a Fund within the
strict limits prescribed by the Investment Company Act of 1940 (the "1940
Act"). In addition to the advisory fees and other expenses each Fund bears di-
rectly in connection with its own operations, as a shareholder of another in-
vestment company, each Fund would bear its pro rata portion of the other in-
vestment company's advisory fees and other expenses. As such, a Fund's share-
holders would indirectly bear the expenses of the Fund and the other investment
company, some or all of which would be duplicative.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place in the future, beyond the normal settlement
date, at a stated price and yield. Securities purchased on a "forward commit-
ment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not ex-
ceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser and Sub-Adviser believe that such a disposition is con-
sistent with attaining the investment objective of the particular Fund. Portfo-
lio investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments. A high rate of portfolio turnover may in-
volve correspondingly greater brokerage commission expenses and other transac-
tion costs, which must be borne directly by the Fund and ultimately by its
shareholders. High portfolio turnover may result in the realization of substan-
tial net capital gains. (See "Financial Highlights" and "Taxes--Federal").
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of
17
<PAGE>
the holders of a majority of its outstanding Shares (as defined under "Miscel-
laneous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money, except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) The Fund will
not purchase portfolio securities while borrowings in excess of 5% of its to-
tal assets are outstanding. Optioned stock held in escrow is not deemed to be
a pledge;
3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the International Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government or domestic bank obligations, (b) with respect to the Emerg-
ing Americas, Pacific/Asia and Pan European Funds, there is no limitation
with respect to securities issued or guaranteed by the U.S. Government, and
(c) neither all finance companies, as a group, nor all utility companies, as
a group, are considered a single industry for purposes of this policy; and
4. Make loans, except that (i) a Fund may purchase or hold debt securities
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and (ii) a Fund may lend
portfolio securities in an amount not exceeding 30% of its total assets.
The International Fund may not:
5. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, as a matter of fun-
damental policy for each Fund which may not be changed without the vote of the
holders of a majority of the Fund's outstanding shares, a Fund may not invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Emerging Americas, Pan European and Pacific/Asia Funds may not knowingly
invest more than 10% of the value of their respective total assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days, restricted securities and other securities for which market quo-
tations are not readily available. This investment policy may be changed by
Master Fund's Board of Directors upon reasonable notice to shareholders.
The International Fund will not invest more than 25% of the value of its total
assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a
18
<PAGE>
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such limi-
tation.
PRICING OF SHARES
The net asset value of each Fund is determined and its Shares are priced at
the close of regular trading hours on the New York Stock Exchange (the "Ex-
change"), currently 4:00 p.m. (Eastern Time). Net asset value and pricing for
each Fund are determined on each day the Exchange and the Investment Adviser
and Sub-Adviser are open for trading ("Business Day"). Currently, the holidays
which the Funds observe are: New Year's Day, Martin Luther King, Jr. Day, Pres-
idents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas. Net asset value per Share
for purposes of pricing sales and redemptions is calculated by dividing the
value of all securities and other assets allocable to a Fund, less the liabili-
ties charged to the Fund, by the number of its outstanding Shares.
The Funds' portfolio securities which are primarily traded on a domestic ex-
change are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges, ex-
cept that when an event subsequent to the time when value was so established is
likely to have changed such value, then the fair value of those securities will
be determined by consideration of other factors under the direction of the
Board of Directors. A security which is listed or traded on more than one ex-
change is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in foreign debt securities having a matu-
rity of 60 days or less are valued based upon the amortized cost method. An op-
tion, futures or foreign currency futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. A forward currency contract is valued based on the last
published forward currency rate which reflects the duration of the contract and
the value of the underlying currency. All other foreign securities are valued
at the last current bid quotation if market quotations are available, or at
fair value as determined in accordance with guidelines adopted by the Board of
Directors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market rate
on the day of conversion.
Some of the securities acquired by the Funds may be traded on foreign ex-
changes or over-the-counter markets on days which are not Business Days. In
such cases, the net asset value of the Shares may be significantly affected on
days when investors can neither purchase nor redeem a Fund's Shares.
Master Fund's administrators have undertaken to price the securities in each
Fund's portfolio, and may use one or more independent pricing services in con-
nection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Master Fund's sponsor
and distributor, (the "Distributor"), a wholly-owned subsidiary of
. The Distributor is a registered broker/dealer. Its principal offices
are at and it may be reached at (800) 233-1136 in connection with all
initial purchase information.
Under Master Fund's Distribution Agreement and Distribution Plan, adopted pur-
suant to Rule 12b-1 under the 1940 Act, the Distribution Shares of each Fund
reimburse the Distributor monthly for distribu
19
<PAGE>
tion expenses in an amount not to exceed .75% of the average daily net asset
value of the Fund's outstanding Distribution Shares. Distribution Shares of
each Fund currently bear the expense of such distribution fees at the annual
rate of .50% of the average daily net asset value of the Fund's outstanding
Distribution Shares. Distribution expenses payable by the Distributor under the
Distribution Plan include direct and indirect marketing expenses such as: i)
the expense of preparing, printing and distributing promotional materials and
prospectuses (other than prospectuses used for regulatory purposes or for dis-
tribution to existing shareholders); ii) the expense of other advertising via
radio, television or other print or electronic media; and iii) the expense of
payments to financial institutions that are not affiliated with the Distributor
("Distribution Organizations") for distribution assistance.
PURCHASE OF SHARES
Shares may be purchased by customers ("Customers") of financial institutions
("Shareholder Organizations"). A Shareholder Organization may elect to hold of
record Shares for its Customers and to record beneficial ownership of Shares on
the account statements provided by it to its Customers. If it does so, it is
the Shareholder Organization's responsibility to transmit to the Distributor
all purchase orders for its Customers and to transmit, on a timely basis, pay-
ment for such orders to Mutual Funds Service Company ("MFSC"), the Funds' sub-
transfer agent, in accordance with the procedures agreed to by the Shareholder
Organization and the Distributor. Confirmations of all such Customer purchases
and redemptions will be sent by MFSC to the particular Shareholder Organiza-
tion. As an alternative, a Shareholder Organization may elect to establish its
Customers' accounts of record with MFSC. In this event, even if the Shareholder
Organization continues to place its Customers' purchase and redemption orders
with the Funds, MFSC will send confirmations of such transactions and periodic
account statements directly to Customers. A Shareholder Organization may also
elect to establish its Customers as record holders.
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call the Distributor at the phone
number listed above.) An investor purchasing Shares through certain Shareholder
Organizations may incur transaction charges in connection with such purchases.
Investors should contact their Shareholder Organizations for further informa-
tion on transaction fees.
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGES TO DEALERS
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
--------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000................. 4.50 4.71 4.00
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any dealer that sponsors sales con-
tests or recognition programs conforming to criteria established by the Dis-
tributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the dealer at the public offering price during such programs. Also, the Dis-
tributor in its discretion may from time to time, pursuant to objective crite-
ria established by the Distributor, pay fees to qualifying dealers for certain
services or activities which are primarily intended to result in sales of
Shares of the
20
<PAGE>
Funds. If any such program is made available to any dealer, it will be made
available to all dealers on the same terms and conditions. Payments made under
such programs will be made by the Distributor out of its own assets and not out
of the assets of the Funds. These programs will not change the price of Shares
or the amount that the Funds will receive from such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations and
partnerships (excluding full service broker/dealers and financial planners,
registered investment advisers and depository institutions not covered by the
exemptions in (d) and (e) below); (d) financial planners and registered invest-
ment advisers not affiliated with or clearing purchases through full service
broker/dealers; (e) purchases of Shares by depository institutions for their
own account as principal; (f) exchange transactions (described below under "In-
vestor Programs--Exchange Privilege") where the Shares being exchanged were ac-
quired in connection with the distribution of assets held in trust, agency or
custodial accounts maintained with the trust department of a bank; (g) corpo-
rate/ business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh ac-
counts) sponsored by the Distributor and IRA accounts sponsored by the Invest-
ment Adviser; (h) company-sponsored employee pension or retirement plans making
direct investments in the Funds; (i) purchases of Shares by officers, trustees,
directors, employees and retirees of Master Fund, UST Master Tax-Exempt Funds,
Inc. ("Master Tax-Exempt Fund"), the Investment Adviser, or of any direct or
indirect affiliate of any of them; (j) purchases of Shares by all beneficial
shareholders of Master Fund or Master Tax-Exempt Fund as of May 22, 1989; (k)
purchases of Shares by investment advisers registered under the Investment Ad-
visers Act of 1940 for their customers through an omnibus account established
with United States Trust Company of New York; (l) purchases of Shares by direc-
tors, officers and employees of brokers and dealers selling shares pursuant to
a selling agreement with Master Fund and Master Tax-Exempt Fund; (m) purchases
of shares by investors who are members of affinity groups serviced by
USAffinity Investments Limited Partnership; and (n) customers of certain finan-
cial institutions who purchase Shares through a registered representative of
UST Financial Services Corp. on the premises of their financial institutions.
In addition, no sales load is charged on the reinvestment of dividends or dis-
tributions or in connection with certain share exchange transactions. Investors
who have previously redeemed shares in an "Eligible Fund" (as defined below) on
which a sales load has been paid also have a one-time privilege of purchasing
shares of another "Eligible Fund" at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30 calen-
dar days from the date of redemption and only with respect to the amount of the
redemption. These exemptions to the imposition of a sales load are due to the
nature of the investors and/or reduced sales effort that will be needed in ob-
taining investments.
Quantity Discounts
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify MFSC at
the time of purchase that he or she would like to take advantage of any of the
discount plans described below. Upon such notification, the investor will re-
ceive the lowest applicable sales charge. Quantity discounts may be modified or
terminated at any time and are subject to confirmation of an investor's hold-
ings through a check of ap-
21
<PAGE>
propriate records. For more information about quantity discounts, please con-
tact the Distributor or your Shareholder Organization.
Rights of Accumulation. A reduced sales load applies to any purchase of shares
of any portfolio of Master Fund and Master Tax-Exempt Fund that is sold with a
sales load ("Eligible Fund") where an investor's then current aggregate invest-
ment is $50,000 or more. "Aggregate investment" means the total of: (a) the
dollar amount of the then current purchase of shares of an Eligible Fund, and
(b) the value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales load has been
paid. If, for example, an investor beneficially owns shares of one or more Eli-
gible Funds with an aggregate current value of $49,000 on which a sales load
has been paid and subsequently purchases shares of an Eligible Fund having cur-
rent value of $1,000, the load applicable to the subsequent purchase would be
reduced to 4.00% of the offering price. Similarly, with respect to each subse-
quent investment, all shares of Eligible Funds that are beneficially owned by
the investor at the time of investment may be combined to determine the appli-
cable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below and
in the Letter of Intent. To compute the applicable sales load, the offering
price of shares of an Eligible Fund on which a sales load has been paid, bene-
ficially owned by an investor on the date of submission of the Letter of In-
tent, may be used as a credit toward completion of the Letter of Intent. Howev-
er, the reduced sales load will be applied only to new purchases.
MFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load re-
duction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the total purchases. If such re-
mittance is not received within 20 days, MFSC, as attorney-in-fact pursuant to
the terms of the Letter of Intent and at the Distributor's direction, will re-
deem an appropriate number of shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind an investor to purchase the full
amount indicated at the sales load in effect at the time of signing, but an in-
vestor must complete the intended purchase in accordance with the terms of the
Letter of Intent to obtain the reduced sales load. To apply, an investor must
indicate his or her intention to do so under a Letter of Intent at the time of
purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse purchas-
ing securities for his, her or their own account or for the account of any mi-
nor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Customers of certain Shareholder Organizations may purchase Shares by complet-
ing the Application for purchase of Shares accompanying this Prospectus
22
<PAGE>
and mailing it, together with a check payable to UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to UST Master Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from MFSC
or a Shareholder Organization; or (c) a letter stating the amount of the in-
vestment, the name of the Fund and the account number in which the investment
is to be made.
Purchases by Wire
Customers of Certain Shareholder Organizations may also purchase Shares by
wiring Federal funds to MFSC. Prior to making an initial investment by wire,
an investor must telephone MFSC at (800) 446-1012 (from overseas, call (617)
956-9744) for instructions. Federal funds and registration instructions should
be wired through the Federal Reserve System to:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
UST Master Funds
Wire Control Number
Account Registration
(including account number)
Investors making initial investments by wire must promptly complete the Ap-
plication accompanying this Prospectus and forward it to MFSC. Redemptions by
investors will not be processed until the completed Application for purchase
of Shares has been received by MFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial aggre-
gate investment by a Shareholder Organization investing on behalf of its Cus-
tomers is $500 per Fund. The minimum subsequent investment is $50 per Fund.
Customers may agree with a particular Shareholder Organization to make a mini-
mum purchase with respect to their accounts. Depending upon the terms of the
particular account, Shareholder Organizations may charge a Customer's account
fees for automatic investment and other cash management services provided.
Master Fund reserves the right to reject any purchase order, in whole or in
part, or to waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem
all or part of their investments in the Funds in accordance with procedures
governing their accounts at the Shareholder Organizations. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to MFSC
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis. No charge for wiring redemption payments to Shareholder Organizations is
imposed by Master Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a Shareholder Organization
may incur transaction charges in connection with such redemptions. Such in-
vestors should contact their Shareholder Organizations for further information
on transaction fees. Investors may redeem all or part of their Shares in ac-
cordance with the procedures described below (these procedures also apply to
Customers of Shareholder Organizations for whom individual accounts have been
established with MFSC).
Redemption by Mail
Customers of certain Shareholder Organizations may redeem Shares by submit-
ting a written request for redemption to:
23
<PAGE>
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. A redemption request for an amount in excess of $50,000 per account, or
for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by MFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC at (800) 446-1012 (from over-
seas, call (617) 956-9744).
Redemption by Wire or Telephone
Customers of certain Shareholder Organizations who have so indicated on the
Application, or have subsequently arranged in writing to do so, may redeem
Shares by instructing MFSC by wire or telephone to wire the redemption proceeds
directly to the investor's account at any commercial bank in the United States.
Customers of certain Shareholder Organizations who are shareholders of record
may redeem Shares by instructing MFSC by telephone to mail a check for redemp-
tion proceeds of $500 or more to the shareholder of record at his or her ad-
dress of record. Only redemptions of $500 or more will be wired to an invest-
or's account. An $8.00 fee for each wire redemption by an investor is deducted
by MFSC from the proceeds of the redemption. The redemption proceeds for in-
vestors must be paid to the same bank and account as designated on the Applica-
tion or in written instructions subsequently received by MFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, an investor must send a written request to Master Fund, c/o MFSC, at
the address listed above under "Redemption by Mail." Such requests must be
signed by the investor, with signatures guaranteed (see "Redemption by Mail"
above, for details regarding signature guarantees). Further documentation may
be requested.
MFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Master Fund,
MFSC or the Distributor. MASTER FUND, MFSC AND THE DISTRIBUTOR WILL NOT BE LIA-
BLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELEPHONE INSTRUC-
TIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT
TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER FUND WILL USE SUCH PROCEDURES AS ARE
CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS
24
<PAGE>
AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Master Fund and MFSC reserve the right not to honor the redemp-
tion until MFSC is reasonably satisfied that the check has been collected in
accordance with the applicable banking regulations which may take up to 15
days. An investor who anticipates the need for more immediate access to his or
her investment should purchase Shares by Federal funds or bank wire or by cer-
tified or cashier's check. Banks normally impose a charge in connection with
the use of bank wires, as well as certified checks, cashier's checks and Fed-
eral funds. If an investor's purchase check is not collected, the purchase will
be cancelled and MFSC will charge a fee of $25.00 to the investor's account.
Other Redemption Information
Except as described in "Investor Programs" below, investors may be required to
redeem Shares in a Fund after 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Organ-
ization to maintain a minimum balance in his or her account at the institution
with respect to Shares of a Fund, and the balance in such account falls below
that minimum, the Customer may be obliged by the Shareholder Organization to
redeem all or part of his or her Shares to the extent necessary to maintain the
required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received prior to the
close of regular trading hours on the Exchange (currently 4:00 p.m., Eastern
Time) on any Business Day are priced according to the net asset value deter-
mined on that day. Purchase orders for Shares received after the close of regu-
lar trading hours on the Exchange are priced at the net asset value per Share
determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Customers of Shareholder Organizations may, after appropriate prior authoriza-
tion and without an exchange fee imposed by the Funds, exchange their Distribu-
tion Shares having a value of at least $500 for Distribution Shares of any
other portfolio of Master Fund, provided that such other Distribution Shares
may legally be sold in the state of the investor's residence.
Master Fund currently offers, in addition to the Distribution Shares of the
International Fund and Regional Funds, Distribution Shares in ten additional
portfolios as follows:
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
25
<PAGE>
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis; and
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations.
An exchange involves a redemption of all or a portion of the Shares and the
investment of the redemption proceeds in Distribution Shares of another portfo-
lio of Master Fund. The redemption will be made at the per Share net asset
value of the Shares being redeemed next determined after the exchange request
is received. The Distribution Shares of the portfolio to be acquired will be
purchased at the per share net asset value of those shares (plus any applicable
sales load) next determined after acceptance of the exchange request. In order
to prevent abuse of this privilege to the disadvantage of other shareholders,
Master Fund reserves the right to limit the number of exchange requests of in-
vestors to no more than six per year. No sales load will be payable on Distri-
bution Shares to be acquired through an exchange to the extent that a sales
load was previously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should contact the Dis-
tributor at (800) 233-1136 (from overseas, call (619) 456-9394). Investors ex-
ercising the exchange privilege with the other portfolios of Master Fund should
request and review the prospectuses of such funds. Such prospectuses may be ob-
tained by calling the numbers listed above. Master Fund may modify or terminate
the exchange program at any time upon 60 days written notice to shareholders,
and may reject any exchange request. MASTER FUND, MFSC AND THE DISTRIBUTOR ARE
NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE
THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELE-
PHONE INSTRUCTIONS ARE GENUINE, MASTER FUND WILL USE SUCH PROCEDURES AS ARE
CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING
INFORMATION AS TO ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event and,
accordingly, a capital gain or loss may be realized by an investor. Before mak-
ing an exchange, an investor should consult a tax or other financial adviser to
determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
Customers of certain Shareholder Organizations who own Shares of a Fund with a
value of $10,000 or more may establish a Systematic Withdrawal Plan. The in-
vestor may request a declining-balance withdrawal, a fixed-dollar withdrawal, a
fixed-share withdrawal, or a fixed-percentage withdrawal (based on the current
value of Shares in the account) on a monthly, quarterly, semi-annual or annual
basis. In
26
<PAGE>
formation about such plans and the applicable procedures may be obtained by
Customers directly from their Shareholder Organizations.
RETIREMENT PLANS
Shares are available for purchase by investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by certain Shareholder Or-
ganizations:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Purchase
Plans and Keogh Plans are not subject to the minimum investment and forced re-
demption provisions described above. The minimum initial investment for IRAs is
$250 per Fund and the minimum subsequent investment is $50 per Fund. Detailed
information concerning eligibility, service fees and other matters related to
these plans is available from Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits customers of certain Shareholder Or-
ganizations to purchase Shares (minimum of $50 per Fund per transaction) at
regular intervals selected by the customer. Provided the investor's financial
institution allows automatic withdrawals, Shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be deb-
ited in the specified amount, and Shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help investors to reduce their average cost per share because
the agreed upon fixed investment amount allows more Shares to be purchased dur-
ing periods of lower share prices and fewer Shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be fol-
lowed on a sustained, consistent basis. Investors should be aware, however,
that Shares bought using Dollar Cost Averaging are purchased without regard to
their price on the day of investment or to market trends. In addition, while
investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an investor ultimately redeems his Shares at a price which is lower
than their purchase price.
Information concerning the availability of, and the procedures and fees relat-
ing to, Automatic Investment accounts is available from Shareholder Organiza-
tions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net income of each Fund are declared and paid semi-annual-
ly. Net realized capital gains are distributed at least annually. Dividends and
distributions will reduce the net asset value of a Fund by the amount of the
dividend or distribution. All dividends and distributions paid on Shares held
of record by the Investment Adviser and its affiliates or correspondent banks
will be paid in cash. Direct and Institutional Investors and Customers of other
Shareholder Organizations will receive dividends and distributions in addi-
tional Shares (as determined on the payable date), unless they have requested
in writing (received by MFSC at Master Fund's address prior to the payment
date) to receive dividends and distributions in cash. Reinvested dividends and
distributions receive the same tax treatment as those paid in cash.
27
<PAGE>
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders at least 90% of its
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income (including divi-
dends, interest and short-term capital gains), subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company income each year.
Such dividends will be taxable as ordinary income to a Fund's shareholders who
are not currently exempt from Federal income taxes, whether such income is re-
ceived in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualified pension plans are deferred under the Code.)
It is anticipated that none of the dividends paid by a Fund will be eligible
for the dividends received deduction for corporations.
Distributions by a Fund of the excess of its net long-term capital gain over
its short-term capital loss are taxable to shareholders as long-term capital
gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to them.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares, depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of Shares of a
Fund for shares of another portfolio of Master Fund or Master Tax-Exempt Fund
within 90 days of the purchase and is able to reduce the sales charges applica-
ble to the new shares (by virtue of the exchange privilege), the amount equal
to such reduction may not be included in the tax basis of the shareholder's ex-
changed Shares, but may be included (subject to the same limitation) in the tax
basis of the new shares.
It is expected that dividends and certain interest income earned by each Fund
from foreign securities will be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of a Fund's total assets at the
close of any taxable year consists of equity or debt securities of foreign cor-
porations, such Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. A
28
<PAGE>
Fund may make this election. As a consequence, the amount of such foreign taxes
paid by a Fund will be included in its shareholders' income pro rata (in addi-
tion to taxable distributions actually received by them), and each shareholder
will be entitled either (a) to credit their proportionate amounts of such taxes
against their U.S. Federal income tax liabilities or (b) if they itemize their
deductions, to deduct such proportionate amounts from their U.S. taxable in-
come.
Qualification as a regulated investment company under the Code also requires
that a Fund satisfy certain requirements with respect to the source of its in-
come for a taxable year. At least 90% of the gross income of a Fund must be de-
rived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign cur-
rencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Some of
the investments that a Fund may make (such as gold bullion) may not be securi-
ties or may not produce qualifying income. Therefore, it may be necessary for
the Investment Adviser and Sub-Adviser to restrict the investments of a Fund to
ensure that non-qualifying income does not exceed 10% of such Fund's total
gross income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situations.
Shareholders will be advised annually as to the Federal income tax consequences
of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from those
of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Mas-
ter Fund's Board of Directors. The Statement of Additional Information contains
the names of and general background information concerning Master Fund's direc-
tors.
INVESTMENT ADVISER AND SUB-ADVISERS
United States Trust Company of New York serves as the Investment Adviser to
the Funds. The Investment Adviser is a state-chartered bank and trust company
created by Special Act of the New York Legislature in 1853. The Investment Ad-
viser provides trust and banking services to individuals, corporations, and in-
stitutions both nationally and internationally, including investment manage-
ment, estate and trust administration, financial planning, corporate trust and
agency, and personal and corporate banking. The Investment Adviser is a member
bank of the Federal Reserve System and the Federal Deposit Insurance Corpora-
tion and is one of the twelve members of the New York Clearing House Associa-
tion.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $ billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
Foreign and Colonial Asset Management ("FACAM") (an SEC-registered investment
adviser) provides sub-advisory services to the International and Pan European
Funds. FACAM, a New York gen-
29
<PAGE>
eral partnership with offices at Exchange House, Primrose Street, London
EC2A2NY, is an investment management joint venture created in 1982 by F&C Over-
seas Limited ("FCOC") and UST Overseas Corporation ("USTOC"), an indirect
wholly owned subsidiary of the Investment Adviser. FCOC and USTOC are general
partners of FACAM with equal capital contribution. FCOC, a private English com-
pany, is a wholly owned subsidiary of F&C Management, Ltd. F&C Management, Ltd.
is 50% owned by five U.K. investment trusts: F&C Investment Trust Plc, F&C Pa-
cific Investment Trust Plc, F&C Smaller Companies Investment Trusts Plc, F&C
Enterprise Trust Plc and F&C Eurotrust Plc. The remaining 50% of F&C Manage-
ment, Ltd. is owned by Bayerische Hypotheken und Wechsel Bank AG of Munich,
Germany. FACAM currently manages and advises several commingled funds with as-
sets in excess of $415 million at the end of 1993.
Under the current sub-advisory agreements FCEML (collectively with FACAM, the
"Sub-Advisers") provides sub-advisory services to the Emerging Americas and
Pacific/Asia Funds. FCEML was founded in 1987, and is a joint venture among F&C
Management, Ltd., the parent of FACAM, Banco de Investimentos Garantia ("Ban-
co"), a Brazilian investment bank headquartered in Sao Paulo, Brazil, and man-
agement of FCEML. Banco is owned by private investors. FCEML's offices are at
Exchange House, Primrose Street, London EC2A2NY.
The Sub-Advisers provide a continuous investment program for the Funds for
which they act as sub- adviser, including investment research and management
with respect to all foreign securities and investments of the Funds. The Sub-
Advisers prepare, subject to the Investment Adviser's approval, lists of recom-
mended countries and determine what securities and other investments will be
purchased, retained or sold for each Fund for which they act as sub-adviser.
The Investment Adviser advises the Sub-Advisers with respect to U.S. economic
factors and trends, assists and consults with the Sub-Advisers in connection
with the particular Fund's continuous investment program, places orders with
respect to purchases and sales of U.S. issuers, manages the particular Fund's
short-term cash in cooperation with the particular Sub-Adviser, monitors the
Sub-Advisers' investment procedures and periodically reviews, evaluates and re-
ports to Master Fund's Board of Directors concerning the Sub-Advisers' perfor-
mance.
All investment decisions for the International, Emerging Americas,
Pacific/Asia and Pan European Funds are made by committee and no persons are
primarily responsible for making recommendations to that committee.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements with the Funds, the Investment Adviser is entitled to be paid
a fee, computed daily and paid monthly, at the annual rate of 1% of the average
daily net assets of each Fund. Although the advisory fee rate payable by the
Funds is higher than the rates payable by most mutual funds, Master Fund be-
lieves it is comparable to the rate paid by many other funds with similar in-
vestment objectives and policies and is appropriate for the Funds in light of
their investment objective and policies. FACAM is entitled to receive from the
Investment Adviser an annual fee, computed and paid quarterly, at the annual
rate of .70% of the average daily net assets of each of the International and
Pan European Funds. FCEML is entitled to receive from the Investment Adviser an
annual fee, computed and paid quarterly, at the annual rates of .50% and .70%
of the average daily net assets of the Emerging Americas and Pacific/Asia
Funds, respectively.
For the fiscal year ended March 31, 1995, the Investment Adviser received an
advisory fee after waivers at the effective annual rates of .94%, .93%, .95%
and .94% of the average daily net assets of the International, Emerging Ameri-
cas, Pacific/Asia and Pan European Funds, respectively. For the same period,
30
<PAGE>
the Investment Adviser waived advisory fees at the effective annual rates of
.06%, .07%, .05% and .06% of the average daily net assets of the International
Emerging Americas, Pacific/Asia and Pan European Funds, respectively. For the
same period, FACAM received a sub-advisory fee from the Investment Adviser at
the effective annual rates of . % and . % of the average daily net assets of
the International and Pan European Funds, respectively. For the fiscal year
ended March 31, 1995, FCEML received a sub-advisory fee from the Investment Ad-
viser at the effective annual rates of . % and % of the average daily net as-
sets of the Emerging Americas and Pacific/Asia Funds, respectively.
From time to time, the Investment Adviser and Sub-Advisers may waive (either
voluntarily or pursuant to applicable state expense limitations) all or a por-
tion of the advisory fees payable with respect to a Fund, which waivers may be
terminated at any time. See "Management of the Funds--Service Organizations"
for additional information on fee waivers.
ADMINISTRATORS
Mutual Funds Service Company, an affiliate of the Investment Adviser, and Fed-
erated Investors, Inc. serve as the Funds' administrators (the "Administra-
tors") and provide them with general administrative and operational assistance.
For the services provided to the Funds, the Administrators are jointly entitled
to annual fees, computed daily and paid monthly, at the rate of .20% of the av-
erage daily net assets of each Fund. The Administrators are entitled jointly to
an annual minimum fee of $50,000 from each of the Regional Funds for each full
year after they have commenced operations. From time to time, the Administra-
tors may waive (either voluntarily or pursuant to applicable state expense lim-
itations) all or a portion of the administration fee payable to them by the
Funds, which waivers may be terminated at any time. See "Management of the
Funds--Service Organizations" for additional information on fee waivers. For
the fiscal year ended March 31, 1995, Mutual Funds Service Company and Concord
Holding Corporation, the Funds' former co-administrator, received an aggregate
administration fee (under the compensation arrangements noted above) at the ef-
fective annual rate of .20% of the average daily net assets of each of the In-
ternational, Emerging Americas, Pacific/Asia and Pan European Funds.
SERVICE ORGANIZATIONS
Master Fund will enter into Shareholder servicing agreements ("Servicing
Agreement") with Shareholder Organizations which agree to provide their Custom-
ers various shareholder administrative services with respect to their Shares
(hereinafter referred to as "Service Organizations"). As a consideration for
the administrative services provided to Customers, a Fund will pay each Service
Organization an administrative service fee at the annual rate of up to .40% of
the average daily net asset value of its Shares held by the Service Organiza-
tion's Customers. Such services, which are described more fully in the State-
ment of Additional Information under "Management of the Funds--Service Organi-
zations," may include assisting in processing purchase, exchange and redemption
requests; transmitting and receiving funds in connection with Customer orders
to purchase, exchange or redeem Shares; and providing periodic statements. Un-
der the terms of the Servicing Agreement, Service Organizations will be re-
quired to provide to Customers a schedule of any fees that they may charge in
connection with a Customer's investment. Until further notice, the Investment
Adviser and Administrators have voluntarily agreed to waive fees payable by a
Fund in an amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organiz-
31
<PAGE>
ing or controlling a registered, open-end investment company continuously en-
gaged in the issuance of its shares, and prohibit banks generally from issuing,
underwriting, selling or distributing securities such as Shares of the Funds,
but such banking laws and regulations do not prohibit such a holding company or
affiliate or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company, or from purchasing shares of such
company for and upon the order of customers. The Investment Adviser, MFSC and
certain Shareholder Organizations may be subject to such banking laws and regu-
lations. State securities laws may differ from the interpretations of Federal
law discussed in this paragraph and banks and financial institutions may be re-
quired to register as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would af-
fect their net asset values per Share or result in financial loss to any share-
holder.
DESCRIPTION OF CAPITAL STOCK
Master Fund was organized as a Maryland corporation on August 2, 1984. Cur-
rently, Master Fund has authorized capital of 35 billion shares of Common
Stock, $.001 par value per share, classified into 34 series of shares repre-
senting interests in 20 investment portfolios. This Prospectus describes the
International, Emerging Americas, Pacific/Asia and Pan European Funds. Master
Fund offers Shares and Distribution Shares representing interests in each
of those Funds. Shares and Distribution Shares have different expenses,
which may affect performance. Contact the distributor at (800) 233-1136 for in-
formation regarding each of those Fund's Shares, which are offered through
separate prospectuses.
Each Share (irrespective of series designation) represents an equal propor-
tionate interest in the particular Fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such Fund as are declared in the discretion of Master
Fund's Board of Directors. Master Fund's Charter authorizes the Board of Direc-
tors to classify or reclassify any class of shares into one or more additional
classes or series.
Shareholders of Master Fund are entitled to one vote for each full share held,
and fractional votes for fractional shares held, and will vote in the aggregate
and not by class, except as otherwise expressly required by law. Holders of a
Fund's Shares in the respective Fund will vote in the aggregate, and not by se-
ries, on all matters, except where otherwise required by law and except that
only Distribution Shares will be entitled to vote on matters submitted to a
vote of shareholders pertaining to the Fund's Distribution Plan.
The Shares, unlike the Distribution Shares, do not bear any expenses un-
der a distribution plan adopted under Rule 12b-1 under the 1940 Act and can be
exchanged into the other investment portfolios of Master Fund and Master Tax-
Exempt Fund. See "Investor Programs--Exchange Privilege" for a description of
the exchange privilege for holders of Distribution Shares.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of May 19, 1995, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have discretion to vote or invest such
Shares.
32
<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase") serves as the custodian of the Funds'
assets and as their transfer and dividend disbursing agent. Communications to
the custodian and transfer agent should be directed to Chase at .
[U.S. Trust has entered into an International Custodian Agreement with Morgan
Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, NY 11201, providing for
the custody of foreign securities held by the Funds.]
Chase has also entered into a sub-transfer agency arrangement with MFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of a Fund may also be compared
to the Europe, Australia, and Far East Index ("EAFE") and the Financial Times
Index, unmanaged standard foreign securities indexes.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares and also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be con-
sidered as representative of a Fund's future performance. Shareholders should
remember that performance is generally a function of the kind and quality of
the instrument held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by Shareholder Organizations with respect
to accounts of Customers that have invested in Shares will not be included in
calculations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Master Fund or a particular Fund means, with respect to the
approval of an investment advisory agreement, a dis
33
<PAGE>
tribution plan or a change in a fundamental investment policy, the affirmative
vote of the lesser of (a) more than 50% of the outstanding shares of Master
Fund or such Fund, or (b) 67% or more of the shares of Master Fund or such Fund
present at a meeting if more than 50% of the outstanding shares of Master Fund
or the Fund are represented at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at the
address or telephone number listed under "Distributor."
34
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Funds Service Company c/o Mutual Funds Service
P.O. Box 2798 Company--Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus
entitled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per Fund.
Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with
procedures described in the Prospectus. In the case of shares recently
purchased by check, redemption proceeds will not be made available until the
transfer agent is reasonably assured that the check has been collected in
accordance with applicable banking regulations.
Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if redemption is requested by anyone
other than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
*A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption
requirements, please contact the transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
35
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF UST MUTUAL FUNDS SERVICE COMPANY
MASTER FUNDS CLIENT SERVICES NEW ACCOUNT APPLICATION
APPEARS HERE] P.O. Box 2798
Boston, MA 02208-2798
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other_________________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
--------------------------- ----------------------------------------------
Name(s) (please print) Social Security # or Taxpayer Identification #
( )
--------------------------- ----------------------------------------------
Name Telephone #
---------------------------
Address
[_] U.S. Citizen [_] Other (specify) ________
---------------------------
City/State/Zip
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INITIAL INVESTMENT
[_] International Fund $ ____________ 802
[_] Pan European Fund $ ____________ 821
[_] Pacific/Asia Fund $ ____________ 820
[_] Emerging Americas Fund $ ____________ 822
[_] Other $ ____________
TOTAL INITIAL INVESTMENT: $ ____________
</TABLE>
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds."
B. BY WIRE: A bank wire in the amount of $ has been sent to the Fund
from__________________ ___________________
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND
REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privilages. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $1,000 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*_____________________________________________________
Name of Bank ______________________________________________________________
Bank A.B.A. Number Account Number _________________________________________
Bank Address ______________________________________________________________
City/State/Zip ____________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this section, listing
all of your accounts including those in your spouse's name, joint accounts and
accounts held for your minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge discount
described in the Prospectus and Statement of Additional Information.
[_] I/We own shares of more than one Fund distributed by UST Distributors,
Inc. Listed below are the numbers of each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that shown on this
application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER UST MASTER FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in the Prospectus.
Although I am not obligated to purchase, and Master Fund is not obligated
to sell, I intend to invest, over a 13-month period beginning on , 19 , an
aggregate amount in Eligible Funds of Master Fund and Master Tax-Exempt
Fund at least equal to (check appropriate box):
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000
[_] $1,000,000 [_] $2,000,000
By signing this application, I hereby authorize MFSC to redeem an
appropriate number of shares held in escrow to pay any additional sales
loads payable in the event that I do not fulfill the terms of this Letter
of Intent.
- ------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under penalty of perjury that
the information on this application is complete and correct and that as
required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form is/are the correct
taxpayer identification number(s) and (2) I/we are not subject to backup
withholding either because I/we have not been notified by the Internal Revenue
Service that I/we are subject to backup withholding, or the IRS has notified
me/us that I am/we are no longer subject to backup withholding. (NOTE: IF ANY
OR ALL OF PART 2 IS NOT TRUE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has been provided
above, I/we have applied, or intend to apply, to the IRS or the Social
Security Administration for a TIN or a SSN, and I/we understand that if I/we
do not provide this number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or TIN, I/we may be
subject to a penalty and a 31% backup withholding on distributions and
redemption proceeds. (Please provide this number on Form W-9. You may request
the form by calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to purchase shares
of the UST Master Funds. I/We have received, read and carefully reviewed a
copy of the appropriate Fund's current Prospectus and agree to its terms and
by signing below I/we acknowledge that neither the Fund nor the Distributor is
a bank and that Fund shares are not deposits or obligations of, or guaranteed
or endorsed by, United States Trust Company of New York, its parent and
affiliates and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency; and that an investment in the Funds involves investment
risks, including possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above (including
legal title if signing for a corporation, trust custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares in accordance
with the terms of our selling agreement with UST Distributors, Inc., and with
the Prospectus and Statement of Additional Information of each Fund purchased.
We agree to notify MFSC of any purchases made under the Letter of Intent or
Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
MUTUAL FUNDS SERVICE COMPANY
[LOGO OF UST CLIENT SERVICES SUPPLEMENTAL APPLICATION
MASTER FUNDS P.O. Box 2798 SPECIAL INVESTMENT AND WITHDRAWAL OPTIONS
APPEARS HERE] Boston, MA 02208-2798
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50 per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ------------------------- -----------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our account for
amounts drawn by MFSC, acting as my agent for the purchase of Fund shares.
I/We agree that your rights in respect to each withdrawal shall be the same
as if it were a check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received by you. I/We
agree that you shall incur no liability when honoring debits, except a loss
due to payments drawn against insufficient funds. I/We further agree that
you will incur no liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the cancellation of that
purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ ________ X __________________ __________
Signature Date Signature Date
<PAGE>
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize MFSC to redeem the necessary number of shares from
my/our UST Master Fund Account on the designated dates in order to make the
following periodic payments:
[_] Monthly on the 24th day [_] Quarterly on the 24th day of January,
April, July and October [_] Other_____________________
(This request for participation in the Plan must be received by the 18th day
of the month in which you wish withdrawals to begin.)
Amount of each check ($100 minimum) $ _______________________
Please make check payable to: (To be completed only if redemption proceeds to
be paid to other than account holder of record or mailed to address other than
address of record)
Recipient ________________________________
Street Address ___________________________
City, State, Zip Code ____________________
NOTE: If recipient of checks is not the registered shareholder, signature(s)
----
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until MFSC receives
written notice of any change or revocation. Any change in these instructions
must be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
----------------------------------- ------------------------------------
Signature Signature
----------------------------------- ------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
----------------------------------- ------------------------------------
Signature Signature
----------------------------------- ------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVES AND POLICIES......................................... 9
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 14
INVESTMENT LIMITATIONS..................................................... 17
PRICING OF SHARES.......................................................... 19
HOW TO PURCHASE AND REDEEM SHARES.......................................... 19
INVESTOR PROGRAMS.......................................................... 25
DIVIDENDS AND DISTRIBUTIONS................................................ 27
TAXES...................................................................... 28
MANAGEMENT OF THE FUNDS.................................................... 29
DESCRIPTION OF CAPITAL STOCK............................................... 32
CUSTODIAN AND TRANSFER AGENT............................................... 33
PERFORMANCE INFORMATION.................................................... 33
MISCELLANEOUS.............................................................. 33
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 35
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MASTER
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
MASTER FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTINLP894
[LOGO OF UST MASTER FUNDS, INC APPEARS HERE]
MASTER FUNDS, INC.
INTERNATIONAL FUND
EMERGING AMERICAS FUND
PACIFIC/ASIA FUND
PAN EUROPEAN FUND
Prospectus August 1, 1995
<PAGE>
CROSS-REFERENCE SHEET
UST MASTER FUNDS, INC.
(INTERNATIONAL FUND, EMERGING AMERICAS FUND, PACIFIC ASIA FUND, PAN EUROPEAN
FUND)
<TABLE>
<CAPTION>
FORM N-1A, PART A, ITEM PROSPECTUS CAPTION
----------------------- ------------------
<C> <S> <C>
1. Cover Page.......................... Cover Page
2. Synopsis............................ Prospectus Summary and
Expense Summary
3. Financial Highlights................ Selected Per Share Data and Ratios;
Performance Information
4. General Description of Registrant... Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment Limitations;
Description of Capital Stock
5. Management of the Fund.............. Management of the Fund; Custodian
and Transfer Agent
6. Capital Stock and Other Securities.. How to Purchase and Redeem Shares;
Dividends and Distributions; Taxes;
Description of Capital Stock;
Miscellaneous
7. Purchase of Securities Being Pricing of Shares; How to Purchase
Offered............................ and Redeem Shares; Investor Programs
8. Redemption or Repurchase............ How to Purchase and Redeem Shares
9. Pending Legal Proceedings........... Inapplicable
</TABLE>
<PAGE>
[LOGO OF UST MASTER FUNDS, INC. APPEARS HERE]
MASTER FUNDS, INC.
A Management Investment Company
- -------------------------------------------------------------------------------
International Funds For initial purchase information, call (800) 233-1136.
73 Tremont Street (From overseas, call (619) 456-9394)
Boston, MA 02108-3913
For current prices and yield information, call
(800)233-9180.
For existing account information, call (800) 446-1012.
(From overseas, call (617) 956-9744.)
- -------------------------------------------------------------------------------
This Prospectus describes the Shares ("Shares") offered by several sepa-
rate portfolios offered to investors by UST Master Funds, Inc. ("Master
Fund"), an open-end, management investment company. Master Fund also issues an
additional series of shares in the portfolios ("Distribution Shares"), which
are offered under a separate prospectus. Each portfolio (each a "Fund" and
collectively the "Funds") has its own investment objective and policies as
follows:
INTERNATIONAL FUND seeks total return on its assets through capital apprecia-
tion and income derived primarily from investments in a diversified portfolio
of marketable foreign equity securities.
EMERGING AMERICAS FUND seeks long-term capital appreciation through invest-
ments in companies and securities of governments based in all countries in the
Western Hemisphere, except the U.S.
PACIFIC/ASIA FUND seeks long-term capital appreciation through investments in
companies and securities of governments based in all countries in Asia and on
the Asian side of the Pacific Ocean.
PAN EUROPEAN FUND seeks long-term capital appreciation through investments in
companies and securities of governments based in Europe.
Master Fund is sponsored and distributed by UST Distributors, Inc. and ad-
vised by United States Trust Company of New York (the "Investment Adviser" or
"U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1995 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available upon request without
charge by writing to Master Fund at its address shown above or by calling
(800) 233-1136. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1995
<PAGE>
PROSPECTUS SUMMARY
UST MASTER FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Master Fund
currently offers 20 Funds with combined assets of approximately $2.5 billion.
See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York serves as the
Funds' investment adviser. U.S. Trust and its predecessor, founded in 1853, is
a trust company offering a variety of specialized financial and fiduciary serv-
ices to high-net worth individuals, institutions and corporations. Master Fund
offers investors access to U.S. Trust's services. The International and Pan Eu-
ropean Funds receive sub-advisory services from Foreign and Colonial Asset Man-
agement ("FACAM"), and the Emerging Americas and Pacific/Asia Funds receive
sub-advisory services from Foreign & Colonial Emerging Markets Limited
("FCEML"). FACAM and FCEML are U.S. Trust affiliates. See "Management of the
Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund invests principally
in the equity securities of foreign companies. The Funds also may invest in
warrants, convertible securities, bonds and other securities of foreign compa-
nies and governments. The Funds' investment objectives and policies are summa-
rized on the cover and explained in greater detail later in this Prospectus.
See "Investment Objectives and Policies," "Portfolio Instruments and Other In-
formation" and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load is
not applicable to investors making their investments through a variety of in-
stitutions, such as U.S. Trust, other banks and trust companies. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropriate
sales agreements with Master Fund. See "How to Purchase and Redeem Shares."
HOW TO REDEEM: Redemptions may be requested directly from Master Fund by
mail, wire or telephone. Investors investing through another institution should
request redemptions through their Shareholder Organization. See "How to Pur-
chase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to mar-
ket risk and currency risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. Stock markets tend to be cy-
clical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. In addition,
since the Funds invest in foreign securities, the Funds are subject to the
risks of fluctuations of the value of foreign currencies relative to the U.S.
dollar and other risks associated with such investments. Finally, while the In-
ternational Fund diversifies its investments in a variety of companies and
countries, the Emerging Americas, Pacific/Asia and Pan European Funds (collec-
tively, the "Regional Funds") focus their investment activities in their desig-
nated regions. As a result each Regional Fund is susceptible to regional eco-
nomic, market, political and other more localized risks. Although each Fund
generally seeks to invest for the long term, each Fund may engage in short-term
trading of portfolio securities. A high rate of portfolio turnover may involve
correspondingly greater transaction costs which must be borne directly by a
Fund and ultimately by its shareholders. Investments in the Funds should not be
considered a complete investment program. See "Investment Objectives and Poli-
cies--Risk Factors" and "Portfolio Instruments and Other Investment Informa-
tion."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING AMERICAS PACIFIC/ASIA PAN EUROPEAN
FUND FUND FUND FUND
------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load
(as a percentage of
offering price)........ 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None
Deferred Sales Load..... None None None None
Redemption Fees/1/...... None None None None
Exchange Fees........... None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............ .94% .93% .95% .94%
12b-1 Fees.............. None None None None
Other Operating Expenses
Administrative Servic-
ing Fee............... .06% .06% .05% .06%
Other Expenses......... .47% .51% .47% .51%
Total Fund Operating Ex-
penses (after fee waiv-
ers)/2/................ 1.47% 1.50% 1.47% 1.51%
</TABLE>
- -------
/1/The Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Redemp-
tion Procedures."
/2/The Investment Adviser and Administrators may, from time to time, voluntarily
waive a portion of their respective fees which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the extent
necessary for the Emerging Americas, Pacific/Asia and Pan European Funds to
maintain an annual expense ratio of not more than 1.67%. Without such fee
waivers, "Advisory Fees" would be 1.00%, 1.00%, 1.00% and 1.00% and total op-
erating expenses would be 1.53%, 1.57%, 1.52%, and 1.57% for each of the In-
ternational, Emerging Americas, Pacific/Asia and Pan European Funds.
3
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns; and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
International Fund.............................. $59 $89 $122 $213
Emerging Americas Fund.......................... 60 90 123 216
Pacific/Asia Fund............................... 59 89 122 213
Pan European Fund............................... 60 91 124 217
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or indirect-
ly. The expense summary sets forth advisory and other expenses payable with re-
spect to Shares of the Funds for the fiscal year ended March 31, 1995. For more
complete descriptions of the Funds' operating expenses, see "Management of the
Funds" in this Prospectus and the financial statements and notes incorporated
by reference in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding
throughout each period and other performance information, with respect to the
International Fund, the last five years of which has been derived from the fi-
nancial statements included in Master Fund's Annual Report to Shareholders for
the year ended March 31, 1995 (the "Financial Statements"). The following ta-
bles should be read in conjunction with the Financial Statements and notes
thereto. More information about the performance of each Fund is also contained
in the Annual Report to Shareholders which may be obtained from Master Fund
without charge.
Prior to the date of this Prospectus, each Fund offered a single series of
shares, the Shares. As of the date of this Prospectus, the Funds began of-
fering a new series of shares designated as Distribution Shares. Shares and
Distribution Shares represent equal pro rata interests in each Fund, except
they bear different expenses which reflect the difference in the level of serv-
ices provided to them.
INTERNATIONAL FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988/1/
------- ------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of period......... $ $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85 $ 8.00
------- ------ ------ ------- ------- ------ ------ -------
Income From Investment
Operations
Net Investment Income.. 0.05 0.15 0.08 0.13 0.15 0.05 0.05
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... ( ) 1.88 0.25 (0.45) (0.64) 1.47 0.77 (0.16)
------- ------ ------ ------- ------- ------ ------ -------
Total From Investment
Operations............ ( ) 1.93 0.40 (0.37) (0.51) 1.62 0.82 (0.11)
------- ------ ------ ------- ------- ------ ------ -------
Less Distributions
Dividends From Net
Investment Income..... (0.02) (0.01) (0.11) (0.11) (0.16) (0.06) (0.03)
Dividends in Excess of
Net Investment Income. ( ) (0.12) 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments........... ( ) (0.01) 0.00 0.00 (0.47) (0.23) 0.00 (0.01)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------- ------- ------ ------ -------
Total Distributions.... ( ) (0.15) (0.01) (0.11) (0.58) (0.39) (0.06) (0.04)
------- ------ ------ ------- ------- ------ ------ -------
Net Asset Value, End of
Period................. $ $10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85
======= ====== ====== ======= ======= ====== ====== =======
Total Return/2/......... ( )% 22.34% 4.85% (4.35)% (5.20)% 18.91% 10.59% (1.28)%
Ratios/Supplemental Data
Net Assets, End of Pe-
riod (in millions).... $ $55.74 $30.37 $ 46.92 $ 31.87 $21.49 $13.01 $ 8.56
Ratio of Net Operating
Expenses to Average
Net Assets............ % 1.53% 1.50% 1.52% 1.61% 1.34% 1.28% 1.09%/3/
Ratio of Gross Operat-
ing Expenses to Aver-
age Net Assets........ % 1.53% 1.50% 1.52% 1.61% 1.58% 1.93% 2.81%/3/
Ratio of Net Investment
Income to Average Net
Assets................ % 0.18% 1.27% 0.94% 1.57% 1.55% 0.75% 1.13%/3/
Portfolio Turnover
Rate.................. % 64.0% 31.0% 32.0% 47.0% 50.0% 80.0% 55.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was July 21, 1987.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
5
<PAGE>
EMERGING AMERICAS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ $ 7.12 $ 7.00
-------- ------- -------
Income From Investment
Operations
Net Investment Income........ 0.05 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. ( ) 2.24 0.12
-------- ------- -------
Total From Investment Opera-
tions....................... ( ) 2.29 0.12
-------- ------- -------
Less Distributions
Dividends From Net Investment
Income...................... (0.03) 0.00
Dividends in Excess of Net
Investment Income........... ( ) (0.02) 0.00
Distributions From Net Real-
ized Gain on Investments.... (0.06) 0.00
Distributions in Excess of
Net Realized Gain on
Investments................. 0.00 0.00
-------- ------- -------
Total Distributions.......... ( ) (0.11) 0.00
-------- ------- -------
Net Asset Value, End of Period. $ $ 9.30 $ 7.12
======== ======= =======
Total Return/2/................ ( )% 32.25% 1.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $ 39.28 $ 3.83
Ratio of Net Operating
Expenses to Average Net
Assets...................... % 1.49% 1.67%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets...................... % 1.71% 2.56%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... % 0.29% (0.04)%/3/
Portfolio Turnover Rate...... % 51.0% 76.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
6
<PAGE>
PACIFIC/ASIA FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ $ 7.54 $ 7.00
------- ------ ------
Income From Investment
Operations
Net Investment Income........ 0.08 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. ( ) 2.81 0.54
------- ------ ------
Total From Investment Opera-
tions....................... ( ) 2.89 0.54
------- ------ ------
Less Distributions
Dividends From Net Investment
Income...................... ( ) (0.05) 0.00
Dividends in Excess of Net
Investment Income........... ( ) (0.06) 0.00
Distributions From Net Real-
ized Gain on Investments.... ( ) (0.28) 0.00
Distributions in Excess of
Net Realized Gain on Invest-
ment........................ 0.00 0.00
------- ------ ------
Total Distributions.......... ( ) (0.39) 0.00
------- ------ ------
Net Asset Value, End of Period. $ $10.04 $ 7.54
======= ====== ======
Total Return/2/................ ( )% 38.11% 7.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $ $53.03 $ 9.67
Ratio of Net Operating Ex-
penses to Average Net As-
sets........................ % 1.53% 1.67%/3/
Ratio of Gross Operating Ex-
penses to Average Net As-
sets........................ % 1.77% 2.00%/3/
Ratio of Net Investment In-
come to Average Net Assets.. % 0.54% 0.27%/3/
Portfolio Turnover Rate...... % 68.0% 1.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
7
<PAGE>
PAN EUROPEAN FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993/1/
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ 8.03 $ 7.34 $ 7.00
------ ------ -------
Income From Investment Opera-
tions
Net Investment Income........ 0.09 0.03 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 0.25 0.70 0.34
------ ------ -------
Total From Investment Opera-
tions....................... 0.34 0.73 0.34
------ ------ -------
Less Distributions
Dividends From Net Investment
Income...................... (0.09) 0.00 0.00
Dividends in Excess of Net
Investment Income........... 0.00 (0.04) 0.00
Distributions From Net Real-
ized Gain on Investments.... (0.09) 0.00 0.00
Distributions in Excess of
Net Realized Gain on Invest-
ment........................ 0.00 0.00 0.00
------ ------ -------
Total Distributions.......... (0.18) (0.04) 0.00
------ ------ -------
Net Asset Value, End of Period. $ 8.19 $ 8.03 $ 7.34
====== ====== =======
Total Return/2/................ 4.33% 10.05% 4.86%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $39.98 $36.68 $ 3.80
Ratio of Net Operating Ex-
penses to Average Net As-
sets........................ 1.51% 1.61% 1.67%/3/
Ratio of Gross Operating to
Average Net Assets.......... 1.57% 1.72% 3.13%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets...................... 1.11% 0.06% (0.33%)/3/
Portfolio Turnover Rate...... 47.0% 30.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objectives of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental", meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). Except as noted below
in "Investment Limitations," the investment policies of each Fund may be
changed without a vote of the holders of a majority of the outstanding Shares
of such Fund.
INTERNATIONAL FUND
The International Fund's investment objective is to seek total return on its
assets through capital appreciation and income derived primarily from invest-
ments in a diversified portfolio of marketable foreign equity securities.
In seeking to achieve this investment objective, the International Fund will
invest primarily in equity securities of foreign issuers who will, in the
opinion of Foreign and Colonial Asset Management, the Fund's sub-adviser (the
"Sub-Adviser" or "FACAM") and the Investment Adviser, benefit from global eco-
nomic trends, promising technologies or products and specific country opportu-
nities resulting from changing geo-political, economic or currency relation-
ships. In making investment decisions, the Sub-Adviser and Investment Adviser
will seek to identify values not recognized in the market price of a security.
The primary emphasis will be on the achievement of a higher total return fo-
cusing, as circumstances warrant, solely on either growth of capital or gener-
ation of current income or any combination thereof.
The International Fund does not intend to have, at any time, a specified per-
centage of its assets invested either for growth or for income, and all or any
portion of its assets may be allocated among these two components based on the
Investment Adviser's and Sub-Adviser's analysis of the prevailing market con-
ditions. Although the Fund will seek to realize its investment objective pri-
marily through investments in foreign equity securities, it may, from time to
time, assume a defensive position by allocating all or any portion of its as-
sets to foreign debt obligations. In determining investment strategy and allo-
cating investments, the Sub-Adviser and Investment Adviser will continuously
analyze a broad range of international equity and fixed-income securities in
order to assess the level of return, and degree of risk, that can be expected
from each type of investment and from each market.
The International Fund's investments will generally be diversified among geo-
graphic regions and countries. While there are no prescribed limits on geo-
graphic distribution, the Fund will normally include in its portfolio securi-
ties of issuers collectively having their principal business in no fewer than
three foreign countries. The Fund's assets may be invested in securities of
issuers located in the Pacific Basin (e.g. Japan, Hong Kong, Singapore, Malay-
sia), Europe, Australia, Latin America and Canada. The Fund may also, from
time to time, invest in other regions, seeking to capitalize on investment op-
portunities emerging in other parts of the world.
REGIONAL FUNDS:
The investment objective of each Regional Fund is long-term capital apprecia-
tion. In seeking to achieve this investment objective, each Regional Fund will
invest primarily in equity securities of foreign issuers who will, in the
opinion of the particular Fund's Sub-Adviser and the Investment Adviser, bene-
fit from global and regional economic trends, promising technologies or prod-
ucts and specific country and regional opportunities resulting from changing
geo-political, economic or currency relationships. In making investment deci-
sions, the particular Fund's Sub-Adviser and the Investment Adviser will seek
to identify values not recognized in the market price of a security.
9
<PAGE>
Although each Regional Fund will seek to realize its investment objective pri-
marily through investments in foreign equity and government securities, it may,
from time to time, assume a defensive position by allocating all or any portion
of its assets to U.S. Government or foreign debt obligations. The Regional
Funds will limit their investments in foreign debt obligations to those rated
within the top three ratings by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") or, if unrated, determined by the In-
vestment Advisory or the sub-adviser to be of comparable quality. No Regional
Fund currently expects to invest more than 25% of its total assets in the secu-
rities issued by any single foreign government. Any such investment would sub-
ject the particular Regional Fund to the risks presented by investing in secu-
rities of such foreign government to a greater extent than it would if that
Fund's assets were not so concentrated. In determining investment strategy and
allocating investments, the particular Fund's Sub-Adviser and the Investment
Adviser will continuously analyze a broad range of international equity and
fixed-income securities in order to assess the level of return, and degree of
risk, that can be expected from each type of investment and from each market.
Under normal circumstances, each Regional Fund will invest at least 65% of its
total assets in securities of issuers based in its targeted region. A company
is "based in" a region if it derives more than half of its assets, revenues or
profits from such region. The Regional Funds and their targeted regions are as
follows:
EMERGING AMERICAS FUND. The Emerging Americas Fund invests primarily in secu-
rities of companies and governments based in all countries of the Western Hemi-
sphere except the U.S. Currently, the Investment Adviser believes that such
countries may include Canada, Mexico, the Bahamas, Costa Rica, Venezuela, Co-
lombia, Peru, Brazil, Argentina and Chile. Under normal conditions, the Fund
will invest at least 65% of its total assets in securities of issuers based in
countries other than Canada. The Fund may also invest in Brady Bonds, which are
securities issued in various currencies (primarily the dollar) that have been
created through the exchange of existing commercial bank loans to Latin Ameri-
can public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S. Secre-
tary of the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds have
been issued only recently and for that reason do not have a long payment histo-
ry. Brady Bonds may be collateralized or uncollateralized, are issued in vari-
ous currencies (primarily the dollar) and are actively traded in the over-the-
counter secondary market for Latin American debt instruments. Brady Bonds are
neither issued nor guaranteed by the U.S. Government. Additional information on
Brady Bonds is included in the Statement of Additional Information.
PACIFIC/ASIA FUND. The Pacific/Asia Fund invests primarily in securities of
companies and governments based in Asia and on the Asian side of the Pacific
Ocean. Currently, the Investment Adviser believes that such countries may in-
clude Australia, New Zealand, Hong Kong, India, Japan, Indonesia, the Philip-
pines, Malaysia, Singapore, Taiwan, China, Thailand, South Korea, Sri Lanka and
Pakistan.
PAN EUROPEAN FUND. The Pan European Fund invests primarily in securities of
companies and governments based in Europe. Currently, the Investment Adviser
believes that such countries may include Ireland, the United Kingdom, Norway,
Sweden, Finland, Holland, Belgium, Luxembourg, France, Portugal, Spain, Den-
mark, Germany, Poland, Czech Republic, Slovakia, Hungary, Switzerland, Austria,
Greece, Turkey and Italy. As other formerly communist and Eastern European
countries become economically viable, investments may be made there as well.
INVESTMENT POLICIES COMMON TO ALL FUNDS
Under normal market and economic conditions, at least 75% of each Fund's as-
sets will be invested in
10
<PAGE>
foreign securities. Foreign securities include common stock, preferred stock,
securities convertible into common stock, warrants, bonds, notes and other debt
obligations issued by foreign entities, as well as shares of U.S. registered
investment companies that invest primarily in foreign securities. Foreign debt
securities purchased by a Fund may include obligations issued in the
Eurocurrency markets and obligations of foreign governments and their political
subdivisions. In addition, each Fund may invest in U.S. Government obligations,
including the when-issued securities of such issuers, and obligations issued by
U.S. companies which are either denominated in foreign currency and sold abroad
or, if denominated in U.S. dollars, payment on which is determined by reference
to some other foreign currency.
Each Fund may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"). Investments in unsponsored ADRs involve addi-
tional risk because financial information based on generally accepted account-
ing principles ("GAAP") may not be available for the foreign issuers of the un-
derlying securities. ADRs and EDRs may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Under unusual economic and market conditions, each Fund may restrict the secu-
rities markets in which its assets are invested and may invest all or a major
portion of its assets in U.S. Government obligations or in U.S. dollar-denomi-
nated securities of U.S. companies. Up to 25% of each Fund's assets may also be
held on a continuous basis in cash or invested in U.S. money market instruments
(see below under "Money Market Instruments") to meet redemption requests or to
take advantage of emerging investment opportunities. To the extent described
below under "Portfolio Instruments and Other Investment Information," each Fund
may purchase shares of other investment companies and may engage in repurchase
agreements, securities lending, forward currency contracts and futures con-
tracts, options on futures and covered call options.
Convertible and non-convertible debt securities purchased by each Fund will be
rated "investment grade," or, if unrated, deemed by the particular Sub-Adviser
and the Investment Adviser to be comparable to securities rated "investment
grade," by Moody's or S&P. Debt obligations rated in the lowest of the top four
"investment grade" ratings ("Baa" by Moody's and "BBB" by S&P) are considered
to have some speculative characteristics and may be more sensitive to adverse
economic change than higher rated securities. Each Fund will sell in an orderly
fashion as soon as possible any convertible and non-convertible debt securities
it holds if they are downgraded below "Baa" by Moody's or below "BBB" by S&P.
Foreign securities are generally unrated. In purchasing foreign equity securi-
ties, the particular Fund's Sub-Adviser will look generally to established for-
eign companies. Each Fund may purchase securities both on recognized stock ex-
changes and in over-the-counter markets. Most of the Funds' portfolio transac-
tions will be effected in the primary trading market for the given security.
Each Fund also may invest up to 5% of its total assets in gold bullion. Invest-
ments in gold will not produce dividends or interest income, and the Funds can
look only to price appreciation for a return on such investments.
RISK FACTORS
Generally. Each Fund is subject to market risk, interest rate risks and the
risks of investing in foreign securities. Market risk is the possibility that
stock prices will decline over short or even extended periods. The stock mar-
kets tend to be cyclical, with periods of generally rising prices and periods
of generally declining prices. These cycles will affect the values of each
Fund. In addition, to the extent that the Funds invest in fixed-income securi-
ties, their holdings of debt securities are sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of bonds and
debt securities fluctuate inversely with interest rate changes.
11
<PAGE>
Investments in securities of foreign issuers involve certain risks not ordi-
narily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Since each Fund will invest
heavily in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will, to the extent a Fund
does not adequately hedge against such fluctuations, affect the value of secu-
rities in the portfolio and the unrealized appreciation or depreciation of in-
vestments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or
as uniform as those of U.S.-based companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable U.S.-based companies.
Transaction costs on foreign securities markets are generally higher than in
the United States. There is generally less government supervision and regula-
tion of foreign exchanges, brokers and issuers than there is in the U.S. The
Funds might have greater difficulty taking appropriate legal action in a for-
eign court than in a U.S. court.
Dividends and interest payable on a Fund's foreign portfolio securities may
be subject to foreign withholding taxes. To the extent such taxes are not off-
set by credits or deductions allowed to investors under the Federal income tax
provisions--see "Taxes--Federal"--they may reduce the net return to the Fund's
shareholders. Investors should also understand that the expense ratio of the
Funds can be expected to be higher than those of funds investing in domestic
securities. The costs attributable to investing abroad are usually higher for
several reasons, such as the higher cost of investment research, higher cost
of custody of foreign securities, higher commissions paid on comparable trans-
actions on foreign markets and additional costs arising from delays in settle-
ments of transactions involving foreign securities.
Emerging Americas Fund. The Latin American economies have experienced consid-
erable difficulties in the past decade. Although there have been significant
improvements in recent years, the Latin American economies continue to experi-
ence significant problems, including high inflation rates and high interest
rates. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain Latin American countries. The emergence of the Latin American econ-
omies and securities markets will require continued economic and fiscal disci-
pline which has been lacking at times in the past, as well as stable political
and social conditions. There is no assurance that economic initiatives will be
successful. Recovery may also be influenced by international economic condi-
tions, particularly those in the United States, and by world prices for oil
and other commodities.
Pan European Fund. Political and economic developments in Europe, especially
as they relate to changes in the structure of the European Economic Community
and the anticipated development of a unified common market, may have profound
effects upon the value of a large segment of the Fund's investment portfolio.
For example, continued progress in the evolution of a unified European common
market may be slowed by unanticipated political or social events and may,
therefore, adversely affect the value of certain of the securities held by the
Fund. In addition, Germany is currently experiencing significant economic
stress associated with its recent unification. These pressures
12
<PAGE>
are affecting other European countries to varying degrees and have caused con-
siderable currency volatility within the European monetary system.
Pacific/Asia Fund. The extent of economic development, political stability
and market depth of different countries in the Pacific/Asia region varies
widely. Certain countries in the region are either comparatively underdevel-
oped or are in the process of becoming developed, and investments in the secu-
rities of issuers in such countries typically involve greater potential for
gain or loss than investments in securities of issuers in more developed coun-
tries. Certain countries in the region also depend to a large degree upon ex-
ports of primary commodities and, therefore, are vulnerable to changes in com-
modity prices which, in turn, may be affected by a variety of factors. The
Fund may be particularly sensitive to changes in the economies of certain
countries in the Pacific/Asia region resulting from any reversal of economic
liberalization, political unrest or the imposition of sanctions by the United
States or other countries.
Latin America, Eastern Europe and the Pacific/Asia Region. Certain of the
risks associated with international investments are heightened with respect to
investments in developing countries and fledgling democracies in Latin Ameri-
ca, Eastern Europe and the Pacific/Asia region. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets. In addition, the de-
veloping countries and emerging democracies in those regions may have econo-
mies based on only a few industries and small securities markets with a low
volume of trading. Certain countries may also impose substantial restrictions
on investments in their capital markets by foreign entities, including re-
strictions on investments in issuers of industries deemed sensitive to rele-
vant national interests. These factors may limit the investment opportunities
available to the Funds and result in a lack of liquidity and a high price vol-
atility with respect to securities of issuers from the developing countries
and emerging democracies in those regions.
Countries in Latin America, Eastern Europe and the Pacific/Asia region may
also impose restrictions on the Funds' ability to repatriate investment income
or capital. Even where there is no outright restriction on repatriation of in-
vestment income or capital, the mechanics of repatriation may affect certain
aspects of the operations of the Funds. For example, funds may be withdrawn
from the People's Republic of China only in U.S. or Hong Kong dollars and only
at an exchange rate established by the government once each week.
Some of the currencies of developing countries and emerging democracies in
Latin America, Eastern Europe and the Pacific/Asia region have experienced de-
valuations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain countries in these regions
face serious exchange constraints.
Lastly, governments of many developing countries and emerging democracies in
Latin America, Eastern Europe and the Pacific/Asia region exercise substantial
influence over many aspects of the private sector. In some countries, the gov-
ernment owns or controls many companies, including the largest in the country.
As such, government actions in the future could have a significant effect on
economic conditions in developing countries and emerging democracies in these
regions, which could affect private sector companies, the Fund and the value
of the Fund's portfolio securities. Furthermore, certain countries in Latin
America, Eastern Europe and the Pacific/Asia region are among the largest
debtors to commercial banks and foreign governments. Trading in debt obliga-
tions issued or guaranteed by those governments or their agencies and instru-
mentalities involves a high degree of risk.
* * *
Because of the Funds' investment policies and the considerations discussed
above, investments in Shares of the Funds may not be appropriate for all in-
vestors and should not be considered a complete investment program.
13
<PAGE>
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
"Money market instruments" which may be purchased by each Fund in accordance
with its policies set forth above include, among other things, bank obliga-
tions, commercial paper and corporate bonds with remaining maturities of 13
months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. Bank
obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Investments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at time of purchase.
Investments by a Fund in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" by Moody's. In addition, each Fund
may acquire unrated commercial paper and corporate bonds that are determined by
the Investment Adviser at the time of purchase to be of comparable quality to
rated instruments that may be acquired by each Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instrument
purchased by a Fund, each Fund may, from time to time as specified in the in-
strument, demand payment of the principal of the instrument or may resell the
instrument to a third party. The absence of an active secondary market, howev-
er, could make it difficult for a Fund to dispose of the instrument if the is-
suer defaulted on its payment obligation or during periods when a Fund is not
entitled to exercise its demand rights, and a Fund could, for this or other
reasons, suffer a loss with respect to such instrument.
REPURCHASE AGREEMENTS
In order to effectively manage its cash holdings, each Fund may enter into re-
purchase agreements. The Funds will enter into repurchase agreements only with
financial institutions that are deemed to be creditworthy by the Investment Ad-
viser, pursuant to guidelines established by Master Fund's Board of Directors.
The Funds will not enter into repurchase agreements with the Investment Adviser
or Sub-Advisers or any of their affiliates. Repurchase agreements with remain-
ing maturities in excess of seven days will be considered illiquid securities
and will be subject to the 10% limit described in Investment Limitation No. 5
below.
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Fund at not
less than the repurchase price. Default or bankruptcy of the seller would, how-
ever, expose a Fund to possible delay in connection with the disposition of the
underlying securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its portfo-
lio securities to broker/ dealers pursuant to agreements requiring the loans to
be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all out-
standing loans of a Fund exceeds 30% of the value of its total assets. There
may be risks of delay in
14
<PAGE>
receiving additional collateral or in recovering the securities loaned or even
a loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the Investment
Adviser to be of good standing when, in the Investment Adviser's judgment, the
income to be earned from the loan justifies the attendant risks.
FORWARD CURRENCY TRANSACTIONS
Each Fund will conduct its currency exchange transactions either on a spot
(i.e. cash) basis at the rate prevailing in the currency exchange markets, or
by entering into forward currency contracts. A forward foreign currency con-
tract involves an obligation to purchase or sell a specific currency for a set
price at a future date. In this respect, forward currency contracts are similar
to foreign currency futures contracts described below; however, unlike futures
contracts, which are traded on recognized commodities exchanges, forward cur-
rency contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. Also,
forward currency contracts usually involve delivery of the currency involved
instead of cash payment as in the case of futures contracts.
A Fund's participation in forward currency contracts will be limited to hedg-
ing involving either specific transactions or portfolio positions. Transaction
hedging involves the purchase or sale of foreign currency with respect to spe-
cific receivables or payables of the Fund generally arising in connection with
the purchase or sale of its portfolio securities. The purpose of transaction
hedging is to "lock in" the U.S. dollar equivalent price of such specific secu-
rities. Position hedging is the sale of foreign currency with respect to port-
folio security positions denominated or quoted in that currency. The Funds will
not speculate in foreign currency exchange transactions. Transaction and
position hedging will not be limited to an overall percentage of a Fund's as-
sets, but will be employed as necessary to correspond to particular transac-
tions or positions. A Fund may not hedge its currency positions to an extent
greater than the aggregate market value (at the time of entering into the for-
ward contract) of the securities held in its portfolio denominated, quoted in,
or currently convertible into that particular currency. When the Funds engage
in forward currency transactions, certain asset segregation requirements must
be satisfied. When a Fund takes a long position in a forward currency contract,
it must maintain a segregated account containing cash and/or certain liquid as-
sets equal to the purchase price of the contract, less any margin or deposit.
When a Fund takes a short position in a forward currency contract, the Fund
must maintain a segregated account containing cash and/or certain liquid assets
in an amount equal to the market value of the currency underlying such contract
(less any margin or deposit), which amount must be at least equal to the market
price at which the short position was established. Asset segregation require-
ments are not applicable when a Fund "covers" a forward currency position gen-
erally by entering into an offsetting position. Additional information on for-
ward currency transactions, including a discussion of risks involved in such
transactions (which are similar to those described below under "Futures Con-
tracts"), is included in the Statement of Additional Information.
FUTURES CONTRACTS
Each Fund may also enter into interest rate futures contracts, other types of
financial futures contracts (such as foreign currency futures contracts, which
are similar to forward currency contracts described above) and related futures
options, as well as any index or foreign market futures which are available on
recognized exchanges or in other established financial markets.
The Funds will not engage in futures transactions for speculation, but only as
a hedge against changes in market values of securities which a Fund holds or
intends to purchase. The Funds will engage in futures
15
<PAGE>
transactions only to the extent permitted by the Commodity Futures Trading
Commission ("CFTC") and the Securities and Exchange Commission ("SEC"). When
investing in futures contracts, the Funds must satisfy certain asset segrega-
tion requirements to ensure that the use of futures is unleveraged. When a
Fund takes a long position in a futures contract, it must maintain a segre-
gated account containing cash and/or certain liquid assets equal to the pur-
chase price of the contract, less any margin or deposit. When a Fund takes a
short position in a futures contract, the Fund must maintain a segregated ac-
count containing cash and/or certain liquid assets in an amount equal to the
market value of the securities underlying such contract (less any margin or
deposit), which amount must be at least equal to the market price at which the
short position was established. Asset segregation requirements are not appli-
cable when a Fund "covers" an options or futures position generally by enter-
ing into an offsetting position. Each Fund will limit its hedging transactions
in futures contracts and related options so that, immediately after any such
transaction, the aggregate initial margin that is required to be posted by a
Fund under the rules of the exchange on which the futures contract (or futures
option) is traded, plus any premiums paid by such Fund on its open futures op-
tions positions, does not exceed 5% of such Fund's total assets, after taking
into account any unrealized profits and unrealized losses on the Fund's open
contracts (and excluding the amount that a futures option is "in-the-money" at
the time of purchase). An option to buy a futures contract is "in-the-money"
if the then-current purchase price of the underlying futures contract exceeds
the exercise or strike price; an option to sell a futures contract is "in-the-
money" if the exercise or strike price exceeds the then-current purchase price
of the contract that is the subject of the option.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser and Sub-Adviser to correctly anticipate movements in the
direction of the market. In addition, there may be an imperfect correlation,
or no correlation at all, between movements in the price of the futures con-
tracts (or options) and movements in the price of the instruments being
hedged. Further, there is no assurance that a liquid market will exist for any
particular futures contract (or option) at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a fa-
vorable movement in the price of securities which it holds or intends to pur-
chase or may be unable to close a futures position in the event of adverse
price movements.
COVERED CALL OPTIONS
To further increase return on its portfolio securities in accordance with its
investment objective and policies, each Fund may engage in writing covered
call options (options on securities owned by such Fund) and enter into closing
purchase transactions with respect to such options. Such options must be
listed on a national securities exchange and issued by the Options Clearing
Corporation or be traded on foreign exchanges. The aggregate value of the se-
curities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, a Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents
such a profit, and it will not be able to sell the underlying security until
the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. The use of covered
call options is not a primary investment technique of the Funds and such op-
tions will normally be written on underlying securities as to which the In-
vestment Adviser and Sub-Adviser do not anticipate significant short-term cap-
ital appreciation. Additional information on option-writing practices, includ-
ing particular risks thereof, is provided in the Statement of Additional In-
formation.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by
16
<PAGE>
other investment companies which invest in high-quality, short-term debt secu-
rities and which determine their net asset value per share based on the amor-
tized cost or penny-rounding method. Each Fund may also purchase shares of in-
vestment companies investing primarily in foreign securities, including so
called "country funds" which have portfolios consisting exclusively of securi-
ties of issuers located in one foreign country. The Regional Funds will limit
their investments in such country funds to those funds which invest in the ap-
propriate regions in light of a Regional Fund's policies. Securities of other
investment companies will be acquired by a Fund within the strict limits pre-
scribed by the Investment Company Act of 1940 (the "1940 Act"). In addition to
the advisory fees and other expenses each Fund bears directly in connection
with its own operations, as a shareholder of another investment company, each
Fund would bear its pro rata portion of the other investment company's advisory
fees and other expenses. As such, a Fund's shareholders would indirectly bear
the expenses of the Fund and the other investment company, some or all of which
would be duplicative.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place in the future, beyond the normal settlement
date, at a stated price and yield. Securities purchased on a "forward commit-
ment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not ex-
ceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser and Sub-Adviser believe that such a disposition is con-
sistent with attaining the investment objective of the particular Fund. Portfo-
lio investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments. A high rate of portfolio turnover may in-
volve correspondingly greater brokerage commission expenses and other transac-
tion costs, which must be borne directly by the Fund and ultimately by its
shareholders. High portfolio turnover may result in the realization of substan-
tial net capital gains. (See "Financial Highlights" and "Taxes--Federal").
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of its outstanding Shares (as defined under "Miscellaneous").
17
<PAGE>
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money, except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) The Fund will
not purchase portfolio securities while borrowings in excess of 5% of its to-
tal assets are outstanding. Optioned stock held in escrow is not deemed to be
a pledge;
3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the International Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government or domestic bank obligations, (b) with respect to the Emerg-
ing Americas, Pacific/Asia and Pan European Funds, there is no limitation
with respect to securities issued or guaranteed by the U.S. Government, and
(c) neither all finance companies, as a group, nor all utility companies, as
a group, are considered a single industry for purposes of this policy; and
4. Make loans, except that (i) a Fund may purchase or hold debt securities
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and (ii) a Fund may lend
portfolio securities in an amount not exceeding 30% of its total assets.
The International Fund may not:
5. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, as a matter of fun-
damental policy for each Fund which may not be changed without the vote of the
holders of a majority of the Fund's outstanding shares, a Fund may not invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Emerging Americas, Pan European and Pacific/Asia Funds may not knowingly
invest more than 10% of the value of their respective total assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days, restricted securities and other securities for which market quo-
tations are not readily available. This investment policy may be changed by
Master Fund's Board of Directors upon reasonable notice to shareholders.
The International Fund will not invest more than 25% of the value of its total
assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
result-
18
<PAGE>
ing from a change in value of a Fund's portfolio securities will not consti-
tute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and its Shares are priced at
the close of regular trading hours on the New York Stock Exchange (the "Ex-
change"), currently 4:00 p.m. (Eastern Time). Net asset value and pricing for
each Fund are determined on each day the Exchange and the Investment Adviser
and Sub-Adviser are open for trading ("Business Day"). Currently, the holidays
which the Funds observe are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Co-
lumbus Day, Veterans Day, Thanksgiving Day and Christmas. Net asset value per
Share for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets allocable to a Fund, less the li-
abilities charged to the Fund, by the number of its outstanding Shares.
The Funds' portfolio securities which are primarily traded on a domestic ex-
change are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges, ex-
cept that when an event subsequent to the time when value was so established
is likely to have changed such value, then the fair value of those securities
will be determined by consideration of other factors under the direction of
the Board of Directors. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the pri-
mary market for such security. Investments in foreign debt securities having a
maturity of 60 days or less are valued based upon the amortized cost method.
An option, futures or foreign currency futures contract is valued at the last
sales price quoted on the principal exchange or board of trade on which such
option or contract is traded, or in the absence of a sale, the mean between
the last bid and asked prices. A forward currency contract is valued based on
the last published forward currency rate which reflects the duration of the
contract and the value of the underlying currency. All other foreign securi-
ties are valued at the last current bid quotation if market quotations are
available, or at fair value as determined in accordance with guidelines
adopted by the Board of Directors. For valuation purposes, quotations of for-
eign securities in foreign currency are converted to U.S. dollars equivalent
at the prevailing market rate on the day of conversion.
Some of the securities acquired by the Funds may be traded on foreign ex-
changes or over-the-counter markets on days which are not Business Days. In
such cases, the net asset value of the Shares may be significantly affected on
days when investors can neither purchase nor redeem a Fund's Shares.
Master Fund's administrators have undertaken to price the securities in each
Fund's portfolio, and may use one or more independent pricing services in con-
nection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Master Fund's spon-
sor and distributor, (the "Distributor"), a wholly-owned subsidiary
of . The Distributor is a registered broker/dealer. Its principal of-
fices are at and it may be reached at (800) 233-1136 in connection
with all initial purchase information for Direct Investors (as defined below).
Under Master Fund's Distribution Agreement and Distribution Plan, adopted
pursuant to Rule 12b-1 under the 1940 Act, the Distribution Shares of each
Fund reimburse the Distributor monthly for distribution expenses in an amount
not to exceed .75% of the
19
<PAGE>
average daily net asset value of the Fund's outstanding Distribution Shares.
Distribution Shares of each Fund currently bear the expense of such distribu-
tion fees at the annual rate of .50% of the average daily net asset value of
the Fund's outstanding Distribution Shares. Distribution expenses payable by
the Distributor under the Distribution Plan include direct and indirect market-
ing expenses such as: i) the expense of preparing, printing and distributing
promotional materials and prospectuses (other than prospectuses used for regu-
latory purposes or for distribution to existing shareholders); ii) the expense
of other advertising via radio, television or other print or electronic media;
and iii) the expense of payments to financial institutions that are not affili-
ated with the Distributor ("Distribution Organizations") for distribution as-
sistance.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by in-
stitutions ("Institutional Investors" and, collectively with Direct Investors,
"Investors"). Shares may also be purchased by customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and other institu-
tions ("Shareholder Organizations") that have entered into shareholder servic-
ing agreements with Master Fund. A Shareholder Organization may elect to hold
of record Shares for its Customers and to record beneficial ownership of Shares
on the account statements provided by it to its Customers. If it does so, it is
the Shareholder Organization's responsibility to transmit to the Distributor
all purchase orders for its Customers and to transmit, on a timely basis, pay-
ment for such orders to Mutual Funds Service Company ("MFSC"), the Funds' sub-
transfer agent, in accordance with the procedures agreed to by the Shareholder
Organization and the Distributor. Confirmations of all such Customer purchases
and redemptions will be sent by MFSC to the particular Shareholder Organiza-
tion. As an alternative, a Shareholder Organization may elect to establish its
Customers' accounts of record with MFSC. In this event, even if the Shareholder
Organization continues to place its Customers' purchase and redemption orders
with the Funds, MFSC will send confirmations of such transactions and periodic
account statements directly to Customers. A Shareholder Organization may also
elect to establish its Customers as record holders.
Master Fund enters into Shareholder servicing agreements with Shareholder Or-
ganizations which agree to provide their Customers various shareholder adminis-
trative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expenses of fees payable
to Service Organizations for such services. See "Management of the Funds--Serv-
ice Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call the Distributor at the phone
number listed above.) An investor purchasing Shares through a registered in-
vestment adviser or certified financial planner may incur transaction charges
in connection with such purchases. Such investors should contact their regis-
tered investment adviser or certified financial planner for further information
on transaction fees. Investors may also purchase Shares directly from the Dis-
tributor in accordance with procedures described below under "Purchase Proce-
dures."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGES TO DEALERS
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
--------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000................. 4.50 4.71 4.00
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
20
<PAGE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any dealer that sponsors sales con-
tests or recognition programs conforming to criteria established by the Dis-
tributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the dealer at the public offering price during such programs. Also, the Dis-
tributor in its discretion may from time to time, pursuant to objective crite-
ria established by the Distributor, pay fees to qualifying dealers for certain
services or activities which are primarily intended to result in sales of
Shares of the Funds. If any such program is made available to any dealer, it
will be made available to all dealers on the same terms and conditions. Pay-
ments made under such programs will be made by the Distributor out of its own
assets and not out of the assets of the Funds. These programs will not change
the price of Shares or the amount that the Funds will receive from such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations and
partnerships (excluding full service broker/dealers and financial planners,
registered investment advisers and depository institutions not covered by the
exemptions in (d) and (e) below); (d) financial planners and registered invest-
ment advisers not affiliated with or clearing purchases through full service
broker/dealers; (e) purchases of Shares by depository institutions for their
own account as principal; (f) exchange transactions (described below under "In-
vestor Programs--Exchange Privilege") where the Shares being exchanged were ac-
quired in connection with the distribution of assets held in trust, agency or
custodial accounts maintained with the trust department of a bank; (g) corpo-
rate/ business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh ac-
counts) sponsored by the Distributor and IRA accounts sponsored by the Invest-
ment Adviser; (h) company-sponsored employee pension or retirement plans making
direct investments in the Funds; (i) purchases of Shares by officers, trustees,
directors, employees and retirees of Master Fund, UST Master Tax-Exempt Funds,
Inc. ("Master Tax-Exempt Fund"), the Investment Adviser, or of any direct or
indirect affiliate of any of them; (j) purchases of Shares by all beneficial
shareholders of Master Fund or Master Tax-Exempt Fund as of May 22, 1989; (k)
purchases of Shares by investment advisers registered under the Investment Ad-
visers Act of 1940 for their customers through an omnibus account established
with United States Trust Company of New York; (l) purchases of Shares by direc-
tors, officers and employees of brokers and dealers selling shares pursuant to
a selling agreement with Master Fund and Master Tax-Exempt Fund; (m) purchases
of shares by investors who are members of affinity groups serviced by
USAffinity Investments Limited Partnership; and (n) customers of certain finan-
cial institutions who purchase Shares through a registered representative of
UST Financial Services Corp. on the premises of their financial institutions.
In addition, no sales load is charged on the reinvestment of dividends or dis-
tributions or in connection with certain share exchange transactions. Investors
who have previously redeemed shares in an "Eligible Fund" (as defined below) on
which a sales load has been paid also have a one-time privilege of purchasing
shares of another "Eligible Fund" at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30 calen-
dar days from the date of redemption and only with respect to the amount of the
redemption. These exemptions to the imposition of a sales load are due to the
nature of the investors and/or reduced sales effort that will be needed in ob-
taining investments.
21
<PAGE>
Quantity Discounts
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify MFSC at
the time of purchase that he or she would like to take advantage of any of the
discount plans described below. Upon such notification, the investor will re-
ceive the lowest applicable sales charge. Quantity discounts may be modified or
terminated at any time and are subject to confirmation of an investor's hold-
ings through a check of appropriate records. For more information about quan-
tity discounts, please contact the Distributor or your Shareholder Organiza-
tion.
Rights of Accumulation. A reduced sales load applies to any purchase of shares
of any portfolio of Master Fund and Master Tax-Exempt Fund that is sold with a
sales load ("Eligible Fund") where an investor's then current aggregate invest-
ment is $50,000 or more. "Aggregate investment" means the total of: (a) the
dollar amount of the then current purchase of shares of an Eligible Fund, and
(b) the value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales load has been
paid. If, for example, an investor beneficially owns shares of one or more Eli-
gible Funds with an aggregate current value of $49,000 on which a sales load
has been paid and subsequently purchases shares of an Eligible Fund having cur-
rent value of $1,000, the load applicable to the subsequent purchase would be
reduced to 4.00% of the offering price. Similarly, with respect to each subse-
quent investment, all shares of Eligible Funds that are beneficially owned by
the investor at the time of investment may be combined to determine the appli-
cable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below and
in the Letter of Intent. To compute the applicable sales load, the offering
price of shares of an Eligible Fund on which a sales load has been paid, bene-
ficially owned by an investor on the date of submission of the Letter of In-
tent, may be used as a credit toward completion of the Letter of Intent. Howev-
er, the reduced sales load will be applied only to new purchases.
MFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load re-
duction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the total purchases. If such re-
mittance is not received within 20 days, MFSC, as attorney-in-fact pursuant to
the terms of the Letter of Intent and at the Distributor's direction, will re-
deem an appropriate number of shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind an investor to purchase the full
amount indicated at the sales load in effect at the time of signing, but an in-
vestor must complete the intended purchase in accordance with the terms of the
Letter of Intent to obtain the reduced sales load. To apply, an investor must
indicate his or her intention to do so under a Letter of Intent at the time of
purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse purchas-
ing securities for his, her or their own account or for the account of any mi-
nor
22
<PAGE>
children, or the aggregate investments of a trustee or custodian of any quali-
fied pension or profit sharing plan or IRA established (or the aggregate in-
vestment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to UST Master Funds, to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to UST Master Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
MFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
MFSC by telephone c/o the Distributor at (800) 842-3863 or by terminal access.
Institutional Investors must pay for Shares with Federal funds or funds imme-
diately available to MFSC.
Purchases by Wire
Direct Investors may also purchase Shares by wiring Federal funds to MFSC.
Prior to making an initial investment by wire, a Direct Investor must tele-
phone MFSC at (800) 446-1012 (from overseas, call (617) 956-9744), and an In-
stitutional Investor must telephone MFSC c/o the Distributor at (800) 842-3863
for instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
United States Trust Company of New York
ABA #021001318
UST Funds, Account No. 2901447
For further credit to:
UST Master Funds Wire Control Number
Account Registration
(including account number)
Direct Investors making initial investments by wire must promptly complete
the Application accompanying this Prospectus and forward it to MFSC. Redemp-
tions by Direct Investors will not be processed until the completed Applica-
tion for purchase of Shares has been received by MFSC and accepted by the Dis-
tributor. Investors making subsequent investments by wire should follow the
above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for au-
tomatic investment and other cash management services provided. Master Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem
all or part of their investments in the Funds in accordance with procedures
governing their accounts at the Shareholder Organizations. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to MFSC
and
23
<PAGE>
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to MFSC by
telephone c/o the Distributor at (800) 842-3863 or by terminal access. No
charge for wiring redemption payments to Shareholder Organizations or Institu-
tional Investors is imposed by Master Fund, although Shareholder Organizations
may charge a Customer's account for wiring redemption proceeds. Information re-
lating to such redemption services and charges, if any, is available from the
Shareholder Organizations. An investor redeeming Shares through a registered
investment adviser or certified financial planner may incur transaction charges
in connection with such redemptions. Such investors should contact their regis-
tered investment adviser or certified financial planner for further information
on transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with MFSC).
Redemption by Mail
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
UST Master Funds
c/o Mutual Funds Service Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to MFSC must (i) state the number of Shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the Shares are
registered. If the Shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or accompanied by a duly executed
stock power) and must be submitted to MFSC together with the redemption re-
quest. A redemption request for an amount in excess of $50,000 per account, or
for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by MFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by MFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from MFSC at (800) 446-1012 or at the ad-
dress given above. MFSC may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until MFSC re-
ceives all required documents in proper form. Payment for Shares redeemed will
ordinarily be made by mail within five Business Days after proper receipt by
MFSC of the redemption request. Questions with respect to the proper form for
redemption requests should be directed to MFSC at (800) 446-1012 (from over-
seas, call (617) 956-9744).
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing MFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Customers of cer-
tain Shareholder Organizations who are shareholders of record may redeem Shares
by instructing MFSC by telephone to mail a check for redemption proceeds of
$500 or more to the shareholder of record at his or her address of record. In-
stitutional Investors may also redeem Shares by instructing MFSC by telephone
c/o the Distributor at (800) 842-3863 or by terminal access. Only redemptions
of $500 or more will be wired to a Direct Investor's account. An $8.00 fee for
each
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<PAGE>
wire redemption by a Direct Investor is deducted by MFSC from the proceeds of
the redemption. The redemption proceeds for Direct Investors must be paid to
the same bank and account as designated on the Application or in written in-
structions subsequently received by MFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Master Fund, c/o
MFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further docu-
mentation may be requested.
MFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Master Fund,
MFSC or the Distributor. MASTER FUND, MFSC AND THE DISTRIBUTOR WILL NOT BE LIA-
BLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELEPHONE INSTRUC-
TIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT
TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER FUND WILL USE SUCH PROCEDURES AS ARE
CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING
INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Master Fund and MFSC reserve the right not to honor the redemp-
tion until MFSC is reasonably satisfied that the check has been collected in
accordance with the applicable banking regulations which may take up to 15
days. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If a Direct Investor's purchase check is not collected, the pur-
chase will be cancelled and MFSC will charge a fee of $25.00 to the Direct In-
vestor's account.
Other Redemption Information
Except as described in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund after 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Organ-
ization to maintain a minimum balance in his or her account at the institution
with respect to Shares of a Fund, and the balance in such account falls below
that minimum, the Customer may be obliged by the Shareholder Organization to
redeem all or part of his or her Shares to the extent necessary to maintain the
required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received prior to the
close of regular trading hours on the Exchange (currently 4:00 p.m., Eastern
Time) on any Business Day are priced according to the net asset value deter-
mined on that day. Purchase orders for Shares received after the close of regu-
lar trading hours on the Exchange are priced at the net asset value per Share
determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by the Funds, exchange
their Shares having a value of at least $500 for shares of any other portfolio
of Master Fund or Master Tax-Exempt Fund, provided that such other shares may
legally be sold in the state of the Investor's residence.
Master Fund currently offers, in addition to the International Fund and Re-
gional Funds, 16 additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with li-
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<PAGE>
quidity and stability of principal through investments in high-quality money
market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis; and
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations.
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<PAGE>
Master Tax-Exempt Fund currently offers five portfolios as follows:
Short-Term Tax-Exempt Fund, a diversified tax-exempt money market fund seek-
ing a moderate level of current interest income exempt from Federal income
taxes through investing primarily in high-quality municipal obligations ma-
turing within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of three to ten years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize over time
current income exempt from Federal income taxes, investing primarily in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 10 to 30 years; and
New York Intermediate-Term Tax-Exempt Fund, a nondiversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
An exchange involves a redemption of all or a portion of the Shares and the
investment of the redemption proceeds in shares of another portfolio of Master
Fund or Master Tax-Exempt Fund. The redemption will be made at the per Share
net asset value of the Shares being redeemed next determined after the exchange
request is received. The shares of the portfolio to be acquired will be pur-
chased at the per share net asset value of those shares (plus any applicable
sales load) next determined after acceptance of the exchange request. In order
to prevent abuse of this privilege to the disadvantage of other shareholders,
Master Fund and Master Tax-Exempt Fund reserve the right to limit the number of
exchange requests of Investors and customers of Shareholder Organizations to no
more than six per year. No sales load will be payable on shares to be acquired
through an exchange to the extent that a sales load was previously paid on the
Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should contact the Dis-
tributor at (800) 233-1136 (from overseas, call ((619) 456-9394). Investors ex-
ercising the exchange privilege with the other portfolios of Master Fund or
Master Tax-Exempt Fund should request and review the prospectuses of such
funds. Such prospectuses may be obtained by calling the numbers listed above.
Master Fund may modify or terminate the exchange program at any time upon 60
days written notice to shareholders, and may reject any exchange request. MAS-
TER FUND, MFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF
EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GEN-
UINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, MASTER
FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING
THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event and,
accordingly, a capital gain or loss may be realized by an investor. Before mak-
ing an exchange, an investor should consult a tax or other financial adviser to
determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declin-
27
<PAGE>
ing-balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or
a fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Applica-
tion contained in this Prospectus and mail it to MFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling the Distributor at (800) 233-1136 (from overseas, call
(619)456-9394).
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust Com-
pany of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Purchase
Plans and Keogh Plans are not subject to the minimum investment and forced re-
demption provisions described above. The minimum initial investment for IRAs is
$250 per Fund and the minimum subsequent investment is $50 per Fund. Detailed
information concerning eligibility, service fees and other matters related to
these plans is available from the Distributor by calling (800) 233-1136 (from
overseas, call (619) 456-9394). Customers of Shareholder Organizations may pur-
chase Shares of the Funds pursuant to retirement plans if such plans are of-
fered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (minimum
of $50 per Fund per transaction) at regular intervals selected by the Investor.
The minimum initial investment for an Automatic Investment Program account is
$50 per Fund. Provided the Investor's financial institution allows automatic
withdrawals, Shares are purchased by transferring funds from an Investor's
checking, bank money market or NOW account designated by the Investor. At the
Investor's option, the account designated will be debited in the specified
amount, and Shares will be purchased, once a month, on either the first or fif-
teenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Shares at predetermined in-
tervals. This may help Investors to reduce their average cost per share because
the agreed upon fixed investment amount allows more Shares to be purchased dur-
ing periods of lower share prices and fewer Shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be fol-
lowed on a sustained, consistent basis. Investors should be aware, however,
that Shares bought using Dollar Cost Averaging are purchased without regard to
their price on the day of investment or to market trends. In addition, while
Investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an Investor ultimately redeems his Shares at a price which is lower
than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
MFSC. An Investor may cancel his participation in this Program
28
<PAGE>
or change the amount of purchase at any time by mailing written notification to
MFSC, P.O. Box 2798, Boston, MA 02208-2798 and notification will be effective
three Business Days following receipt. Master Fund may modify or terminate this
privilege at any time or charge a service fee, although no such fee currently
is contemplated. An Investor may also implement the Dollar Cost Averaging
method on his own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net income of each Fund are declared and paid semi-annual-
ly. Net realized capital gains are distributed at least annually. Dividends and
distributions will reduce the net asset value of a Fund by the amount of the
dividend or distribution. All dividends and distributions paid on Shares held
of record by the Investment Adviser and its affiliates or correspondent banks
will be paid in cash. Direct and Institutional Investors and Customers of other
Shareholder Organizations will receive dividends and distributions in addi-
tional Shares (as determined on the payable date), unless they have requested
in writing (received by MFSC at Master Fund's address prior to the payment
date) to receive dividends and distributions in cash. Reinvested dividends and
distributions receive the same tax treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders at least 90% of its
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income (including divi-
dends, interest and short-term capital gains), subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company income each year.
Such dividends will be taxable as ordinary income to a Fund's shareholders who
are not currently exempt from Federal income taxes, whether such income is re-
ceived in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualified pension plans are deferred under the Code.)
It is anticipated that none of the dividends paid by a Fund will be eligible
for the dividends received deduction for corporations.
Distributions by a Fund of the excess of its net long-term capital gain over
its short-term capital loss are taxable to shareholders as long-term capital
gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to them.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares, depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or
29
<PAGE>
exchange. If a shareholder holds Shares for six months or less and during that
time receives a capital gain dividend on those Shares, any loss recognized on
the sale or exchange of those Shares will be treated as a long-term capital
loss to the extent of the capital gain dividend. Generally, a shareholder may
include sales charges incurred upon the purchase of Shares in his tax basis for
such Shares for the purpose of determining gain or loss on a redemption, trans-
fer or exchange of such Shares. However, if the shareholder effects an exchange
of Shares of a Fund for shares of another portfolio of Master Fund or Master
Tax-Exempt Fund within 90 days of the purchase and is able to reduce the sales
charges applicable to the new shares (by virtue of the exchange privilege), the
amount equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares, but may be included (subject to the same limi-
tation) in the tax basis of the new shares.
It is expected that dividends and certain interest income earned by each Fund
from foreign securities will be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of a Fund's total assets at the
close of any taxable year consists of equity or debt securities of foreign cor-
porations, such Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. A Fund may make this
election. As a consequence, the amount of such foreign taxes paid by a Fund
will be included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and each shareholder will be entitled
either (a) to credit their proportionate amounts of such taxes against their
U.S. Federal income tax liabilities or (b) if they itemize their deductions, to
deduct such proportionate amounts from their U.S. taxable income.
Qualification as a regulated investment company under the Code also requires
that a Fund satisfy certain requirements with respect to the source of its in-
come for a taxable year. At least 90% of the gross income of a Fund must be de-
rived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign cur-
rencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Some of
the investments that a Fund may make (such as gold bullion) may not be securi-
ties or may not produce qualifying income. Therefore, it may be necessary for
the Investment Adviser and Sub-Adviser to restrict the investments of a Fund to
ensure that non-qualifying income does not exceed 10% of such Fund's total
gross income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situations.
Shareholders will be advised annually as to the Federal income tax consequences
of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from those
of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Mas-
ter Fund's Board of Directors. The Statement of Additional Information contains
the names of and general background information concerning Master Fund's direc-
tors.
30
<PAGE>
INVESTMENT ADVISER AND SUB-ADVISERS
United States Trust Company of New York serves as the Investment Adviser to
the Funds. The Investment Adviser is a state-chartered bank and trust company
created by Special Act of the New York Legislature in 1853. The Investment Ad-
viser provides trust and banking services to individuals, corporations, and
institutions both nationally and internationally, including investment manage-
ment, estate and trust administration, financial planning, corporate trust and
agency, and personal and corporate banking. The Investment Adviser is a member
bank of the Federal Reserve System and the Federal Deposit Insurance Corpora-
tion and is one of the twelve members of the New York Clearing House Associa-
tion.
On December 31, 1994, the Investment Adviser's Asset Management Group had ap-
proximately $ billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
Foreign and Colonial Asset Management ("FACAM") (an SEC-registered investment
adviser) provides sub-advisory services to the International and Pan European
Funds. FACAM, a New York general partnership with offices at Exchange House,
Primrose Street, London EC2A2NY, is an investment management joint venture
created in 1982 by F&C Overseas Limited ("FCOC") and UST Overseas Corporation
("USTOC"), an indirect wholly owned subsidiary of the Investment Adviser. FCOC
and USTOC are general partners of FACAM with equal capital contribution. FCOC,
a private English company, is a wholly owned subsidiary of F&C Management,
Ltd. F&C Management, Ltd. is 50% owned by five U.K. investment trusts: F&C In-
vestment Trust Plc, F&C Pacific Investment Trust Plc, F&C Smaller Companies
Investment Trusts Plc, F&C Enterprise Trust Plc and F&C Eurotrust Plc. The re-
maining 50% of F&C Management, Ltd. is owned by Bayerische Hypotheken und
Wechsel Bank AG of Munich, Germany. FACAM currently manages and advises sev-
eral commingled funds with assets in excess of $415 million at the end of
1993.
Under the current sub-advisory agreements FCEML (collectively with FACAM, the
"Sub-Advisers") provides sub-advisory services to the Emerging Americas and
Pacific/Asia Funds. FCEML was founded in 1987, and is a joint venture among
F&C Management, Ltd., the parent of FACAM, Banco de Investimentos Garantia
("Banco"), a Brazilian investment bank headquartered in Sao Paulo, Brazil, and
management of FCEML. Banco is owned by private investors. FCEML's offices are
at Exchange House, Primrose Street, London EC2A2NY.
The Sub-Advisers provide a continuous investment program for the Funds for
which they act as sub-adviser, including investment research and management
with respect to all foreign securities and investments of the Funds. The Sub-
Advisers prepare, subject to the Investment Adviser's approval, lists of rec-
ommended countries and determine what securities and other investments will be
purchased, retained or sold for each Fund for which they act as sub-adviser.
The Investment Adviser advises the Sub-Advisers with respect to U.S. economic
factors and trends, assists and consults with the Sub-Advisers in connection
with the particular Fund's continuous investment program, places orders with
respect to purchases and sales of U.S. issuers, manages the particular Fund's
short-term cash in cooperation with the particular Sub-Adviser, monitors the
Sub- Advisers' investment procedures and periodically reviews, evaluates and
reports to Master Fund's Board of Directors concerning the Sub-Advisers' per-
formance.
All investment decisions for the International, Emerging Americas,
Pacific/Asia and Pan European Funds are made by committee and no persons are
primarily responsible for making recommendations to that committee.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements with
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<PAGE>
the Funds, the Investment Adviser is entitled to be paid a fee, computed daily
and paid monthly, at the annual rate of 1% of the average daily net assets of
each Fund. Although the advisory fee rate payable by the Funds is higher than
the rates payable by most mutual funds, Master Fund believes it is comparable
to the rate paid by many other funds with similar investment objectives and
policies and is appropriate for the Funds in light of their investment objec-
tive and policies. FACAM is entitled to receive from the Investment Adviser an
annual fee, computed and paid quarterly, at the annual rate of .70% of the av-
erage daily net assets of each of the International and Pan European Funds.
FCEML is entitled to receive from the Investment Adviser an annual fee, com-
puted and paid quarterly, at the annual rates of .50% and .70% of the average
daily net assets of the Emerging Americas and Pacific/Asia Funds, respectively.
For the fiscal year ended March 31, 1995, the Investment Adviser received an
advisory fee after waivers at the effective annual rates of .94%, .93%, .95%
and .94% of the average daily net assets of the International, Emerging Ameri-
cas, Pacific/Asia and Pan European Funds, respectively. For the same period,
the Investment Adviser waived advisory fees at the effective annual rates of
.06%, .07% .05% and .06% of the average daily net assets of the International,
Emerging Americas, Pacific/Asia and Pan European Funds, respectively. For the
same period, FACAM received a sub-advisory fee from the Investment Adviser at
the effective annual rates of . % and . % of the average daily net assets of
the International and Pan European Funds, respectively. For the fiscal year
ended March 31, 1995, FCEML received a sub-advisory fee from the Investment Ad-
viser at the effective annual rates of . % and % of the average daily net as-
sets of the Emerging Americas and Pacific/Asia Funds respectively.
From time to time, the Investment Adviser and Sub-Advisers may waive (either
voluntarily or pursuant to applicable state expense limitations) all or a por-
tion of the advisory fees payable with respect to a Fund, which waivers may be
terminated at any time. See "Management of the Funds--Service Organizations"
for additional information on fee waivers.
ADMINISTRATORS
Mutual Funds Service Company and Federated Investors, Inc. serve as the Funds'
administrators (the "Administrators") and provide them with general administra-
tive and operational assistance. For the services provided to the Funds, the
Administrators are jointly entitled to annual fees, computed daily and paid
monthly, at the rate of .20% of the average daily net assets of each Fund. The
Administrators are entitled jointly to an annual minimum fee of $50,000 from
each of the Regional Funds for each year after they have commenced operations.
From time to time, the Administrators may waive (either voluntarily or pursuant
to applicable state expense limitations) all or a portion of the administration
fee payable to them by the Funds, which waivers may be terminated at any time.
See "Management of the Funds--Service Organizations" for additional information
on fee waivers. For the fiscal year ended March 31, 1995, Mutual Funds Service
Company and Concord Holding Corporation, the Funds' former co-administrator,
received an aggregate administration fee (under the compensation arrangements
noted above) at the effective annual rates of .20% of the average daily net as-
sets of each of the International, Emerging Americas, Pacific/Asia and Pan Eu-
ropean Funds.
SERVICE ORGANIZATIONS
Master Fund will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services to
its Customers beneficially owning Shares. As a consideration for the adminis-
trative services provided to Customers, a Fund will pay the Service Organiza-
tion an administrative service fee at the annual rate of up to .40% of the av-
erage daily net asset value of its
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<PAGE>
Shares held by the Service Organization's Customers. Such services, which are
described more fully in the Statement of Additional Information under "Manage-
ment of the Funds--Service Organizations," may include assisting in processing
purchase, exchange and redemption requests; transmitting and receiving funds
in connection with Customer orders to purchase, exchange or redeem Shares; and
providing periodic statements. Under the terms of the Servicing Agreement,
Service Organizations will be required to provide to Customers a schedule of
any fees that they may charge in connection with a Customer's investment. Un-
til further notice, the Investment Adviser and Administrators have voluntarily
agreed to waive fees payable by a Fund in an amount equal to administrative
service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, MFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Master Fund was organized as a Maryland corporation on August 2, 1984. Cur-
rently, Master Fund has authorized capital of 35 billion shares of Common
Stock, $.001 par value per share, classified into 34 series of shares repre-
senting interests in 20 investment portfolios. This Prospectus describes the
International, Emerging Americas, Pacific/Asia and Pan European Funds. Master
Fund offers Shares and Distribution Shares representing interests in each
of those Funds. Shares and Distribution Shares have different expenses,
which may affect performance. Contact the distributor at (800) 233-1136 for
information regarding each of those Fund's Distribution Shares, which are of-
fered through a separate prospectus.
Each Share (irrespective of series designation) represents an equal propor-
tionate interest in the particular Fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned
on the assets belonging to such Fund as are declared in the discretion of Mas-
ter Fund's Board of Directors. Master Fund's Charter authorizes the Board of
Directors to classify or reclassify any class of shares into one or more addi-
tional classes or series.
Shareholders of Master Fund are entitled to one vote for each full share
held, and fractional votes for fractional shares held, and will vote in the
aggregate and not by class, except as otherwise expressly required by law.
Holders of a Fund's Shares in the respective Fund will vote in the aggregate,
and not by series, on all matters, except where otherwise required by law and
except that only Distribution Shares will be entitled to vote on matters sub-
mitted to a vote of shareholders pertaining to the Fund's Distribution Plan.
33
<PAGE>
The Shares, unlike the Distribution Shares, do not bear any expenses under
a distribution plan adopted under Rule 12b-1 under the 1940 Act and can be ex-
changed into the other investment portfolios of Master Fund and Master Tax-Ex-
empt Fund.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to MFSC and will not be issued for fractional Shares.
As of May 19, 1995, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have discretion to vote or invest such
Shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase") serves as the custodian of the Funds'
assets and as their transfer and dividend disbursing agent. Communications to
the custodian and transfer agent should be directed to Chase at
.
[U.S. Trust has entered into an International Custodian Agreement with Morgan
Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, NY 11201, providing for
the custody of foreign securities held by the Funds.]
Chase has also entered into a sub-transfer agency arrangement with MFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which MFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of a Fund may also be compared
to the Europe, Australia, and Far East Index ("EAFE") and the Financial Times
Index, unmanaged standard foreign securities indexes.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in Fund
Shares and also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be con-
sidered as representative of a Fund's future performance. Shareholders should
remember that performance is generally a function of the kind and quality of
the instrument held in a portfolio, portfolio maturity, operating ex-
34
<PAGE>
penses, and market conditions. Any fees charged by Shareholder Organizations
with respect to accounts of Customers that have invested in Shares will not be
included in calculations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Master Fund or a particular Fund means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change
in a fundamental investment policy, the affirmative vote of the lesser of (a)
more than 50% of the outstanding shares of Master Fund or such Fund, or (b) 67%
or more of the shares of Master Fund or such Fund present at a meeting if more
than 50% of the outstanding shares of Master Fund or the Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at the
address or telephone number listed under "Distributor."
35
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
UST Master Funds UST Master Funds
c/o Mutual Funds Service Company c/o Mutual Funds Service Company--
P.O. Box 2798 Boston, MA 02208-2798 Transfer Agent
73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "UST
Master Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus
entitled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per Fund.
Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with
procedures described in the Prospectus. In the case of shares recently
purchased by check, redemption proceeds will not be made available until the
transfer agent is reasonably assured that the check has been collected in
accordance with applicable banking regulations.
Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if redemption is requested by anyone
other than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
*A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption
requirements, please contact the transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
36
<PAGE>
- --------------------------------------------------------------------------------
MUTUAL FUNDS SERVICE COMPANY
[LOGO OF UST CLIENT SERVICES NEW ACCOUNT APPLICATION
MASTER FUNDS P.O. Box 2798 Boston, MA 02208-2798
APPEARS HERE] (800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other
-----------------
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Identification #
------------------------------
Name ( )
-----------------------------
------------------------------ Telephone #
Address
------------------------------ [_] U.S. Citizen
City/State/Zip [_] Other (specify) ___________________
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "UST MASTER
FUNDS.")
-----------------------------------------------------------------------------
INITIAL INVESTMENT
[_] International Fund $ ____________ 802
[_] Pan European Fund $ ____________ 821
[_] Pacific/Asia Fund $ ____________ 820
INITIAL INVESTMENT
[_] Emerging Americas Fund $ _____________ 822
[_] Other ______________ $ _____________
TOTAL INITIAL INVESTMENT: $ _____________
NOTE: If investing by wire, you must obtain a Bank Wire Control Number. To
do so, please call (800) 446-1012 and ask for the Wire Desk.
A. BY MAIL: Enclosed is a check in the amount of $ ____ payable to "UST
Master Funds." B. BY WIRE: A bank wire in the amount of $ ____ has been sent
to the Fund from
------------------ ---------------
Name of Bank Wire Control
Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND REDEMPTION
[_] I/We appoint MFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privilages. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Master Fund, Master Tax-Exempt Fund, MFSC and
their directors, officers and employees will not be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine and in accordance with the procedures described in the then current
Prospectus. To the extent that Master Fund and Master Tax-Exempt Fund fail
to use reasonable procedures as a basis for their belief, they or their
service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
I/We further acknowledge that it is my/our responsibility to read the
Prospectus of any Fund into which I/we exchange.
[_] I/We do not wish to have the ability to exercise telephone redemption
and exchange privileges. I/We further understand that all exchange and
redemption requests must be in writing.
SPECIAL PURCHASE AND REDEMPTION PLANS
I/We have completed and attached the Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize MFSC to act upon instructions received by telephone to
withdraw $500 or more from my/our account in the UST Master Funds and to
wire the amount withdrawn to the following commercial bank account. I/We
understand that MFSC charges an $8.00 fee for each wire redemption, which
will be deducted from the proceeds of the redemption.
Title on Bank Account*_________________________________________________
Name of Bank __________________________________________________________
Bank A.B.A. Number____________ Account Number ________________________
Bank Address __________________________________________________________
City/State/Zip ________________________________________________________
(attach voided check here)
A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.
* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- --------------------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this section, listing
all of your accounts including those in your spouse's name, joint accounts and
accounts held for your minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge discount
described in the Prospectus and Statement of Additional Information.
[_] I/We own shares of more than one Fund distributed by UST Distributors,
Inc. Listed below are the numbers of each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that shown on this
application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER UST MASTER FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------
LETTER OF INTENT
- --------------------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in the Prospectus.
Although I am not obligated to purchase, and Master Fund is not obligated
to sell, I intend to invest, over a 13-month period beginning on , 19 , an
aggregate amount in Eligible Funds of Master Fund and Master Tax-Exempt
Fund at least equal to (check appropriate box):
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000 [_] $2,000,000
By signing this application, I hereby authorize MFSC to redeem an appropriate
number of shares held in escrow to pay any additional sales loads payable in
the event that I do not fulfill the terms of this Letter of Intent.
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
By signing this application, I/we hereby certify under penalty of perjury that
the information on this application is complete and correct and that as
required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form is/are the correct
taxpayer identification number(s) and (2) I/we are not subject to backup
withholding either because I/we have not been notified by the Internal Revenue
Service that I/we are subject to backup withholding, or the IRS has notified
me/us that I am/we are no longer subject to backup withholding. (NOTE: IF ANY
OR ALL OF PART 2 IS NOT TRUE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has been provided
above, I/we have applied, or intend to apply, to the IRS or the Social
Security Administration for a TIN or a SSN, and I/we understand that if I/we
do not provide this number to MFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or TIN, I/we may be
subject to a penalty and a 31% backup withholding on distributions and
redemption proceeds. (Please provide this number on Form W-9. You may request
the form by calling MFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to purchase shares
of the UST Master Funds. I/We have received, read and carefully reviewed a
copy of the appropriate Fund's current Prospectus and agree to its terms and
by signing below I/we acknowledge that neither the Fund nor the Distributor is
a bank and that Fund shares are not deposits or obligations of, or guaranteed
or endorsed by, United States Trust Company of New York, its parent and
affiliates and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency; and that an investment in the Funds involves investment
risks, including possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above (including
legal title if signing for a corporation, trust custodial account, etc.).
- --------------------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- --------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares in accordance
with the terms of our selling agreement with UST Distributors, Inc., and with
the Prospectus and Statement of Additional Information of each Fund purchased.
We agree to notify MFSC of any purchases made under the Letter of Intent or
Rights of Accumulation.
---------------------------------------- ---------------------------------
Investment Dealer's Name Source of Business Code
---------------------------------------- ---------------------------------
Main Office Address Branch Number
---------------------------------------- ---------------------------------
Representative's Number Representative's Name
---------------------------------------- ---------------------------------
Branch Address Telephone
---------------------------------------- ---------------------------------
Investment Dealer's Authorized Signature Title
<PAGE>
- --------------------------------------------------------------------------------
MUTUAL FUNDS SERVICE COMPANY
[LOGO OF UST CLIENT SERVICES SUPPLEMENTAL APPLICATION
MASTER FUNDS P.O. Box 2798 Boston, MA 02208-2798 SPECIAL INVESTMENT AND
APPEARS (800) 446-1012 WITHDRAWAL OPTIONS
HERE]
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name _______________________ Account Number _________________
Owner Name ______________________ Social Security or Taxpayer ID
Street Address __________________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change
of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize MFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day[_] Monthly on the 15th day[_] Monthly on both
the 1st and 15th days
Amount of each debit (minimum $50 per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
UST MASTER FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
----------------------- ------------------------ -------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our account for
amounts drawn by MFSC, acting as my agent for the purchase of Fund shares.
I/We agree that your rights in respect to each withdrawal shall be the same
as if it were a check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received by you. I/We
agree that you shall incur no liability when honoring debits, except a loss
due to payments drawn against insufficient funds. I/We further agree that
you will incur no liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the cancellation of that
purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ __________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize MFSC to redeem the necessary number of
shares from my/our UST Master Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum) $______________
Please make check payable Recipient ________________________________
to: (To be completed only
if redemption proceeds to be Street Address ___________________________
paid to other than account
holder of record or mailed to City, State, Zip Code ____________________
address other than address of
record)
NOTE: If recipient of checks is not the registered shareholder, signature(s)
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.
- --------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- --------------------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until MFSC receives
written notice of any change or revocation. Any change in these instructions
must be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
----------------------------------- -----------------------------------
Signature Signature
----------------------------------- -----------------------------------
Signature Guarantee* Signature Guarantee*
(if applicable) (if applicable)
X X
----------------------------------- -----------------------------------
Signature Signature
----------------------------------- -----------------------------------
Signature Guarantee* Signature Guarantee*
(if applicable) (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVES AND POLICIES......................................... 9
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 14
INVESTMENT LIMITATIONS..................................................... 17
PRICING OF SHARES.......................................................... 19
HOW TO PURCHASE AND REDEEM SHARES.......................................... 19
INVESTOR PROGRAMS.......................................................... 25
DIVIDENDS AND DISTRIBUTIONS................................................ 29
TAXES...................................................................... 29
MANAGEMENT OF THE FUNDS.................................................... 30
DESCRIPTION OF CAPITAL STOCK............................................... 33
CUSTODIAN AND TRANSFER AGENT............................................... 34
PERFORMANCE INFORMATION.................................................... 34
MISCELLANEOUS.............................................................. 35
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 36
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MASTER
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
MASTER FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTINLP894
[LOGO OF UST MASTER FUNDS, INC APPEARS HERE]
MASTER FUNDS, INC.
INTERNATIONAL FUND
EMERGING AMERICAS FUND
PACIFIC/ASIA FUND
PAN EUROPEAN FUND
Prospectus August 1, 1995
<PAGE>
UST MASTER FUNDS, INC.
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995
----
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Equity, Income and Growth,
Long-Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring, Global Competitors and Early Life Cycle
Funds (individually, a "Fund" and collectively, the "Funds") of UST Master
Funds, Inc. ("Master Fund") dated August 1, 1995 (the "Prospectuses"). Much of
the information contained in this Statement of Additional Information expands
upon the subjects discussed in the Prospectuses. No investment in [_________
Shares] and [Distribution Shares] of the Funds described herein (collectively,
the "Shares") should be made without reading the Prospectuses. A copy of the
Prospectus may be obtained by writing Master Fund c/o __________________________
________________________________________________________________________________
__________________________________ or by calling (800) 233-1136.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<C>
<S>
INVESTMENT OBJECTIVES AND POLICIES .......................
Other Investment Considerations -
Equity and Theme Funds ...............................
Other Investment Considerations -
Income and Growth Fund ...............................
Additional Information on Portfolio Instruments ........
Additional Investment Limitations
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ...........
INVESTOR PROGRAMS ........................................
Systematic Withdrawal Plan .............................
Exchange Privilege .....................................
Other Investor Programs ................................
DESCRIPTION OF CAPITAL STOCK .............................
MANAGEMENT OF THE FUNDS ..................................
Directors and Officers .................................
Investment Advisory and Administration Agreements ......
Service Organizations ..................................
Expenses ...............................................
PORTFOLIO TRANSACTIONS ...................................
INDEPENDENT AUDITORS .....................................
COUNSEL ..................................................
ADDITIONAL INFORMATION CONCERNING TAXES ..................
PERFORMANCE INFORMATION ..................................
MISCELLANEOUS ............................................
FINANCIAL STATEMENTS .....................................
APPENDIX ................................................ A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of the Equity Fund and of the Long-Term
Supply of Energy, Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds
(collectively, the "Theme Funds") is to seek long-term capital appreciation. The
investment objective of the Income and Growth Fund is to seek to provide
moderate current income and to attempt to achieve capital appreciation. Under
normal market and economic conditions, each Fund invests a significant portion
of its assets in common stock, preferred stock and debt securities convertible
into common stock. The following policies supplement the Funds' investment
objectives and policies as set forth in the Prospectuses.
Other Investment Considerations - Equity Fund and Theme Funds
- -------------------------------------------------------------
The Equity Fund and the Theme Funds invest primarily in common stocks,
but each Fund may purchase both preferred stocks and securities convertible into
common stock at the discretion of United States Trust Company of New York (the
"Investment Adviser" or "U.S. Trust"). While current income is secondary to the
objective of long-term capital appreciation, Master Fund expects that the broad
and diversified strategies utilized by the Investment Adviser will result in
somewhat more current income than would be generated if the Investment Adviser
utilized a single strategy more narrowly focused on rapid growth of principal
and involving exposure to higher levels of risk.
The Investment Adviser's investment philosophy is to identify
investment values available in the market at attractive prices. Investment
value arises from the ability to generate earnings or from the ownership of
assets or resources. Underlying earnings potential and asset values are
frequently demonstrable but not recognized in the market prices of the
securities representing their ownership. The Investment Adviser employs the
following three different but closely interrelated portfolio strategies to focus
and organize its search for investment values.
1. Problem/Opportunity Companies. Important investment
-----------------------------
opportunities often occur where companies develop solutions to large, complex,
fundamental problems, such as declining industrial productivity; rising costs
and declining sources of energy; the economic imbalances and value erosion
caused by years of high inflation and interest rates; the soaring costs and
competing priorities of providing health care; and the accelerating
interdependence and "shrinking size" of the world.
<PAGE>
Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.
Investment in such companies represents a very wide range of
investment potential, current income return rates, and exposure to fundamental
and market risks. Income generated by each Funds' investments in these
companies would be expected to be moderate, characterized by lesser rates than
those of a fund whose sole objective is current income, and somewhat higher
rates than those of a higher-risk growth fund.
2. Transaction Value Companies. In the opinion of the Investment
---------------------------
Adviser, the stock market frequently values the aggregate ownership of a company
at a substantially lower figure than its component assets would be worth if they
were sold off separately over time. Such assets may include intangible assets
such as product and market franchises, operating know-how, or distribution
systems, as well as such tangible properties as oil reserves, timber, real
estate, or production facilities. Investment opportunities in these companies
are determined by the magnitude of difference between economic worth and current
market price.
Market undervaluations are very often corrected by purchase and sale,
restructuring of the company, or market appreciation to recognize the actual
worth. The recognition process may well occur over time, however, incurring a
form of time-exposure risk. Success from investing in these companies is often
great, but may well be achieved only after a waiting period of inactivity.
Income derived from investing in undervalued companies is expected to
be moderately greater than that derived from investments in either the
Problem/Opportunity or Early Life Cycle companies.
3. Early Life Cycle Companies. Investments in Early Life Cycle
--------------------------
companies tend to be narrowly focused on an objective of higher rates of capital
appreciation. They correspondingly will involve a significantly greater degree
of risk and the reduction of current income to a negligible level. Such
investments will not be limited to new, small companies engaged only in frontier
technology, but will seek opportunities for maximum appreciation through the
full spectrum of business operations, products, services, and asset values.
Consequently, the Funds' investments in Early Life Cycle companies are primarily
in younger, small- to medium- sized companies in the early stages of their
development. Such companies are usually
-2-
<PAGE>
more flexible in trying new approaches to problem-solving and in making new or
different employment of assets. Because of the high risk level involved, the
ratio of success among such companies is lower than the average, but for those
companies which succeed, the magnitude of investment reward is potentially
higher.
Other Investment Considerations - Income and Growth Fund
- --------------------------------------------------------
The Income and Growth Fund is expected to have a greater portion of
its assets invested in debt obligations under normal market conditions than the
Equity Fund and Theme Funds. Further, although the Investment Adviser will
generally use the three strategies described above for the Equity and Theme
Funds, the Income and Growth Fund will generally invest in those companies which
are expected to generate the greater income. As a result, the Income and Growth
Fund is likely to have a relatively small portion of its assets invested in
Early Life Cycle companies.
As stated in the Prospectuses, the Income and Growth Fund may invest
up to 10% of its assets in instruments such as liquidating trust receipts;
certificates of beneficial ownership; limited partnership interests; creditor
claims; loan participations; and warrants, options and other rights to purchase
securities. Liquidating trust receipts, as well as certificates of beneficial
interest, acquired by the Income and Growth Fund represent interests in trusts
holding specific assets. In the case of a liquidating trust, such assets may
include airplanes, ships and trucks that have been leased to third parties.
Limited partnership interests acquired by the Fund may represent equitable
interests in enterprises engaged in activities related to leasing of electronic,
computer and other types of equipment. Normally, the profits and losses
attributable to the foregoing types of instruments pass directly to the holders
of the instruments and are not taxed at the trust or partnership level.
Creditor claims (which may be in the form of notes or debentures)
acquired by the Income and Growth Fund comprise debt obligations of companies
being reorganized under bankruptcy or insolvency laws. Creditor claims normally
sell at a substantial discount from their face value, may be convertible into
stock of the reorganized company, and have a high degree of potential risk and
reward. Loan participations acquired by the Income and Growth Fund represent
interests in either separate, privately negotiated loans that have been made by
lending institutions to third parties or pools of privately negotiated loans
maintained in the loan portfolios of lending institutions. Lending institutions
may sell loan participations to the Income and
-3-
<PAGE>
Growth Fund and other institutional investors in order to achieve additional
revenues and to reduce their exposure on the loans involved, as well as for
other reasons. Loan participations are considered to be illiquid securities
subject to the 10% limitation on investments in illiquid securities described in
the Prospectuses.
The instruments described above may provide a higher than normal rate
of return but may also entail greater risks. These risks include the absence of
any secondary or other organized market for certain instruments that the Income
and Growth Fund may acquire; the likelihood that the transfer of certain
instruments will otherwise be restricted because they have not been registered
under Federal or state securities laws; the probability that certain instruments
will represent interests in a single asset or project and will be entirely
dependent upon market and economic factors affecting such asset or project and
upon the skill of project managers to produce value; the possibility of volatile
changes in the value of an instrument because of changes in the value of the
asset underlying the instrument; the possibility that certain instruments will
be subject to heavy cash flow dependency, defaults by borrowers, self-
liquidation and the risk that the underlying portfolio company will fail to
qualify for favorable tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"); the possibility that the Fund's loss with respect to an
instrument may exceed the amount of its investment; and, with respect to
creditor claims and other debt instruments, the quality of the credit extended.
In addition, as discussed in the Prospectuses , income from some of the Code and
must be monitored by the Investment Adviser so that the amount of any such non-
qualifying income does not exceed the amount permitted by the Code. The
Investment Adviser will purchase such instruments only when it determines that
the expected return justifies the attendant risks.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Options
-------
As stated in the Prospectuses, the Income and Growth Fund and the
Theme Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation. Such purchases would be
in an amount not exceeding 5% of each such Fund's net assets. Purchase of
options is a highly specialized activity which entails greater than ordinary
investment risks. Regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may
-4-
<PAGE>
be more volatile than the underlying securities, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying securities. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and the
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A listed put option gives the purchaser the right to sell to a
clearing corporation the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. Put and call options purchased by the Income and Growth and
Theme Funds will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.
Also as stated in the Prospectuses, each Fund may engage in writing
covered call options and enter into closing purchase transactions with respect
to such options. When any of the Funds writes a covered call option, it may
terminate its obligation to sell the underlying security prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss on the transaction. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. The Funds will write an option on a particular security only if
the Investment Adviser believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Funds to make a
closing purchase transaction in order to close out its position.
-5-
<PAGE>
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of that Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked to market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date, or if the Fund involved enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold),
and the deferred credit related to such option will be eliminated. If an option
is exercised, the Fund involved may deliver the underlying security from its
portfolio or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund involved will realize a gain or loss. Premiums from
expired call options written by the Funds and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements are held by the Funds' custodian (or
sub-custodian) or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered loans by a Fund under the Investment Company Act of
1940 (the "1940 Act").
Futures Contracts and Related Options
-------------------------------------
The Theme Funds may invest in futures contracts and options thereon.
The Theme Funds may enter into interest rate futures contracts and other types
of financial futures contracts, including foreign currency futures contracts, as
well as any index or foreign market futures which are available on recognized
exchanges or in other established financial markets. A futures contract on
foreign currency creates a binding obligation on one party to deliver, and a
corresponding obligation on another party to accept delivery of, a stated
quantity of a foreign currency for an amount fixed in U.S. dollars. Foreign
currency futures, which operate in a manner similar to interest rate futures
contracts may be used by the Theme Funds to hedge against exposure to
fluctuations in exchange rates between the U.S.
-6-
<PAGE>
dollar and other currencies arising from multinational transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge.
Successful use of futures by the Theme Funds is also subject to the
Investment Adviser's ability to correctly predict movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition, in
some situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may
-7-
<PAGE>
result in losses in excess of the amount invested in the contract.
Utilization of futures transactions by the Theme Funds involves the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom such Fund has an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Options on Futures Contracts
----------------------------
The Theme Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments
-8-
<PAGE>
in futures contracts (for example, the existence of a liquid secondary market).
In addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of the
instruments being hedged, an option may or may not be less risky than ownership
of the futures contract or such instruments. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). Although
permitted by its fundamental investment policies, the Fund does not currently
intend to write futures options, and will not do so in the future absent any
necessary regulatory approvals.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may
-9-
<PAGE>
result in the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Securities Lending
------------------
When a Fund lends its securities, it continues to receive interest or
dividends on the securities lent and may simultaneously earn interest on the
investment of the cash loan collateral, which will be invested in readily
marketable, high-quality, short-term obligations. Although voting rights, or
rights to consent, attendant to lent securities pass to the borrower, such loans
may be called at any time and will be called so that the securities may be voted
by a Fund if a material event affecting the investment is to occur.
Restricted Securities
---------------------
The Productivity Enhancers Fund may invest in restricted securities
(privately placed securities) and other securities without readily available
market quotations. The Fund's investments in securities without readily
available market quotations will not exceed 5% of its total assets at the time
of purchase. Restricted securities may be sold only in private transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act of 1933 (the "1933 Act"). Where registration may be
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Certain transactions in restricted
securities may qualify for the registration exemption provided in Rule 144A
under the 1933 Act.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectuses, the Funds are subject to the investment limitations enumerated
below. Fundamental investment limitations may be changed with respect to a Fund
only by a vote of a
-10-
<PAGE>
majority of the holders of such Fund's outstanding Shares (as defined under
"Miscellaneous" in the Prospectuses). However, investment limitations which
are "operating policies" with respect to a Fund may be changed by Master Fund's
Board of Directors upon reasonable notice to Investors.
The following investment limitations are fundamental with respect to
each Fund. Each Fund may not:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing in
accordance with a Fund's investment limitation contained in the Prospectuses
might be considered to be the issuance of a senior security.
The following investment limitations are fundamental with respect to
the Equity and Income and Growth Funds, but are operating policies with respect
to the Theme Funds. No Fund may:
4. Purchase securities on margin, make short sales of securities, or
maintain a short position;
5. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that each Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing purchase transactions
with respect to such options if, at the time of the writing of such option, the
aggregate value of the securities subject to the options written by the Fund
involved does not exceed 25% of the value of its total assets; and provided that
the Income and Growth Fund and Theme Funds may purchase options and other rights
in accordance with their investment objectives and policies;
6. Invest in companies for the purpose of exercising management or
control;
7. Invest more than 5% of its total assets in securities issued by
companies which, together with any
-11-
<PAGE>
predecessor, have been in continuous operation for fewer than three years; and
8. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
The following investment limitation is fundamental with respect to the
Equity and Income and Growth Funds. The Equity and Income and Growth Funds may
not:
9. Purchase or sell commodities futures contracts or invest in oil,
gas, or other mineral exploration or development programs; provided, however,
that this shall not prohibit either Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities or the
Income and Growth Fund from investing in liquidating trust receipts,
certificates of beneficial ownership or other instruments in accordance with its
investment objectives and policies.
The following investment limitation is fundamental with respect to the
Theme Funds. Each Theme Fund may not:
10. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that i) this shall not prohibit any Theme Fund from
purchasing publicly traded securities of companies engaging in whole or in part
in such activities or from investing in liquidating trust receipts, certificates
of beneficial ownership or other instruments in accordance with its investment
objectives and policies, and ii) each Theme Fund may enter into futures
contracts and futures options.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, Master Fund currently
intends to limit the Funds' investments in warrants so that, valued at the lower
of cost or market value, they do not exceed 5% of the net assets of the Fund
involved. Included within that amount, but not to exceed 2% of the value of a
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges. For the purpose of this limitation, warrants acquired
by a Fund in units or attached to
-12-
<PAGE>
securities will be deemed to be without value. The Funds also intend to refrain
from entering into arbitrage transactions.
Each of the Equity and Income and Growth Funds may not purchase or
sell commodities except as provided in Investment Limitation No. 9 above.
Pursuant to the requirements of state securities laws, each Fund
currently intends to limit its option transactions so that they do not exceed,
at the time when they are written, 25% of the net (rather than total) assets of
the particular Fund involved. See Investment Limitation No. 5 above.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's securities will not constitute a violation of such limitation.
In order to permit the sale of Shares in certain states, Master Fund
may make on behalf of the Funds other commitments more restrictive than the
investment policies and limitations described above and in the Prospectuses
Should Master Fund determine that any such commitment is no longer in the Funds'
best interests, it will revoke the commitment by terminating sales of Shares to
investors residing in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by ________________________
___________________________ (the "Distributor"), a wholly-owned subsidiary of
_____________________________, and the Distributor has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectuses, Shares may be sold to customers ("Customers") of financial
institutions ("Shareholder Organizations") . Except for Distribution Shares,
Shares are also offered for sale to institutional investors and to members of
the general public. Different types of Customer accounts at the Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder Organizations may automatically
"sweep" a Customer's account not less frequently than weekly and invest amounts
in excess of a minimum balance agreed to by the Shareholder Organization and its
Customer in Shares selected by the Customer. Investors purchasing Shares may
include officers, directors, or employees of the particular Shareholder
Organization.
Pursuant to Rule 12b-1 of the 1940 Act, Master Fund has adopted a
Distribution Plan (the "Distribution Plan") which permits the
-13-
<PAGE>
Distribution Shares of the Funds to bear certain expenses in connection with the
distribution of those Shares. As required by Rule 12b-1, the Funds' 12b-1 Plan
and related distribution agreement have been approved, and are subject to annual
approval by, a majority of Master Fund's Board of Directors, and by a majority
of the directors who are not interested persons of Master Fund and have no
direct or indirect interest in the operation of the Distribution Plan or any
agreement relating to the Distribution plan, by vote cast in person at a meeting
called for the purpose of voting on the Distribution Plan and related agreement.
Rule 12b-1 also requires that persons authorized to direct the disposition of
monies payable by a Fund (in the Funds' case, the Distributor) provide for the
directors' review of quarterly reports on the amounts expended and the purposes
for the expenditures.
Any change in the Distribution Plan that would materially increase the
distribution expenses of Distribution Shares requires approval by holders of
those Shares, but otherwise, the Distribution Plan may be amended by the
directors, including a majority of the disinterested directors who do not have
any direct or indirect financial interest in the Distribution Plan or related
agreement. The Distribution Plan and related agreement may be terminated as to a
particular Fund by a vote of Master Fund's disinterested directors or by vote of
the holders of Distribution Shares of the Fund, on not more than 60 days written
notice. The selection and nomination of disinterested directors has been
committed to the discretion of such disinterested directors as required by the
Rule.
The Distribution Plan provides that each Fund will reimburse the
Distributor for distribution expenses in an amount not to exceed .75% of the
average daily net asset value of outstanding Distribution Shares of the Fund.
Distribution expenses payable by the Distributor pursuant to the Distribution
Plan include direct and indirect costs and expenses incurred in connection with
advertising and marketing a Fund's Distribution Shares, and direct and indirect
costs and expenses of preparing, printing and distributing its prospectuses to
other than current shareholders and payments to financial institutions that are
not affiliated with the Distributor ("Distribution Organizations").
The Distribution Plan has been approved, and will continue in effect
for successive one year periods provided that such continuance is specifically
approved by the vote of a majority of the directors who are not parties to the
12b-1 plan or interested persons of any such party and who have no direct or
indirect financial interest in the Distribution Plan or related agreement and
the vote of a majority of the entire Board of Directors.
-14-
<PAGE>
Any material amendment to Master Fund's arrangements with Distribution
Organizations must be approved by a majority of Master Fund's Board of Directors
(including a majority of the Disinterested Directors). So long as Master Fund's
arrangements with Distribution Organizations are in effect, the selection and
nomination of the members of Master Fund's Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of Master Fund will be
committed to the discretion of such non-interested Directors.
Shares of the Funds are offered for sale with a maximum sales charge
of 4.50%. An illustration of the computation of the offering price per share of
the Funds, using the value of each Fund's net assets and number of outstanding
securities at the close of business on March 31, 1995 and the value of the
Distribution Shares of each Funds' initial capitalization prior to the
commencement of operations is as follows:
<TABLE>
<CAPTION>
Income
Equity & Growth
Fund Fund
-------- ---------
<S> <C> <C> <C>
Net Assets.................. $137,416,899 $99,924,587
Outstanding Shares......... 6,420,813 8,455,564
Net Asset Value Per Share... $ 21.40 $ 11.82
Sales Charge (4.50% of the
offering price)........... $ 1.01 $ .56
Offering to Public.......... $ 22.41 $ 12.38
</TABLE>
<TABLE>
<CAPTION>
Long-Term Productivity Environmentally
--------- ------------ ---------------
Supply Enhancers Related Products Aging of
------ --------- ---------------- --------
of Energy Fund and Services America
--------- ---- ------------ -------
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C> <C>
Net Assets.................. $18,265,270 $4,359,023 $22,173,584
$15,812,874
Outstanding Shares......... 2,250,747 701,832 2,826,981
1,996,785
Net Asset Value Per Share... $ $ 8.12 $ 6.21 $ 7.84
7.92
Sales Charge (4.50% of the
offering price)........... $ .37 $ .38 $ .29 $ .37
Offering to Public.......... $ $ 8.50 $ 6.50 $ 8.21
8.29
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Communication Business and
------------- ------------
and Industrial Global Early Life
--- ---------- ------ ----------
Entertainment Restructuring Competitors Cycle
------------- ------------- ----------- -----
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Assets.................. $30,182,757 $25,494,628 $47,782,354
$29,914,390
Outstanding Shares.......... 2,861,323 2,968,007 4,892,316
3,101,632
Net Asset Value Per Share... $ $ 10.55 $ 8.59 $ 9.77
9.64
Sales Charge (4.50% of the .46
offering price)............ .48 .50 .40
Offering to Public.......... $ $ 11.05 $ 8.99 $ 10.23
10.09
</TABLE>
<TABLE>
<CAPTION>
Income
------
____________ Equity & Growth
-------------------------------------
______________________ Fund Fund
------------- ----------------
Distribution Distribution
---------------------------------------
Shares Shares
-------------- ---------------
<S> <C> <C>
100 100
Net Assets.................. $---------- $----------
10 10
Outstanding Shares.......... ----------- ----------
Net Asset Value Per Share... $10.00 $10.00
Sales Charge (4.50% of the .47 .47
offering price)............ $---------- $----------
10.47 10.47
offering to public.......... $---------- $----------
</TABLE>
<TABLE>
<CAPTION>
Long-Term
----------
Supply Productivity Environmentally Aging of
------ ------------ --------------- --------
of Energy Enhancers Related Products America
--------- --------- ---------------- -------
Fund Fund and Services Fund
---- ---- ------------ ----
Distribution Distribution Fund Distribution
------------------------------------- ---- ---------------------------
Shares Shares Distribution shares Shares
------ ------ ------------------- ------
<C> <C> <C> <C> <C>
Net Assets.................. $ 100 $ 100 $ 100 $ 100
----------- ---------- ----------- ------------
10 10 10 10
Outstanding Shares.......... ----------- ---------- ----------- ------------
-- -- -- --
Net Asset Value Per Share... $ 10.00 $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------- -------------
-- -- -- --
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Sales Charge (4.50% of the .47 .47 .47 .47
offering price)............ $--------- $---------- $--------- $---------
10.47 10.47 10.47 10.47
Offering to Public.......... $--------- $---------- $--------- $---------
</TABLE>
<TABLE>
<CAPTION>
Communication Business and
------------- ------------
and Industrial Early Life
--- ---------- ----------
Entertainment Restructuring Global Cycle
------------- ------------- ------ -----
Fund Fund Competitors Fund
---- ---- ----------- ----
Distribution Distribution Fund Distribution
---------------------------------------- ---- ----------------------
Shares Shares Distribution Shares Shares
------ ------ ------------------- ------
<S> <C> <C> <C> <C>
100 100 100 100
Net Assets.................. $---------- $---------- $---------- $----------
10 10 10 10
Outstanding Shares.......... ----------- ----------- ---------- ----------
Net Asset Value Per Share... $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- -----------
Sales Charge (4.50% of the .47 .47 .47 .47
$---------- $---------- $----------- $-----------
offering price)............
10.47 10.47 10.47 10.47
Offering to Public.......... $---------- $---------- $----------- $-----------
-- --
</TABLE>
As stated in the Prospectuses the sales load described above will not
be applicable to: (a) purchases of Shares by customers of the Investment
Adviser or its affiliates; (b) trust, agency or custodial accounts opened
through the trust department of a bank, trust company or thrift
institution, provided that appropriate notification of such status is given
at the time of investment; (c) companies, corporations and partnerships
(excluding full service broker/dealers and financial planners, registered
investment advisers and depository institutions not covered by the
exemptions in (d) and (e) below); (d) financial planners and registered
investment advisers not affiliated with or clearing purchases through full
service broker/dealers; (e) purchases of Shares by depository institutions
for their own account as principal; (f) exchange transactions (described
below under "Investor Programs --Exchange Privilege") where the Shares
being exchanged were acquired in connection with the distribution of assets
held in a trust, agency or custodial account maintained with the trust
department of a bank; (g) corporate/business retirement plans (such as
401(k), 403(b)(7), 457 and Keogh accounts) sponsored by the Distributor and
IRA accounts sponsored by the Investment
-17-
<PAGE>
Adviser; (h) company-sponsored employee pension or retirement plans making
direct investments in the Funds; (i) purchases of Shares by officers, trustees,
directors, employees and retirees of Master Fund, UST Master Tax-Exempt Funds,
Inc. ("Master Tax-Exempt Fund"), the Investment Adviser, or of any direct or
indirect affiliate of either of them; (j) purchases of Shares by all beneficial
shareholders of Master Fund or Master Tax-Exempt Fund as of May 22, 1989; (k)
purchases of Shares by investment advisers registered under the Investment
Advisers Act of 1940 for their customers through an omnibus account established
with United States Trust Company of New York; (l) purchases of Shares by
directors, officers and employees of brokers and dealers selling shares pursuant
to a selling agreement with Master Fund and Master Tax-Exempt Fund; (m) purchase
of shares by investors who are members of affinity groups serviced by US
affinity Investments Limited Partnership; and (n) customers of certain financial
institutions who purchase shares through a registered representative of UST
Financial Services Corp. on the premises of their financial institutions. In
addition, no sales load is charged on the reinvestment of dividends or
distributions or in connection with certain share exchange transactions.
Investors who have previously redeemed shares in a portfolio of Master Fund or
Master Tax-Exempt Fund on which a sales load has been paid also have a one-time
privilege of purchasing shares of another portfolio of either company at net
asset value without a sales charge, provided that such privilege will apply only
to purchases made within 30 calendar days from the date of redemption and only
with respect to the amount of the redemption.
Total sales charges paid by shareholders of the Equity and Income and
Growth Funds during the fiscal years ended March 31, 1995, 1994 AND 1993 were
$7,492 and $1,713, respectively, $10,877 AND $5,866, respectively and $17,258
and $5,665, respectively. Of these respective amounts, UST Distributors, Inc.,
the Funds' former distributor, retained $7,092, $9,249 and $12,392 with respect
to the Equity Fund and $1,703, $5,037 and $3,859 with respect to the Income and
Growth Fund for the fiscal years ended March 31, 1995, 1994 and 1993 . The
balance was paid to selling dealers. For the fiscal years ended March 31, 1995
and 1994 and during the period from December 31, 1992 (commencement of
operations) to March 31, 1993, total sales charges paid by shareholders of the
Long-Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring, Global Competitors and Early Life Cycle
Funds were $84, $315 and $0, $143, $181 and $2, $0, $45 and $0, $357, $272
and $666, $438, $2,453 and $587, $779, $1,672 and $558, $353, $136 and $0 and
$1,107, $840 and $22, respectively. Of these respective amounts, UST
distributors, Inc., the funds' former distributor, retained $84.
-18-
<PAGE>
,$280 and $0 with respect to the Long-Term Supply of Energy Fund, $143,
$160 and $2 with respect to the Productivity Enhancers Fund, $0, $0 and $0 with
respect to the Environmentally-Related Products and Services-Fund, $37, $200 and
$600 with respect to the Aging of America Fund, $438, $2,175 and $48 with
respect to the Communication and Entertainment Fund, $779, $1,282 and $68 with
respect to the Business and Industrial Restructuring Fund, $353, $120 and $0
with respect to the Global Competitors Fund and $1,107, $744 and $22 with
respect to the Early Life Cycle Fund. The balance was paid to selling
dealers.
Master Fund may suspend the right of redemption or postpone the date
of payment for Shares for more than 7 days during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Securities and Exchange Commission; (b) the Exchange is
closed for other than customary weekend and holiday closings; (c) the Securities
and Exchange Commission has by order permitted such suspension; or (d) an
emergency exists as determined by the Securities and Exchange Commission.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.
Under limited circumstances, Master Fund may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
-19-
<PAGE>
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the investor must
deposit any outstanding certificates for Shares with Mutual Funds Service
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares of a Fund.
Amounts paid to investors under this Plan should not be considered as income.
Withdrawal payments represent proceeds from the sale of Shares, and there will
be a reduction of the shareholder's equity in the Fund involved if the amount of
the withdrawal payments exceeds the dividends and distributions paid on the
Shares and the appreciation of the investor's investment in the Fund. This in
turn may result in a complete depletion of the shareholder's investment. An
investor may not participate in a program of systematic investing in a Fund
while at the same time participating in the Systematic Withdrawal Plan with
respect to an account in that Fund. Customers of Shareholder Organizations may
obtain information on the availability of, and the procedures relating to, the
Systematic Withdrawal Plan.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of the same series of any
other portfolio of Master Fund or Master Tax-Exempt Fund (the "Companies").
Shares may be exchanged by wire, telephone or mail and must be made to accounts
of identical registration. There is no exchange fee imposed by the Companies.
As of the date of this Statement of Additional Information, Distribution Shares
were available only in the equity and international portfolios of Master Fund.
The Companies may modify or terminate the exchange program at any time upon 60
days' written notice to shareholders, and may reject any exchange
-20-
<PAGE>
request. In order to prevent abuse of this privilege to the disadvantage of
other shareholders, the Companies reserve the right to limit the number of
exchange requests of investors to no more than six per year. Customers of
Shareholder Organizations may obtain information on the availability of, and the
procedures relating to, such programs.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load applicable to the new
shares (by virtue of the Companies' exchange privilege), the amount equal to
such reduction may not be included in the tax basis of the shareholder's
exchanged Shares but may be included (subject to the limitation) in the tax
basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectuses, Shares of the Funds may be
purchased in connection with the Automatic Investment Program, and certain
Retirement Programs.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Master Fund's Charter authorizes its Board of Directors to issue up to
thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Master Fund into one or more
classes or series by setting or changing in any one or more respects their
respective prefer ences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. The Prospectuses describe the classes of shares
into which Master Fund's authorized capital is currently classified.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectuses, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of that Fund are entitled to receive the assets available for
distribution belonging to that Fund and a proportionate distribution, based upon
the relative asset values of Master
-21-
<PAGE>
Fund's portfolios, of any general assets of Master Fund not belonging to any
particular portfolio of Master Fund which are available for distribution. In
the event of a liquidation or dissolution of Master Fund, its shareholders will
be entitled to the same distribution process.
Shareholders of Master Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
Master Fund's shares may elect all of Master Fund's directors, regardless of
votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Master Fund shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of Master Fund voting without regard to class.
Master Fund's Charter authorizes its Board of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another portfolio of Master
Fund, if the Board of Directors reasonably determines that such combination will
not have a
-22-
<PAGE>
material adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding Shares of
the Fund involved to be redeemed at their net asset value or converted into
shares of another class of Master Fund's capital stock at net asset value. The
exercise of such authority by the Board of Directors will be subject to the
provisions of the 1940 Act, and the Board of Directors will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the particular Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Master Fund's Common Stock (or of the Shares of a Fund voting separately as a
class) in connection with any corporate action, unless otherwise provided by law
(for example, by Rule 18f-2, discussed above) or by Master Fund's Charter,
Master Fund may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding Common Stock of Master Fund voting
without regard to class.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Master Fund, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Master Fund Other Affiliations
- ---------------- ----------- ------------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Chairman of the Retired.
1135 Hyde Park Court Board, President
Mahwah, NJ 07430 and Treasurer
Age 69
- ------
Donald L. Campbell Director Retired; Senior Vice
333 East 69th Street President, Royal Insurance
Apt. 10-H Company, Inc., until August,
New York, NY 10021 1989; Director, Royal Life
Age 69 Insurance Co. of N.Y.
- ------
</TABLE>
_______________________________
1. This director is considered to be an "interested person" of Master Fund as
defined in the 1940 Act.
-23-
<PAGE>
<TABLE>
<S> <C> <C>
Joseph H. Dugan Director Retired; President, CEO and
913 Franklin Lake Road Director, L.B. Foster
Franklin Lakes, NJ 07417 Company (tubular products),
Age 70 from September, 1987 until
- ------ May, 1990; Executive Vice
President and COO, L.B. Foster
Company, from September, 1986
until September, 1987; Senior
Vice President -- Finance,
Chief Financial Officer and
Director, Todd Shipyards
Corporation, prior to January 3,
1986.
Wolfe J. Frankl Director Director, Deutsche Bank
40 Gooseneck Lane Financial, Inc.; Director,
Charlottesville, VA 22903 The Harbus Corporation;
Age 74 Trustee, Mariner Funds Trust;
- ------ Managing Director -- North
America, Berlin Economic
Development Corp., prior to
1988.
Robert A. Robinson Director President Emeritus, The
Church Pension Fund Church Pension Fund and its
800 Second Avenue affiliated companies, since
New York, NY 10017 1968; Trustee, Mariner Funds
Age 69 Trust; Trustee, H.B. and F.H.
- ------ Bugher Foundation and Director
of its wholly owned subsid-
iaries -- Rosiclear Lead and
Flourspar Mining Co. and The
Pigmy Corporation; Director,
Morehouse Publishing Co.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National of Drinker Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 52
- ------
Frank M. Deutchki Assistant Vice President, Mutual
Mutual Funds Service Co. Secretary Funds Service Company
73 Tremont Street since February, 1989; Senior
Boston, MA 02108-3913 Vice President - Risk Analysis
Age 41 and Avoidance, Putnam Investor
- ------ Services (mutual fund group),
from October, 1987 to January,
1989.
John M. Corcoran Assistant Assistant Vice President,
Mutual Funds Service Co. Treasurer Manager of Administration,
73 Tremont Street Mutual Funds Service Company,
Boston, MA 02108-3913 since October, 1993; Audit
Age 30 Manager, Ernst & Young, from August,
- ------ 1987 to September, 1993.
</TABLE>
-24-
<PAGE>
Each director of Master Fund receives an annual fee of $9,000 plus a
meeting fee of $1,500 for each meeting attended and is reimbursed for expenses
incurred in attending meetings. The Chairman of the Board is entitled to
receive an additional $5,000 per annum for services in such capacity. Drinker
Biddle & Reath, of which Mr. McConnel is a partner, receives legal fees as
counsel to Master Fund. The employees of Mutual Funds Service Company do not
receive any compensation from Master Fund for acting as officers of Master Fund.
No person who is currently an officer, director or employee of the Investment
Adviser serves as an officer, director or employee of Master Fund. The
directors and officers of Master Fund own less than 1% of the Shares of each
Fund.
The following chart provides certain information about the fees
received by Master Fund's directors in the most recently completed fiscal
year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as From Master Fund
Aggregate Part of and Fund
Name Of Compensation from Fund Complex* Paid
Person/Position Master Fund Expenses to Directors
<S> <C> <C> <C>
Alfred C. Tannachion $20,000 None $40,000
Chairman of the Board,
President and Treasurer
Donald L. Campbell $15,000 None $30,000
Director
Joseph H. Dugan $15,000 None $30,000
Director
Wolfe J. Frankl $15,000 None $30,000
Director
Robert A. Robinson
Director $15,000 None $30,000
</TABLE>
___________________________
* The "Fund Complex" consists of UST Master Funds, Inc., UST Master Tax-
Exempt Funds, Inc. and UST Master Variable Series, Inc. For the fiscal year
ended March 31, 1995, UST Master Variable Series, Inc. did not pay any
directors' fees.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds. In the Investment Advisory Agreement, the Investment Adviser has
agreed to provide the
-25-
<PAGE>
services described in the Prospectuses. The Investment Adviser has also
agreed to pay all expenses incurred by it in connection with its activities
under the respective agreements other than the cost of securities, including
brokerage commissions, purchased for the Funds.
For the fiscal year ended March 31, 1993, Master Fund paid the
Investment Adviser $658,533 and $233,667 with respect to the Equity Fund and the
Income and Growth Fund, respectively. For the period from December 31, 1992
(commencement of operations) to March 31, 1993, the Investment Adviser received
no advisory fees with respect to the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds. For the same period, the Investment
Adviser waived fees totalling $900, $2,899, $2,681, $2,353, $4,787, $1,266,
$1,731 and $4,895 with respect to the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1994, Master Fund paid the
Investment Adviser $870,735, $555,404, $599, $12,682, $0, $2,216, $59,196,
$4,566, $5,162 and $53,036 with respect to the Equity, Income and Growth, Long-
Term Supply of Energy, Productivity Enhancers, Environmentally-Related Products
and Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively. For the same period, the Investment Adviser waived fees totalling
$1,516, $1,179, $22,139, $30,754, $18,247, $32,626, $22,594, $29,394, $26,625
and $23,696 with respect to the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1995, the particular Company paid
the Investment Advisor advisory fees of $880,638, $726,295, $48,882, $79,570,
$0, $68,122, $136,328, $120,783, $79,924 and $194,501 with respect to the
respectively. For the same period, the Investment Advisor waived fees totalling
$26,987, $24,620, $20,193, $22,983, $24,278, $26,503, $17,130, $18,380, $15,637
and $26,625 with respect to the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds, respectively.
The Investment Advisory Agreement provides that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in
-26-
<PAGE>
connection with the performance of such agreements, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its duties and obligations
thereunder. In addition, the Investment Adviser has undertaken in the
Investment Advisory Agreement to maintain its policy and practice of conducting
its Asset Management Group independently of its Banking Group.
Mutual Funds Service Company ("MFSC") and Concord Holding Corporation
(the "Administrators") jointly served as the Funds' administrators until July
31, 1995. Under the Administration Agreement, the Administrators have agreed to
maintain office facilities for the Funds, furnish the Funds with statistical and
research data, clerical, accounting and bookkeeping services, and certain other
services required by the Funds, and to compute the net asset value, net income
and realized capital gains or losses, if any, of the respective Funds. The
Administrators prepare semiannual reports to the Securities and Exchange
Commission, prepare Federal and state tax returns, prepare filings with state
securities commissions, arrange for and bear the cost of processing Share
purchase and redemption orders, maintain the Funds' financial accounts and
records, and generally assist in the Funds' operations.
As of August 1, 1995, administrative services will be provided to the
Funds by MFSC and Federated Investors, Inc. under an administration agreement
having substantially the same terms as the Administration Agreement currently in
effect.
For the fiscal year ended March 31, 1993, Master Fund paid the
Administrators $136,795 and $48,727 in the aggregate with respect to the Equity
and Income and Growth Funds, respectively. For the period from December 31,
1992 (commencement of operations) to March 31, 1993, the Administrators received
fees, before expense reimbursements, with respect to the Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds of $4,500, $4,500,
$4,500, $4,500, $4,500, $4,500, $4,500, and $4,500, respectively. For the same
period, the Administrators reimbursed expenses totalling $8,219, $12,971,
$6,053, $9,172, $5,101, $9,035, $7,034 and $9,326 with respect to the Long-Term
Supply of Energy, Productivity Enhancers, Environmentally - Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively.
-27-
<PAGE>
For the fiscal year ended March 31, 1994, Master Fund paid the
Administrators $179,398, $114,452, $5,826, $17,527, $4,739, $7,444, $22,881,
$10,016, $10,462 and $21,420 in the aggregate with respect to the Equity, Income
and Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Administrators
waived fees totalling $17,424, $5,723, $18,511, $15,806, $2,360, $13,234,
$12,788 and $1,861 with respect to the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1995, Master Fund paid $186,366,
$154,582, $19,660, $26,357, $5,451, $24,003, $39,403, $35,765, $24,816 and
$56,809 in the aggregate with respect to the Equity, Income and Growth, Long-
Term Supply of Energy, Productivity Enhancers, Environmentally-Related Products
and Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively. For the same period, the Administrator waived fees totalling
$22,090, $15,393, $36,299, $17,747, $2,347, $5,985 and $16,934 with respect to
the Long-Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring and Global Competitors Funds,
respectively.
Service Organizations
- ---------------------
As stated in the Prospectuses, Master Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for a
Fund's payment (on an annualized basis) of up to .40% of the average daily net
assets of the Fund's Shares beneficially owned by Customers of the Service
Organization. The expenses under these agreements will be borne by the
particular series of a Fund that provide services. Such services may including
(a) assisting Customers in designating and changing dividend options, account
designations and addresses; (b) providing necessary personnel and facilities to
establish and maintain certain shareholder accounts and records, as may
reasonably be requested from time to time by Master Fund; (c) assisting in
processing purchases, exchange and redemption transactions; (d) arranging for
the wiring of funds; (e) transmitting and receiving funds in connection with
Customer
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<PAGE>
orders to purchase, exchange or redeem Shares; (f) verifying and guaranteeing
Customer signatures in connection with redemption orders, transfers among and
changes in Customer-designated accounts; (g) providing periodic statements
showing a Customer's account balances and, to the extent practicable,
integrating such information with information concerning other client
transactions otherwise effected with or through the Service Organization; (h)
furnishing on behalf of Master Fund's distributor (either separately or on an
integrated basis with other reports sent to a Customer by the Service
Organization) periodic statements and confirmations of all purchases, exchanges
and redemptions of Shares in a Customer's account required by applicable federal
or state law; (i) transmitting proxy statements, annual reports, updating
prospectuses and other communications from Master Fund to Customers; (j)
receiving, tabulating and transmitting to Master Fund proxies executed by
Customers with respect to annual and special meetings of shareholders of Master
Fund; (k) providing reports (at least monthly, but more frequently if so
requested by Master Fund's distributor) containing state-by-state listings of
the principal residences of the beneficial owners of the Shares; and (l)
providing or arranging for the provision of such other related services as
Master Fund or a Customer may reasonably request.
Master Fund's agreements with Service Organizations are governed by an
Administrative Services Plan (the "Plan") adopted by Master Fund. Pursuant to
the Plan, Master Fund's Board of Directors will review, at least quarterly, a
written report of the amounts expended under Master Fund's agreements with
Service Organizations and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of Master Fund's directors, including a majority of the directors
who are not "interested persons" of Master Fund as defined in the 1940 Act and
have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
Any material amendment to Master Fund's arrangements with Service
Organizations must be approved by a majority of Master Fund's Board of Directors
(including a majority of the Disinterested Directors). So long as Master Fund's
arrangements with Service Organizations are in effect, the selection and
nomination of the members of Master Fund's Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of Master Fund will be
committed to the discretion of such non-interested Directors.
For the fiscal years ended March 31, 1995 and 1994, payments to
Service Organizations totalled $26,987 and $1,516, $24,620 and $1,179 and $3,576
and $124,
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<PAGE>
$4,525 and $239, $1,660 and $83, $4,051 and $180, $7,168 and $382, $5,189 and
$196, $3,243 and $117 and $17,091 and $779 with respect to the Equity, Income
and Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. Of these amounts $18,606 and $1,516,
$22,697 and $1,179, $3,525 and $124, $4,446 and $239, $1,626 and $83, $3,902 and
$180, $6,707 and $382, $4,851 and $196, $3,163 and $117 and $16,428 and $779
were paid to affiliates of U.S. Trust. With respect to the Equity, Income and
Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Funds bear the expenses incurred in their operations. Expenses
of the Funds include taxes; interest; fees (including fees paid to Master Fund's
Directors and officers who are not affiliated with the Distributor or the
Administrators); Securities and Exchange Commission fees; state securities
qualifications fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; expenses related to the 12b-1
Plan; advisory, administration and administrative servicing fees; charges of the
custodian, transfer agent, and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholders reports and
shareholder meetings; and any extraordinary expenses. The Funds also pay for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Investment
Adviser and the Administrators will reimburse such Fund for a portion of any
such excess to the extent required by such regulations in proportion to the fees
received by them in such year up to the amount of the fees payable to them,
provided, however, to the extent required by such state regulations, the
Investment Adviser and the Administrators have agreed to effect such
reimbursement regardless of the fees payable to them. The amounts of the above
reimbursements, if any, will be estimated, reconciled and paid on a monthly
basis. To Master Fund's knowledge, of the applicable expense limitations in
effect on the date of this Statement of Additional Information, none is more
restrictive than the following: 2 1/2% of the first $30 million of average
annual net assets, 2% of the next $70 million of average annual net assets and 1
1/2% of average annual net assets in excess of $100 million.
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<PAGE>
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Master Fund's Board of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of each of
the Funds.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Funds to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectuses for the Funds' portfolio
turnover rates.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. For the fiscal years
ended March 31, 1993, March 31, 1994 and March 31, 1995, the Equity Fund paid
brokerage commissions aggregating $94,569, $61,608, and $123,112, respectively,
and the Income and Growth Fund paid brokerage commissions aggregating $57,207,
$140,168 and $89,218 respectively.
For the period from December 31, 1992 (commencement of operations) to
March 31, 1993 and for the fiscal years ended March 31, 1994 and March 31, 1995,
the Long-Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring, Global Competitors and Early Life Cycle
Funds paid brokerage commissions aggregating $3,493 , $15,871 and $36,759 ,
$6,074 , $40,563 and $141,290 $7,605 , $13,602 and $16,669 , $4,379 , 20,905 and
$28,296 , $11,086, $40,593 and $50,724 , $5,202 , $46,444 and $121,755 ,
$3,604 , $17,428 and $41,638 , and $7,077 , $40,397 and $13,534 ,
respectively.
Transactions in domestic over-the-counter markets are generally
principal transactions with dealers, and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to over-the-
counter transactions, the Funds, where possible, will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
-31-
<PAGE>
The Investment Advisory Agreement between Master Fund and the
Investment Adviser provides that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of Master Fund, and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreement authorizes the
Investment Adviser, to the extent permitted by law and subject to the review of
Master Fund's Board of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, Distributor, or any affiliated person of either of them (as
such term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the Securities and Exchange Commission.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time
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<PAGE>
on behalf of a Fund and another investment company or common trust fund, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which the Investment Adviser believes to be equitable to
the Fund and such other investment company or common trust fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Funds or the size of the position obtained by the Funds. To the
extent permitted by law, the Investment Adviser may aggregate the securities to
be sold or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
Master Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by Master Fund as of the close of its most recent fiscal year. As
of March 31, 1995, the following portfolios of Master Fund held the following
securities: (a) the Money Fund held the following securities: repurchase
agreement with Nomura Securities, Inc. in the principal amount of $19,685,063,
repurchase agreement with Fuji Securities, Inc. in the principal amount of
$20,000,000, commercial paper of Merrill Lynch & Co., Inc. in the principal
amount of $35,000,000 and commercial paper of UBS Finance in the principal
amount of $30,000,000; (b) the Government Money Fund held the following
securities: repurchase agreement with Nomura Securities, Inc. in the principal
amount of $20,216,462 and repurchase agreement with Fuji Securities, Inc. in the
principal amount of $20,000,000; (c) the International Fund held the following
security: 27,000 shares of Nomura Securities Co., Ltd.; and (d) the Pacific/Asia
Fund held the following security: 26,000 shares of Nomura Securities Co., Ltd.
Nomura Securities International, Inc., Fuji Bank & Trust, Merrill Lynch, Pierce,
Fenner & Smith, Inc. and UBS Securities are considered to be regular brokers and
dealers of Master Fund.
INDEPENDENT AUDITORS
--------------------
_________________ independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Master Fund. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the period ended
March 31, 1995 are incorporated by reference in this Statement of Additional
Information.
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of Master
Fund, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Streets, Philadelphia, Pennsylvania 19107, is counsel to Master Fund and will
pass upon the legality of the Shares offered by the Prospectuses.
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<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following supplements the tax information contained in the
Prospectuses.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. If, for any reason, a Fund does not qualify for a
taxable year for the special Federal tax treatment afforded regulated investment
companies, such Fund would be subject to Federal tax on all of its taxable
income at regular corporate rates, without any deduction for distributions to
shareholders. In such event, dividend distributions (whether or not derived
from interest on Municipal Securities) would be taxable as ordinary income to
shareholders to the extent of the Fund's current and accumulated earnings and
profits and would be eligible for the dividends received deduction in the case
of corporate shareholders.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Upon the sale or exchange of Shares, if the shareholder
has not held such Shares for more than six months, any loss on the sale or
exchange of those Shares will be treated as long-term capital loss to the extent
of the capital gain dividends received with respect to the Shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or
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<PAGE>
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose. With respect
to covered call options, if the call is exercised by the holder, the premium and
the price received on exercise constitute the proceeds of sale, and the
difference between the proceeds and the cost of the securities subject to the
call is capital gain or loss. Premiums from expired call options written by a
Fund and net gains from closing purchase transactions are treated as short-term
capital gains for Federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses. With respect to forward contracts,
futures contracts, options on futures contracts, and other financial instruments
subject to the "marking-to-market" rules, the Internal Revenue Service has ruled
in private letter rulings that a gain realized from such a contract, option or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract,
option or instrument is held) if the gain arises as a result of a constructive
sale under the marking-to-market rules, and will be treated as being derived
from a security held for less than three months only if the contract, option or
instrument is terminated (or transferred) during the taxable year (other than by
reason of marking-to-market) and less than three months has elapsed between the
date the contract, option or instrument was acquired and the termination date.
Increases and decreases in the value of the forward contracts, futures
contracts, options on futures contracts and other investments that qualify as
part of a "designated hedge," as defined in Section 851(g) of the Code, may be
netted for purposes of determining whether the 30% test is met.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are
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<PAGE>
advised to consult their tax advisers concerning their specific situations and
the application of state and local taxes.
PERFORMANCE INFORMATION
-----------------------
The Funds may advertise their "average annual total return." Such
return is computed by determining the average annual compounded rate of return
during specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
Each Fund that advertises an "aggregate total return" computes such return
by determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(-----)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size of
the account, a mean (or median) account size in a Fund during the periods is
reflected. The ending redeemable value (variable "ERV" in the formula) is
determined by assuming
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<PAGE>
complete redemption of the hypothetical investment after deduction of all
nonrecurring charges at the end of the measuring period. In addition, the
Funds' average annual total return and aggregate total return quotations will
reflect the deduction of the maximum sales load charged in connection with the
purchase of Shares.
Based on the foregoing calculations, the average annual total returns
for the Shares of the Equity, Income and Growth, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds for the one year period ended
March 31, 1995 were 9.51%, 1.01%, (0.38)%, (0.23)%, (4.69)%, 7.72% 7.82%, 6.51%,
7.69% and 9.95%, respectively. The average annual total returns for the Equity
Fund and the Income and Growth Fund for the five year period ended March 31,
1995 were 11.30%, and 9.27%, respectively. The average annual total returns for
the Shares of the Equity Fund and the Income and Growth Fund for the periods
from April 25, 1985 and January 6, 1987 (the commencement of operations of such
respective Funds) to March 31, 1995 were 14.10% and 9.25% respectively. The
average annual total returns for the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds for the period from December 31, 1992
(commencement of operations) to March 31, 1995 were 4.53%, 5.40%, (6.99)%,
3.49%, 16.40%, 19.12%, 8.04% and 15.21% respectively. No Distribution Shares of
the Funds had been issued as of March 31, 1995.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. A Fund does not, for these
purposes, deduct from the initial value invested any amount representing sales
charges. A Fund will, however, disclose the maximum sales charge and will also
disclose
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<PAGE>
that the performance data does not reflect sales charges and that inclusion of
sales charges would reduce the performance quoted.
The total return and yield of Shares of a Fund may be compared to
those of other mutual funds with similar investment objectives and to other
relevant indices or to ratings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the total return and/or yield of a Fund may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
and Weisenberger Investment Company Service. Total return and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature, may also be used in comparing the performance of a
Fund. Advertisements, sales literature or reports to shareholders may from time
to time also include a discussion and analysis of each Fund's performance,
including without limitation, those factors, strategies and techniques that
together with market conditions and events, materially affected each Fund's
performance.
The Funds may also form time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Funds may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of a Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature or communications to shareholders may summarize
the substance of information contained in shareholder reports (included the
investment composition of a Fund), as well as the views of the Investment
Adviser as to current market, economy, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believes to be of relevance to a Fund. The Funds may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, treasure bills, and shares of a
Fund. In addition, advertisement, sales literature or shareholder
communications may include a discussion
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<PAGE>
of certain attributes or benefits to be derived by an investment in a Fund.
Such advertisements or communicators may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
MISCELLANEOUS
-------------
As used in the Prospectuses, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Master Fund not belonging to a particular portfolio of Master Fund.
In determining a Fund's net asset value, assets belonging to the Fund are
charged with the direct liabilities in respect of the Fund and with a share of
the general liabilities of Master Fund which are normally allocated in
proportion to the relative asset values of Master Fund's portfolios at the time
of allocation. Subject to the provisions of Master Fund's Charter,
determinations by the Board of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular Fund, are conclusive.
As of May 19, 1995, U.S. Trust held of record substantially all of the
Shares in the Equity, Income and Growth, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, in each case as agent or
custodian for its customers, but did not own such Shares beneficially because it
did not have discretion to vote or invest such Shares.
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<PAGE>
FINANCIAL STATEMENTS
--------------------
Master Fund's Annual Report to Shareholders for the fiscal year ended
March 31, 1995 (the "Annual Report") for the domestic equity portfolios
accompanies this Statement of Additional Information. The financial statements
in the Annual Report for the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds (the "Financial
Statements") are incorporated in this Statement of Additional Information by
reference. Additional copies of the Annual Report may be obtained at no charge
by telephoning the Distributor at the telephone number appearing on the front
page of this Statement of Additional Information.
-40-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to 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 earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used by
Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or
A-3
<PAGE>
interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" 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.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
A-6
<PAGE>
unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that
A-7
<PAGE>
the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in
A-9
<PAGE>
business, economic or financial conditions may increase investment risk albeit
not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-10
<PAGE>
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established
A-11
<PAGE>
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
UST MASTER FUNDS, INC.
International Fund
Emerging Americas Fund
Pacific/Asia Fund
Pan European Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the International, Emerging
Americas, Pacific/Asia and Pan European Funds (each a "Fund" and collectively
the "Funds") of UST Master Funds, Inc. ("Master Fund") dated August 1, 1995 (the
"Prospectus"). Much of the information contained in this Statement of Additional
Information expands upon the subjects discussed in the Prospectuses. No
investment in [________ Shares] and [Distribution Shares] of the Funds described
herein (collectively, the "Shares") should be made without reading the
Prospectuses. A copy of the Prospectuses may be obtained by writing Master Fund
c/o ___________________________________ or by calling (800) 233-1136.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES .......................
Other Investment Considerations ....................
Additional Information on Portfolio Instruments ....
Additional Investment Limitations ..................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ..........
INVESTOR PROGRAMS .......................................
Systematic Withdrawal Plan .........................
Exchange Privilege .................................
Other Investor Programs ............................
DESCRIPTION OF CAPITAL STOCK ............................
MANAGEMENT OF THE FUND ..................................
Directors and Officers .............................
Investment Advisory, Sub-Advisory and ..............
Administration Agreements ......................
Service Organizations ..............................
Expenses ...........................................
Custodian And Transfer Agent .......................
PORTFOLIO TRANSACTIONS ..................................
INDEPENDENT AUDITORS ....................................
COUNSEL .................................................
ADDITIONAL INFORMATION CONCERNING TAXES .................
Generally ..........................................
Taxation of Certain Financial Instruments ..........
PERFORMANCE INFORMATION .................................
MISCELLANEOUS ...........................................
FINANCIAL STATEMENTS ....................................
APPENDIX ................................................. A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The following policies and discussions supplement the Funds'
investment objectives and policies as set forth in the Prospectuses.
Other Investment Considerations
- -------------------------------
In determining the preferred distribution of investments of the Funds
among various geographic regions and countries, United States Trust Company of
New York ("U.S. Trust" or the "Investment Adviser"), Foreign and Colonial Asset
Management ("FACAM") and Foreign & Colonial Emerging Markets Limited ("FCEML")
(FACAM and FCEML hereinafter collectively referred to as the "Sub-Advisers")
will consider, among other things, regional and country-by-country prospects for
economic growth, anticipated levels of inflation, prevailing interest rates, the
historical patterns of government regulation of the economy and the outlook for
currency relationships.
The transaction costs to the Funds of engaging in forward currency
transactions described in the Prospectus vary with factors such as the currency
involved, the length of the contract period and prevailing currency market
conditions. Because currency transactions are usually conducted on a principal
basis, no fees or commissions are involved. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities being hedged, but it does establish a rate of exchange that can be
achieved in the future. Thus, although forward currency contracts used for
transaction or position hedging purposes may limit the risk of loss due to an
increase in the value of the hedged currency, at the same time they limit
potential gain that might result were the contracts not entered into. Further,
the Investment Adviser and the Sub-Advisers may be incorrect in their
expectations as to currency fluctuations, and a Fund may incur losses in
connection with its currency transactions that it would not otherwise incur. If
a price movement in a particular currency is generally anticipated, a Fund may
not be able to contract to sell or purchase that currency at an advantageous
price.
At or before the maturity of a forward sale contract, a Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or
<PAGE>
a loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the 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 the price of the currency it
has agreed to sell is less than the price of the currency it has agreed to
purchase in the offsetting contract. The foregoing principles generally apply
also to forward purchase contracts.
Each Fund may purchase gold bars primarily of standard weight
(approximately 400 troy ounces) at the best available prices in the New York
bullion market. However, the Investment Adviser and Sub-Advisers will have
discretion to purchase or sell gold bullion in other markets, including foreign
markets, if better prices can be obtained. Gold bullion is valued by the Funds
at the mean between the closing bid and asked prices in the New York bullion
market as of the close of the New York Stock Exchange each business day. When
there is no readily available market quotation for gold bullion, the bullion
will be valued by such method as determined by Master Fund's Board of Directors
to best reflect its fair value. For purpose of determining net asset value,
gold held by a Fund, if any, will be valued in U.S. dollars.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements are held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the Investment Company Act of 1940 (the
"1940 Act").
Securities Lending
------------------
When a Fund lends its portfolio securities, it continues to receive
interest or dividends on the securities lent and may simultaneously earn
interest on the investment of the cash loan collateral, which will be invested
in readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities lent pass to the borrower,
such loans may be called at any time and
-2-
<PAGE>
will be called so that the securities may be voted by a Fund if a material event
affecting the investment is to occur.
Government Obligations
----------------------
Examples of the types of U.S. Government obligations that may be held
by the Funds include, in addition to U.S. Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
American and European Depository Receipts
-----------------------------------------
American Depository Receipts ("ADRs") that may be purchased by the
Funds are receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities of a foreign issuer. ADRs may be
sponsored or unsponsored. Investments in unsponsored ADRs involve additional
risk because financial information based on generally accepted accounting
principles ("GAAP") may not be available with respect to the foreign issuers of
the underlying securities. European Depository Receipts ("EDRs"), which are
sometimes referred to as Continental Depository Receipts ("CDRs"), are receipts
issued in Europe typically by non-U.S. banks or trust companies and foreign
branches of U.S. banks that evidence ownership of foreign or United States
securities. Generally, ADRs, which are in registered form, are designed for use
in U.S. securities markets, and EDRs, which are in bearer form, are designed for
use in European securities markets.
Covered Call Options
- --------------------
When a Fund writes a covered call option, it may terminate its
obligation to sell the underlying security prior to the expiration date of the
option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
call option containing different terms on such underlying security. The cost of
such a liquidation purchase plus
-3-
<PAGE>
transaction costs may be greater than the premium received upon the original
option, in which event the writer will have incurred a loss on the transaction.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option. A
covered option writer, unable to effect a closing purchase transaction, will not
be able to sell the underlying security until the option expires or the
underlying security is delivered upon exercise, with the result that the writer
in such circumstances will be subject to the risk of market decline in the
underlying security during such period. A Fund will write an option on a
particular security only if the Investment Adviser and the Sub-Advisers believe
that a liquid secondary market will exist on an exchange for options of the same
series, which will permit the Fund to make a closing purchase transaction in
order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked to market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date, or if a Fund enters into a closing purchase transaction, it
will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund may deliver the underlying security from its portfolio or purchase the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received, and the Fund will
realize a gain or loss. Premiums from expired call options written by a Fund
and net gains from closing purchase transactions are treated as short-term
capital gains for Federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses.
Futures Contracts and Related Options
-------------------------------------
Each Fund may invest in futures contracts and related options. Each
Fund may enter into interest rate futures contracts and other types of financial
futures contracts, including foreign currency futures contracts, as well as any
index or foreign market futures which are available on recognized exchanges or
in other established financial markets. A futures contract on foreign currency
creates a binding obligation on one party to deliver, and a corresponding
obligation on another party
-4-
<PAGE>
to accept delivery of, a stated quantity of a foreign currency for an amount
fixed in U.S. dollars. Foreign currency futures, which operate in a manner
similar to interest rate futures contracts, may be used by the Funds to hedge
against exposure to fluctuations in exchange rates between the U.S. dollar and
other currencies arising from multinational transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations,
if a Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on a Fund's ability to
effectively hedge.
Successful use of futures by the Funds is also subject to the ability
of the Investment Adviser or Sub-Advisers to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions. In
addition, in some situations, if a Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Fund may have to sell securities at a time when it
may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs,
-5-
<PAGE>
if the account were then closed out. A 15% decrease would result in a loss
equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by a Fund involves the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Options on Futures Contracts
----------------------------
Each Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing, an option of the same series, at which time the
person entering into the closing transaction will realize a gain or loss.
-6-
<PAGE>
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the instruments
being hedged, an option may or may not be less risky than ownership of the
futures contract or such instruments. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). Although permitted
by its fundamental investment policies, the Funds do not currently intend to
write futures options, and will not do so in the future absent any necessary
regulatory approvals.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
-7-
<PAGE>
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Brady Bonds
- -----------
The Emerging Americas Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
Latin American public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are currently actively traded in the over-the-
counter secondary market for Latin American debt instruments.
Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
All Mexican Brady Bonds issued to date, except New Money Bonds, have
principal repayments at final maturity fully collateralized by U.S. Treasury
zero coupon bonds (or comparable collateral in other currencies) and interest
coupon payments collateralized on an 18-month rolling-forward basis by funds
held in escrow by an agent for the bondholders. Approximately half of the
Venezuelan Brady Bonds issued to date have principal repayments at final
maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral in other currencies), while slightly more than half have interest
coupon payments
-8-
<PAGE>
collateralized on a 14-month rolling-forward basis by securities held by the
Federal Reserve Bank of New York as collateral agent.
Brady Bonds are often viewed as having three or four valuation
components: the 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 constituting the "residual risk").
Miscellaneous
- -------------
The Funds may not invest in oil, gas or mineral leases.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectuses, the Funds are subject to the investment limitations enumerated
below. Fundamental investment limitations may be changed with respect to a Fund
only by a vote of a majority of the holders of such Fund's outstanding Shares
(as defined under "Miscellaneous" in the Prospectuses). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Master Fund's Board of Directors upon reasonable notice to shareholders.
The following investment limitations are fundamental with respect to
each Fund. A Fund may not:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing in
accordance with the Funds' investment limitation contained in the Prospectuses
might be considered to be the issuance of a senior security.
The following investment limitations are fundamental with respect to
the International Fund, but are operating policies with respect to the Emerging
Americas, Pacific/Asia and Pan European Funds (collectively, the "Regional
Funds"). Each Fund may not:
-9-
<PAGE>
4. Purchase securities on margin, make short sales of securities, or
maintain a short position;
5. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that each Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange or on foreign exchanges and may enter into closing
purchase transactions with respect to such options if, at the time of the
writing of such option, the aggregate value of the securities subject to the
options written by the Fund does not exceed 25% of the value of its total
assets; and provided that each Fund may enter into forward currency contracts in
accordance with its investment objective and policies;
6. Invest in companies for the purpose of exercising management or
control;
7. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years; and
8. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the Investment Company Act
of 1940.
The following investment limitation is fundamental with respect to the
International Fund. The International Fund may not:
9. Purchase or sell commodities futures contracts or invest in oil,
gas, or other mineral exploration or development programs; provided, however,
that (i) this shall not prohibit the Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities; and
(ii) the Fund may enter into forward currency contracts, futures contracts and
related options and may invest up to 5% of its total assets in gold bullion.
The following investment limitation is fundamental with respect to the
Regional Funds. Each Regional Fund may not:
10. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that (i) this shall not prohibit a Fund from purchasing
publicly traded securities of companies engaging in whole or in part in such
-10-
<PAGE>
activities; and (ii) a Fund may enter into forward currency contracts, futures
contracts and related options and may invest up to 5% of its total assets in
gold bullion.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, Master Fund currently
intends to limit each Fund's investments in warrants so that, valued at the
lower of cost or market value, they do not exceed 5% of the net assets of the
particular Fund. Included within that amount, but not to exceed 2% of the value
of a Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges. For the purpose of this limitation, warrants acquired
by a Fund in units or attached to securities will be deemed to be without value.
Each Fund also intends to refrain from entering into arbitrage transactions.
Pursuant to the requirements of state securities laws, each Fund currently
intends to limit its option transactions so that they do not exceed, at the time
when they are written, 25% of the net (rather than total) assets of the
particular Fund. See Investment Limitation No. 5 above.
The International Fund may not purchase or sell commodities except as
provided in Investment Limitation No. 9 above.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
In order to permit the sale of Shares in certain states, Master Fund
may make on behalf of a Fund other commitments more restrictive than the
investment policies and limitations described above and in the Prospectuses.
Should Master Fund determine that any such commitment is no longer in a Fund's
best interests, it will revoke the commitment by terminating sales of such
Fund's Shares to investors residing in the state involved.
-11-
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by ___________ (the
"Distributor"), a wholly-owned subsidiary of _______________, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectuses, Shares may be sold to customers
("Customers") of financial institutions ("Shareholder Organizations"). Except
for Distribution Shares, Shares are also offered for sale directly to
institutional investors and to members of the general public. Different types of
Customer accounts at the Shareholder Organizations may be used to purchase
Shares, including eligible agency and trust accounts. In addition, Shareholder
Organizations may automatically "sweep" a Customer's account not less frequently
than weekly and invest in Shares amounts in excess of a minimum balance agreed
to by the Shareholder Organization and its Customer. Investors purchasing Shares
may include officers, directors, or employees of the particular Shareholder
Organization.
Pursuant to Rule 12b-1 of the 1940 Act, Master Fund has adopted a
Distribution Plan (the "Distribution Plan") which permits the Distribution
Shares of the Funds to bear certain expenses in connection with the distribution
of those Shares. As required by Rule 12b-1, the Funds' Distribution Plan and
related distribution agreement have been approved, and are subject to annual
approval by, a majority of Master Fund's Board of Directors, and by a majority
of the directors who are not interested persons of Master Fund and have no
direct or indirect interest in the operation of the Distribution Plan or any
agreement relating to the Distribution Plan, by vote cast in person at a meeting
called for the purpose of voting on the Distribution Plan and related agreement.
Rule 12b-1 also requires that persons authorized to direct the disposition of
monies payable by a Fund (in the Funds' case, the Distributor) provide for the
directors' review of quarterly reports on the amounts expended and the purposes
for the expenditures.
Any change in the Distribution Plan that would materially increase the
distribution expenses of Distribution Shares requires approval by holders of
those Shares, but otherwise, the Distribution Plan may be amended by the
directors, including a majority of the disinterested directors who do not have
any direct or indirect financial interest in the Distribution Plan or related
agreement. The Distribution Plan and related agreement may be terminated as to a
particular Fund by a vote of Master Fund's disinterested directors or by vote of
the holders of Distribution Shares of the Fund, on not more than 60 days written
notice. The selection and nomination of disinterested directors has been
committed to the discretion of such disinterested directors as required by the
Rule.
-12-
<PAGE>
The Distribution Plan provides that each Fund will reimburse the
Distributor for distribution expenses in an amount not to exceed .75% of the
average daily net asset value of outstanding Distribution Shares of the Fund.
Distribution expenses payable by the Distributor pursuant to the Distribution
Plan include direct and indirect costs and expenses incurred in connection with
advertising and marketing a Fund's Distribution Shares, and direct and indirect
costs and expenses of preparing, printing and distributing its prospectuses to
other than current shareholders and payments to financial institutions that are
not affiliated with the Distributor ("Distribution Organizations").
The Distribution Plan has been approved, and will continue in effect
for successive one year periods provided that such continuance is specifically
approved by the vote of a majority of the directors who are not parties to the
Distribution Plan or interested persons of any such party and who have no direct
or indirect financial interest in the Distribution Plan or related agreement and
the vote of a majority of the entire Board of Directors.
Any material amendment to Master Fund's arrangements with Distribution
Organizations must be approved by a majority of Master Fund's Board of Directors
(including a majority of the Disinterested Directors). So long as Master Fund's
arrangements with Distribution Organizations are in effect, the selection and
nomination of the members of Master Fund's Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of Master Fund will be
committed to the discretion of such non-interested Directors.
Shares are sold with a maximum sales charge of 4.50%. An illustration
of the computation of the offering price per share of the Funds, using the value
of each Fund's net assets and number of outstanding securities at the close of
business on March 31, 1995 and the value of the Distribution Shares of each
Fund's initial capitalization prior to the commencement of operations, is as
follows:
-13-
<PAGE>
<TABLE>
<CAPTION>
Emerging Americas Fund
International Fund Pacific/Asia Fund Pan European Fund
------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Net Assets........ $64,051,958 $27,343,730 $47,617,199 $39,976,962
Outstanding
Shares........... 6,525,104 4,668,226 5,635,215 4,882,358
Net Asset Value
Per Share........ $ 9.82 $ 5.86 $ 8.45 $ 8.19
Sales Charge (4.50%
of the offering
price).. $ .46 $ .28 $ .40 $ .39
Offering to
Public........... $ 10.28 $ 6.14 $ 8.85 $ 8.58
</TABLE>
<TABLE>
<CAPTION>
International Emerging Americas Pacific/Asia Fund Pan European Fund
Fund Fund distribution Distribution Distribution
Distribution Shares Shares Shares
Shares
------------- - - -
<S> <C> <C> <C> <C>
Net Assets........ $ 100 $ 100 $ 100 $ 100
Outstanding
Shares........... 10 10 10 10
Net Asset Value
Per Share........ $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge
(4.50% of the
offering price).. $ .47 $ .47 $ .47 $ .47
Offering to
Public........... $ 10.47 $ 10.47 $ 10.47 $ 10.47
</TABLE>
As stated in the Prospectuses, the sales load described above will not
be applicable to: (a) purchases of Shares by customers of the Investment Adviser
or its affiliates; (b) trust, agency or custodial accounts opened through the
trust department of a bank, trust company or thrift institution, provided that
appropriate notification of such status is given at the time of investment; (c)
companies, corporations and partnerships (excluding full service broker/dealers
and financial planners, registered investment advisers and depository
institutions not covered by the exemptions in (d) and (e) below); (d) financial
planners and registered investment advisers not affiliated with or clearing
purchases through full service broker/dealers; (e) purchases of Shares by
depository institutions for their own account as principal; (f) exchange
transactions (described below under "Investor Programs - Exchange Privilege")
where the Shares being exchanged were acquired in connection with the
distribution
-14-
<PAGE>
of assets held in a trust, agency or custodial account maintained
with the trust department of a bank; (g) corporate/business
retirement plans (such as 401(k), 403(b)(7), 457 and Keogh accounts) sponsored
by the Distributor and IRA accounts sponsored by the Investment Adviser; (h)
company-sponsored employee pension or retirement plans making direct investments
in the Funds; (i) purchases of Shares by officers, trustees, directors,
employees and retirees of Master Fund, UST Master Tax-Exempt Funds, Inc.
("Master Tax-Exempt Fund"), the Investment Adviser, or of any direct or indirect
affiliate of either of them; (j) purchases of Shares by all beneficial
shareholders of Master Fund or Master Tax-Exempt Fund as of May 22, 1989; (k)
purchases of Shares by investment advisers registered under the Investment
Advisers Act of 1940 for their customers through an omnibus account established
with United States Trust Company of New York; (l) purchases of Shares by
directors, officers and employees of brokers and dealers selling shares pursuant
to a selling agreement with Master Fund and Master Tax-Exempt Fund; (m) purchase
of Shares by investors who are members of affinity groups services by USAffinity
Investments Limited Partnership; and (n) customers of certain financial
institutions who purchase shares through a registered representative of UST
Financial Services Corp. on the premises of their financial institutions. In
addition, no sales load is charged on the reinvestment of dividends or
distributions or in connection with certain share exchange transactions.
Investors who have previously redeemed shares in a portfolio of Master Fund or
Master Tax-Exempt Fund on which a sales load has been paid also have a one-time
privilege of purchasing shares of another portfolio of either company at net
asset value without a sales charge, provided that such privilege will apply only
to purchases made within 30 calendar days from the date of redemption and only
with respect to the amount of the redemption.
Total sales charges paid by shareholders of the International Fund for
the fiscal years ended March 31, 1995, 1994 and 1993 were $4,219, $7,779 and
$2,186, respectively. Of these respective amounts, the Distributor retained
$4,169, $4,786 and $1,850. The balance was paid to selling dealers. Total
sales charges paid by shareholders of the Emerging Americas, Pacific/Asia and
Pan European Funds for the fiscal year ended March 31, 1995 and 1994 and for the
period from December 31, 1992 (commencement of operations) to March 31, 1993
were $8,465, $19,985 and $0, $144, $6,489 and $273, and $183, $1,112 and
$273, respectively. Of these respective amounts, the Distributor retained
$1,403, $8,643 and $0 with respect to the Emerging Americas Fund, $69,
$1,988 and $0 with respect to the Pacific/Asia Fund and $11, $980 and $0 with
respect to the Pan European Fund. The balance was paid to selling dealers.
-15-
<PAGE>
Master Fund may suspend the right of redemption or postpone the date
of payment for Shares for more than 7 days during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Securities and Exchange Commission; (b) the Exchange is
closed for other than customary weekend and holiday closings; (c) the Securities
and Exchange Commission has by order permitted such suspension; or (d) an
emergency exists as determined by the Securities and Exchange Commission.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
a Fund's portfolio securities.
Under limited circumstances, Master Fund may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
-16-
<PAGE>
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the investor must
deposit any outstanding certificates for Shares with Mutual Funds Service
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of a Fund's Shares, and there will be
a reduction of the shareholder's equity in that particular Fund if the amount of
the withdrawal payments exceeds the dividends and distributions paid on the
Shares and the appreciation of the Investor's investment in the Fund. This in
turn may result in a complete depletion of the shareholder's investment. An
investor may not participate in a program of systematic investing in a Fund
while at the same time participating in the Systematic Withdrawal Plan with
respect to an account in the same Fund. Customers of Shareholder Organizations
may obtain information on the availability of, and the procedures relating to,
the Systematic Withdrawal Plan.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of the same series of any
other portfolio of Master Fund or Master Tax-Exempt Fund ("the Companies").
Shares may be exchanged by wire, telephone or mail and must be made to accounts
of identical registration. There is no exchange fee imposed by the Companies.
As of the date of this Statement of Additional Information, Distribution Shares
were available only in the equity and international portfolios of Master Fund.
The Companies may modify or terminate the exchange program at any time upon 60
days' written notice to shareholders, and may reject any exchange request. In
order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies reserve the right to limit the number of exchange
requests of investors to no more than six per year.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effects an
exchange of Shares for shares of
-17-
<PAGE>
another portfolio of the Companies within 90 days of the purchase and is able to
reduce the sales load applicable to the new shares (by virtue of the Companies'
exchange privilege), the amount equal to such reduction may not be included in
the tax basis of the shareholder's exchanged Shares but may be included (subject
to the limitation) in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As described in the prospectuses, Shares of a Fund may be purchased
in connection with the Automatic Investment Program, and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures relating to, such programs.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Master Fund's Charter authorizes its Board of Directors to issue up to
thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Master Fund into one or more
classes or series by setting or changing in any one or more respects their
respective prefer ences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. The Prospectuses describe the classes of shares
into which Master Fund's authorized capital is currently classified.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectuses, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund, its
shareholders are entitled to receive the assets available for distribution
belonging to the particular Fund and a proportionate distribution, based upon
the relative asset values of Master Fund's portfolios, of any general assets of
Master Fund not belonging to any particular portfolio of Master Fund which are
available for distribution. In the event of a liquidation or dissolution of
Master Fund, its shareholders will be entitled to the same distribution
process.
Shareholders of Master Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
Master Fund's shares may elect all
-18-
<PAGE>
of Master Fund's directors, regardless of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Master Fund shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of Master Fund voting without regard to class.
Master Fund's Charter authorizes its Board of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at a price which is equal to their net asset value and which may be paid in cash
or by distribution of the securities or other consideration received from the
sale and conveyance; (b) sell and convert a Fund's assets into money and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at their net asset value; or (c) combine the assets belonging to a Fund with the
assets belonging to another portfolio of Master Fund, if Master Fund's Board of
Directors reasonably determines that such combination will not have a material
adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding Shares of
the Fund to be redeemed at their net asset value or converted into shares of
another class of Master Fund's capital stock at net asset value. The exercise
of such authority by the Board of Directors will be subject to the provisions of
the 1940 Act, and the Board of Directors will not take any action described in
this paragraph unless the proposed action has been disclosed in writing to the
affected Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Master Fund's Common Stock (or of the Shares of a Fund voting separately as a
class) in connection with any
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<PAGE>
corporate action, unless otherwise provided by law (for example, by Rule 18f-2,
discussed above) or by Master Fund's Charter, Master Fund may take or authorize
such action upon the favorable vote of the holders of more than 50% of the
outstanding Common Stock of Master Fund voting without regard to class.
MANAGEMENT OF THE FUND
----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Master Fund, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Master Fund Other Affiliations
- ---------------- ------------- -----------------------
<S> <C> <C>
Alfred C. Tannachion* Chairman of Retired.
1135 Hyde Park the Board,
Mahwah, NJ 07430 President and
Age 69 Treasurer
Donald L. Campbell Director Retired; Senior Vice
333 East 69th Street President, Royal Insur-
Apt. 10-H ance Company, Inc., until
New York, NY 10021 August, 1989; Director, Royal
Age 69 Life Insurance Co. of N.Y.
Joseph H. Dugan Director Retired; President, CEO and
913 Franklin Lake Road and Director, L.B. Foster
Franklin Lakes, NJ 07417 Company (tubular products),
Age 70 from September, 1987 until
May, 1990; Executive Vice
President and CEO, L.B. Foster
Company, from September, 1986
until September, 1987; Senior
Vice President -- Finance,
Chief Financial Officer and
Director, Todd Shipyards
Corporation, prior to
January 3, 1986.
Wolfe J. Frankl Director Director, Deutsche Bank
40 Gooseneck Lane Financial, Inc.; Director,
Charlottesville, VA 22903 The Harbus Corporation;
Age 74 Trustee, Mariner Funds Trust;
Managing Director -- North
America, Berlin Economic
Development Corp., prior to 1988.
</TABLE>
______________________
* This director is considered to be an "interested person" of Master Fund as
defined in the 1940 Act.
-20-
<PAGE>
<TABLE>
<S> <C> <C>
Robert A. Robinson Director President Emeritus, The
Church Pension Fund Church Pension Fund and its
800 Second Avenue affiliated companies, since
New York, NY 10017 1968; Trustee, Mariner Funds
Age 69 Trust; Trustee, H.B. and F.H.
Bugher Foundation and Director
of its wholly owned
subsidiaries -- Rosiclear Lead
and Flourspar Mining Co. and
The Pigmy Corporation;
Director, Morehouse Publishing
Co.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National of Drinker Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 52
Frank M. Deutchki Assistant Vice President, Mutual Funds
Mutual Funds Service Co. Secretary Service Company since
73 Tremont Street February, 1989; Senior Vice
Boston, MA 02108-3913 President - Risk Analysis and
Age 41 Avoidance, Putnam Investor
Services (mutual fund group),
from October, 1987 to January,
1989.
John M. Corcoran Assistant Assistant Vice President,
Mutual Funds Service Co. Treasurer Manager of Administration,
73 Tremont Street Mutual Funds Service Company,
Boston, MA 02108-3913 since October, 1993; Audit
Age 30 Manager, Ernst & Young, from August,
1987 to September, 1993.
</TABLE>
Each director receives an annual fee of $9,000 plus a meeting fee of
$1,500 for each meeting attended and is reimbursed for expenses incurred in
attending meetings. The Chairman of the Board is entitled to receive an
additional $5,000 per annum for services in such capacity. Drinker Biddle &
Reath, of which Mr. McConnel is a partner, receives legal fees as counsel to
Master Fund. The employees of Mutual Funds Service Company do not receive any
compensation from Master Fund for acting as officers of Master Fund. No person
who is currently an officer, director or employee of the Investment Adviser or
any Sub-Adviser serves as an officer, director or employee of Master Fund. The
directors and officers of Master Fund own less than 1% of the Shares of any
Fund.
-21-
<PAGE>
The following chart provides certain information about the fees
received by Master Fund's directors in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Master Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Master Fund Expenses to Directors
--------------- ----------------- ---------- ----------------------------------
<S> <C> <C> <C>
Alfred C. Tannachion $20,000 None $40,000
Chairman of the Board,
President and Treasurer
Donald L. Campbell $20,000 None $40,000
Director
Joseph H. Dugan $20,000 None $40,000
Director
Wolfe J. Frankl $20,000 None $40,000
Director
Robert A. Robinson
Director $20,000 None $40,000
</TABLE>
________________________
* The "Fund Complex" consists of UST Master Funds, Inc., UST Master Tax-
Exempt Funds, Inc. and UST Master Variable Series, Inc. For the fiscal
year ended March 31, 1995, UST Master Variable Series, Inc. did not pay
any directors' fees.
Investment Advisory, Sub-Advisory and Administration Agreements
- ---------------------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds, and FACAM provides Sub-Advisory services with respect to the
International and Pan European Funds. FCEML serves as Sub-Adviser to the
Emerging Americas and Pacific/Asia Funds. In the Investment Advisory and Sub-
Advisory Agreements, the Investment Adviser and Sub-Advisers have agreed to
provide the services described in the Prospectuses. The Investment Adviser
and Sub-Advisers have also agreed to pay all expenses incurred by them in
connection with their activities under the respective agreements other than the
cost of securities, including brokerage commissions, purchased for the
Funds.
For the fiscal year ended March 31, 1993, Master Fund paid the
Investment Adviser $405,494 with respect to the
-22-
<PAGE>
International Fund. During this period, FACAM received sub-advisory fees with
respect to the International Fund from the Investment Adviser totalling
$283,846. For the period from December 31, 1992 (commencement of operations) to
March 31, 1993, Master Fund paid the Investment Adviser $561, $10,010 and $0
with respect to the Emerging Americas, Pacific/Asia and Pan European Funds,
respectively. For the same period, the Investment Adviser waived fees totalling
$5,530, $5,144 and $5,876 with respect to the Emerging Americas, Pacific/Asia
and Pan European Funds, respectively. During this period, FCEML received sub-
advisory fees with respect to the Emerging Americas Fund totalling $3,045 and
FACAM received sub-advisory fees with respect to the Pan European Fund totalling
$4,113. FACAM served as sub-adviser to the Pacific/Asia Fund from its
commencement of operations to June 30, 1993. During the period from commencement
of operations to March 31, 1993, FACAM received sub-advisory fees of $10,608
with respect to the Pacific/Asia Fund.
For the fiscal year ended March 31, 1994, Master Fund paid the
Investment Adviser $417,136, $131,416, $240,305 and $160,310 with respect to the
International, Emerging Americas, Pacific/Asia and Pan European Funds,
respectively. For the same period the Investment Adviser waived fees totalling
$2,244, $36,056, $75,624 and $20,318 with respect to the International, Emerging
Americas, Pacific/Asia and Pan European Funds, respectively. For the fiscal
year ended March 31, 1994, FACAM received sub-advisory fees with respect to the
International and Pan European Funds from the Investment Adviser totalling
$293,566 and $126,440, respectively. For the same period, FCEML received sub-
advisory fees with respect to the Emerging Americas Fund and FCEML and FACAM
received aggregate sub-advisory fees with respect to the Pacific/Asia Fund from
the Investment Adviser totalling $65,708 and $168,214, respectively.
For the fiscal year ended March 31, 1995, Master Fund paid the
Investment Advisor advisory fees of $574,455, $368,128, $480,194, and $375,873
with respect to the International, Emerging Americas, Pacific/Asia, and Pan
European Funds, respectively. For the same period the Investment Adviser waived
fees totalling $37,822, $24,068, $27,189 and $22,473, with respect to the
International, Emerging Americas, Pacific/Asia and Pan European Funds,
respectively. For the fiscal year ended March 31, 1995, FACAM received sub-
advisory fees with respect to the International and Pan European Funds totalling
$_______ and $_______, respectively, and FCEML received sub-advisory fees with
respect to the Emerging Americas and Pacific/Asia Funds totaling $______ and
$______, respectively.
The Investment Adviser may, from time to time, voluntarily waive a
portion of its fees, which waiver may be terminated at any time.
-23-
<PAGE>
The Investment Advisory Agreement and the Sub-Advisory Agreements
provide that the Investment Adviser and Sub-Advisers shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of such agreements, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser or Sub-Advisers in the
performance of their duties or from reckless disregard by either of them of
their duties and obligations thereunder.
Mutual Funds Service Company ("MFSC") and Concord Holding Corporation
(the "Administrators") jointly served as the Funds' administrators until July
31, 1995. Under the Administration Agreement, the Administrators have agreed to
maintain office facilities for the Funds, furnish the Funds with statistical and
research data, clerical, accounting, and bookkeeping services, and certain other
services required by the Funds, and to compute the net asset values, net income
and realized capital gains or losses, if any, of the Funds. The Administrators
prepare semi-annual reports to the Securities and Exchange Commission, prepare
Federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Funds' financial accounts and records, and
generally assist in the Funds' operations.
Effective August 1, 1995, administrative services will be provided by
MFSC and Federated Investors, Inc. under an administration agreement having
substantially the same terms as the Administration Agreement currently in
effect.
For the fiscal year ended March 31, 1993, Master Fund paid the
Administrators $81,099 in the aggregate with respect to the International Fund.
For the period from December 31, 1992 (commencement of operations) to March 31,
1993, Master Fund paid the Administrators, after expense reimbursements, $4,500,
$1,450 and $4,500 in the aggregate with respect to the Emerging Americas,
Pacific/Asia and Pan European Funds, respectively. For the same period, the
Administrators reimbursed expenses totalling $3,050 with respect to the Pan
European Fund.
For the fiscal year ended March 31, 1994, Master Fund paid the
Administrators $83,885, $37,765, $63,192 and $41,471 in the aggregate with
respect to the International, Emerging Americas, Pacific/Asia and Pan European
Funds, respectively.
For the fiscal year ended March 31, 1995, Master Fund paid the
Administrators $122,374, $78,418, $101,468 and $79,669 in the aggregate with
respect to the International Funds, respectively. For the same period, MFSC and
Concord waived fees
-24-
<PAGE>
totalling $81, $21 and $9 with respect to the International, Emerging Americas
and Pacific/Asia Funds, respectively.
The Administrators may, from time to time, voluntarily waive a portion
of their fees, which waivers may be terminated at any time.
Service Organizations
- ---------------------
As stated in the Prospectuses, Master Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for a
Fund's payment (on an annualized basis) of up to .40% of the average daily net
assets of the Fund's Shares beneficially owned by Customers of the Service
Organization. The expenses under these agreements will be borne by the
particular series of a Fund that were provided services. Such services may
include: (a) assisting Customers in designating and changing dividend options,
account designations and addresses; (b) providing necessary personnel and
facilities to establish and maintain certain shareholder accounts and records,
as may reasonably be requested from time to time by Master Fund; (c) assisting
in processing purchases, exchange and redemption transactions; (d) arranging for
the wiring of funds; (e) transmitting and receiving funds in connection with
Customer orders to purchase, exchange or redeem Shares; (f) verifying and
guaranteeing Customer signatures in connection with redemption orders, transfers
among and changes in Customer-designated accounts; (g) providing periodic
statements showing a Customer's account balances and, to the extent practicable,
integrating such information with information concerning other client
transactions otherwise effected with or through the Service Organization; (h)
furnishing on behalf of Master Fund's distributor (either separately or on an
integrated basis with other reports sent to a Customer by the Service
Organization) periodic statements and confirmations of all purchases, exchanges
and redemptions of Shares in a Customer's account required by applicable federal
or state law; (i) transmitting proxy statements, annual reports, updating
prospectuses and other communications from the Master Fund's to Customers; (j)
receiving, tabulating and transmitting to the Master Fund's proxies executed by
Customers with respect to annual and special meetings of shareholders of Master
Fund; (k) providing reports (at least monthly, but more frequently if so
requested by Master Fund's distributor) containing state-by-state listings of
the principal residences of the beneficial owners of the Shares; and (l)
providing or arranging for the provision of such other related services as
Master Fund or a Customer may reasonably request.
-25-
<PAGE>
Master Fund's agreements with Service Organizations are governed by an
Administrative Services Plan (the "Plan") adopted by Master Fund. Pursuant to
the Plan, Master Fund's Board of Directors will review, at least quarterly, a
written report of the amounts expended under Master Fund's agreements with
Service Organizations and the purpose for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of Master Fund's directors, including a majority of the directors
who are not "interested persons" of Master Fund as defined in the 1940 Act and
have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
Any material amendment to Master Fund's arrangements with Service
Organizations must be approved by a majority of Master Fund's Board of Directors
(including a majority of the Disinterested Directors). So long as Master Fund's
arrangements with Service Organizations are in effect, the selection and
nomination of the members of Master Fund's Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of Master Fund will be
committed to the discretion of such non-interested Directors.
For the fiscal year ended March 31, 1995 AND 1994, payments to Service
Organizations totalled $37,903 AND $2,244, $24,089 AND $2,025, $27,198 AND
$2,555 AND $22,473 and $1,499 with respect to the International, Emerging
Americas, Pacific/Asia and Pan European Funds, respectively. Of these amounts
$36,955 and $2,244, $23,712 and $2,025, $26,836 and $2,555 and $22,338 and
$1,499 were paid to affiliates of U.S. Trust with respect to the International,
Emerging Americas, Pacific/Asia and Pan European Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser, Sub-Advisers and
the Administrators bear all expenses in connection with the performance of their
services. Each Fund bears the expenses incurred in its operations. Expenses of a
Fund include taxes; interest; fees (including fees paid to its directors and
officers who are not affiliated with the Distributor or the Administrators);
Securities and Exchange Commission fees; state securities qualification fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders; expenses related to the 12b-1 plan; advisory,
administration and administrative servicing fees; charges of the custodian,
transfer agent, and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of shareholder reports and meetings;
and any extraordinary expenses. A Fund also pays for brokerage fees and
commissions in connection with the purchase of portfolio securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities
-26-
<PAGE>
regulations, the Investment Adviser and the Administrators will reimburse the
affected Fund for a portion of any such excess to the extent required by such
regulations in proportion to the fees received by them in such year up to the
amount of the fees payable to them, provided, however, to the extent required by
such state regulations, the Investment Adviser and the Administrators have
agreed to effect such reimbursement regardless of the fees payable to them. In
addition, FACAM and FCEML have agreed to pay the Investment Adviser an amount
equal to 70% and 50%, respectively, of each expense reimbursement made by the
Investment Adviser to any Fund for which they are Sub-Adviser pursuant to the
foregoing undertaking. The amounts of the above reimbursements, if any, will be
estimated, reconciled and paid on a monthly basis. To Master Fund's knowledge,
of the applicable expense limitations in effect on the date of this Statement of
Additional Information, none is more restrictive than the following: 2 1/2% of
the first $30 million of average annual net assets, 2% of the next $70 million
of average annual net assets and 1 1/2% of average annual net assets in excess
of $100 million.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Master Fund's Board of Directors,
the Investment Adviser is responsible for and makes decisions with respect to
all U.S. securities acquired for the Funds. FACAM and FCEML supervise through
their trading desks the execution of all transactions in foreign securities for
the Funds for which they serve as Sub-Adviser.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable a Fund to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectuses for the Funds' portfolio
turnover rates.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed. For the fiscal years ended March 31, 1993, March 31, 1994 and March 31,
1995, the International Fund paid brokerage commissions aggregating $177,294,
$187,670 and
-27-
<PAGE>
$234,115, respectively. For the period from December 31, 1992 (commencement of
operations) to March 31, 1993 and for the fiscal years ended March 31, 1994 and
March 31, 1995, the Emerging Americas, Pacific/Asia and Pan European Funds paid
brokerage commissions aggregating $13,100, $167,502 and $200,467, $57,218,
$377,060 and $300,058, and $3,660, $97,169 and $88,275, respectively.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, a Fund, where possible, will deal
directly with the dealers who make a market in the securities involved, except
in those circumstances where better prices and execution are available
elsewhere. The cost of securities purchased from underwriters includes an
underwriting commission or concession.
The Investment Advisory Agreements between Master Fund and U.S. Trust,
and the Sub-Advisory Agreements between U.S. Trust and FACAM and between U.S.
Trust and FCEML, provide that, in executing portfolio transactions and selecting
brokers or dealers, the Investment Adviser and Sub-Advisers will seek to obtain
the best net price and the most favorable execution. The Investment Adviser and
Sub-Advisers shall consider factors they deem relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer and whether such broker or
dealer is selling shares of Master Fund, and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis.
In addition, the Investment Advisory and Sub-Advisory Agreements
authorize the Investment Adviser and Sub-Advisers, to the extent permitted by
law and subject to the review of Master Fund's Board of Directors from time to
time with respect to the extent and continuation of the policy, to cause a Fund
to pay a broker which furnishes brokerage and research services a higher
commission than that which might be charged by another broker for effecting the
same transaction, provided that the Investment Adviser and Sub-Advisers
determine in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker, viewed in
terms of either that particular transaction or the overall responsibilities of
the Investment Adviser and Sub-Advisers to the accounts as to which they
exercise investment discretion. Such brokerage and research services might
consist of reports and statistics on specific companies or industries, general
summaries of groups of stocks and their comparative earnings, or broad overviews
of the stock market and the economy. Such services
-28-
<PAGE>
might also include reports on global, regional, and country-by-country prospects
for economic growth, anticipated levels of inflation, prevailing and expected
interest rates, and the outlook for currency relationships.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by U.S. Trust, FACAM and FCEML
and does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to U.S. Trust, FACAM or FCEML in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to U.S. Trust, FACAM and
FCEML in carrying out their obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, Sub-Advisers, or the Distributor, or any affiliated person
of any of them (as such term is defined in the 1940 Act) acting as principal,
except to the extent permitted by the Securities and Exchange Commission.
Investment decisions for each Fund are made independently from those
for other investment companies, common trust funds and other types of funds
managed by U.S. Trust or FACAM or FCEML. Such other investment companies and
funds may also invest in the same securities as the Funds. When a purchase or
sale of the same security is made at substantially the same time on behalf of a
Fund and another investment company or common trust fund, the transaction will
be averaged as to price, and available investments allocated as to amount, in a
manner which U.S. Trust, FACAM or FCEML, as applicable, believes to be equitable
to the Fund and such other investment company or common trust fund. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by the Fund. To the
extent permitted by law, U.S. Trust, FACAM and FCEML may aggregate the
securities to be sold or purchased for the Funds with those to be sold or
purchased for other investment companies or common trust funds in order to
obtain best execution.
Master Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by Master Fund as of the close of its most recent fiscal year. As
of March 31, 1995, the following portfolios of Master Fund held the following
securities of Master Fund's regular brokers or dealers or their parents: (a) the
Money Fund held the following securities: repurchase agreement with Nomura
Securities, Inc. in the principal amount of $19,685,063, repurchase agreement
with Fuji Securities, Inc. in the principal amount of $20,000,000, commercial
paper of Merrill Lynch & Co., Inc. in the principal amount of $35,000,000 and
commercial paper of UBS Finance in the principal amount of $30,000,000; (b) the
Government Money Fund held the following securities: repurchase agreement with
Nomura Securities, Inc. in the principal amount of $20,216,462 and repurchase
agreement with Fuji Securities, Inc. in the principal amount of $20,000,000; (c)
the International Fund held the following security: 27,000 shares of Nomura
Securities Co., Ltd.; and (d) the Pacific/Asia Fund held the following security:
26,000 shares of Nomura Securities Co., Ltd. Nomura Securities International,
Inc., Fuji Bank & Trust, Merrill Lynch, Pierce, Fenner & Smith, Inc. and UBS
Securities are considered to be regular brokers and dealers of Master Fund.
-29-
<PAGE>
INDEPENDENT AUDITORS
--------------------
_________________, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Master Fund. The Funds' Financial Highlights
included in the PROSPECTUSES and the financial statements for the period ended
March 31, 1995 are incorporated by reference in this Statement of Additional
Information.
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of Master
Fund, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania 19107, is
counsel to Master Fund and will pass upon the legality of the Shares offered by
the PROSPECTUSES.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Generally
- ---------
The following supplements the tax information contained in the
PROSPECTUSES.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. If, for any reason, a Fund does not qualify for a
taxable year for the special Federal tax treatment afforded regulated investment
companies, the Fund would be subject to Federal tax on all of its taxable income
at regular corporate rates, without any deduction for distributions to
shareholders. In such event, dividend distributions would be taxable as ordinary
income to shareholders to the extent of such Fund's current and accumulated
earnings and profits and would be eligible for the dividends received deduction
in the case of corporate shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
-30-
<PAGE>
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and, accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Fund and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on futures
contracts, and other financial instruments subject to the marking-to-market
rules described below under "Taxation of Certain Financial Instruments," the
Internal Revenue Service has ruled in private letter rulings that a gain
realized from such a contract, option or financial instrument will be treated as
being derived from a security held for three months or more (regardless of the
actual period for which the contract, option or instrument is held) if the gain
arises as a result of a constructive sale under the marking-to-market rules, and
will be treated as being derived from a security held for less than three months
only if the contract, option or instrument is terminated (or transferred) during
the taxable year (other than by reason of marking-to-market) and less than three
months have elapsed between the date the contract, option or instrument is
acquired and the termination date. Increases and decreases in the value of a
Fund's forward contracts, futures contracts, options on futures contracts and
other investments that qualify as part of a "designated hedge," as defined in
Section 851(g) of the Code, may be netted for purposes of determining whether
the 30% test is met.
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<PAGE>
Each Fund will designate any distribution of the excess of net long-
term capital gain over net short-term capital loss as a capital gain dividend in
a written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange of
Fund Shares, if the shareholder has not held such Shares for more than six
months, any loss on the sale or exchange of those Shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to the Shares.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale paid
to shareholders who have failed to provide a correct tax identification number
in the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund when required
to do so either that they are not subject to backup withholding or that they are
"exempt recipients."
Taxation of Certain Financial Instruments
- -----------------------------------------
Generally, futures contracts and options on futures held by a Fund at
the close of its taxable year will be treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "marking-to-market." Forty percent of any gain or loss
resulting from such constructive sale will be treated as short-term capital gain
or loss and 60% of such gain or loss will be treated as long-term capital gain
or loss without regard to the length of time the Fund holds the futures contract
or related option (the "40%-60% rule"). The amount of any capital gain or loss
actually realized by a Fund in a subsequent sale or other disposition of those
futures contracts and related options will be adjusted to reflect any capital
gain or loss taken into account by the Fund in a prior year as a result of the
constructive sale of the contracts and options. Losses with respect to futures
contracts to sell and related options, which are regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by a Fund, are subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which are also applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for the
long-term holding period) be deemed not to begin prior to termination of the
straddle. With respect to certain futures contracts and related options,
deductions for interest and
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<PAGE>
carrying charges will not be allowed. Notwithstanding the rules described above,
with respect to futures contracts to sell and related options which are properly
identified as such, a Fund may make an election which will exempt (in whole or
in part) those identified futures contracts and options from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales and loss deferral rules, and the requirement to capitalize interest and
carrying charges. Under Temporary Regulations, a Fund would be allowed (in lieu
of the foregoing) to elect either (1) to offset gains or losses from positions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a periodic basis
during the taxable year. Under either election, the 40%-60% rule will apply to
the net gain or loss attributable to the futures contracts and options, but in
the case of a mixed straddle account election, not more than 50 percent of any
net gain may be treated as long term and no more than 40 percent of any net loss
may be treated as short term.
Certain foreign currency contracts entered into by the Funds
(including forward foreign currency exchange transactions) may be subject to the
"marking-to-market" rules described above. To receive such treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under these provisions. As of the date of this Statement of
Additional Information, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by the Funds may
result in the creation of one or more straddles for Federal income tax purposes,
in which case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
The Funds' investments may also be subject to the provisions of
Subpart J of the Code which govern the Federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock);
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<PAGE>
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the marking-to-market rules unless an election is made
to have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with the Treasury regulations,
certain transactions that are part of a "Section 988 hedging transaction" (as
defined in the Code and Treasury regulations) will be integrated and treated as
a single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the marking-to-market or
loss deferral rules under the Code. It is anticipated that some of the non-U.S.
dollar-denominated investments that a Fund may make (such as non-U.S. dollar-
denominated debt securities and obligations and certain preferred stocks) and
some of the foreign currency contracts a Fund may enter into will be subject to
the special currency rules described above. Exchange gains and losses
attributable to foreign currency transactions engaged in by a Fund which are not
subject to the special currency rules (such as foreign equity investments other
than certain preferred stocks) will be treated as capital gains or losses and
will not be segregated from the gain or loss on the underlying transaction.
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE INFORMATION
-----------------------
The Funds may advertise their "average annual total return." Such
return is computed by determining the average annual compounded rate of return
during specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
-34-
<PAGE>
ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year (or other)
periods at the end of the applicable period (or a fractional
portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
Each Fund that advertises an "aggregate total return" computes such return
by determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size of
the account, a mean (or median) account size in a Fund during the periods is
reflected. The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment after
deduction of all nonrecurring charges at the end of the measuring period. In
addition, the Funds' average annual total return and aggregate total return
quotations will reflect the deduction of the maximum sales load charged in
connection with the purchase of Shares.
Based on the foregoing calculations, the average annual total returns
for the Shares of the International Fund for the one year period ended March 31,
1995, for the five-year period ended March 31, 1995, and for the period from
July 21, 1987 (commencement of operations) to March 31, 1995 were (6.33)%,
1.67%, and 4.60%, respectively. The average annual total returns for the
Shares of the Emerging Americas, Pacific/Asia and Pan European Funds for the one
year period ended March 31, 1995
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<PAGE>
and for the period from December 31, 1992 (commencement of operations) to March
31, 1995 were (33.61)%, (10.10)% and (0.38)% and (4.90)%, 13.78% and 6.40%,
respectively. No Distribution Shares of the International Emerging Americas,
Pacific/Asia and Pan European Funds have been issued as of March 31, 1995.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement, sales literature or communication by assuming the investment of
$10,000 in Shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. A Fund does
not, for these purposes, deduct from the initial value invested any amount
representing sales charges. A Fund will, however, disclose the maximum sales
charge and will also disclose that the performance data does not reflect sales
charges and that inclusion of sale charges would reduce the performance quoted.
The total return and yield of Shares of a Fund may be compared to
those of other mutual funds with similar investment objectives and to other
relevant indices or to ratings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the total return and/or yield of a Fund may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
and Weisenberger Investment Company Service. Total return and yield data as
reported in national financial publications such as Money Magazine, Forbes,
----- -------- ------
Barron's, The Wall Street Journal and The New York Times, or in publications of
- -------- --- ---- ------ ------- --- --- ---- -----
a local or regional nature, may also be used in comparing the performance of a
Fund. Advertisements, sales literature or reports to shareholders may from time
to time also include a discussion and analysis of each Fund's performance,
including without limitation, those factors, strategies and techniques that
together with market conditions and events, materially affected each Fund's
performance.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if
-36-
<PAGE>
dividends or other distributions of a Fund investment are reinvested by being
paid in additional Fund shares, any future income or capital appreciation of a
Fund would increase the value, not only of the original Fund investment, but
also of the additional Fund shares received through reinvestment. As a result,
the value of the Fund investment would increase more quickly than if dividends
or other distributions had been paid in cash. The Funds may also include
discussions or illustrations of the potential investment goals of a prospective
investor, investment management techniques, policies or investment suitability
of a Fund, economic conditions, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time advertisements, sales literature or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the views of the Investment Adviser as to current market,
economy, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Fund. The Funds may also include in advertisements charts, graphs
or drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisement, sales
literature or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund. Such
advertisements or communicators may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectuses, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in a Fund together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Master Fund not belonging to a particular portfolio of Master Fund. In
determining a Fund's net asset value, assets belonging to the Fund are charged
with the direct liabilities in respect of the Fund and with a share of the
general liabilities of Master Fund which are normally allocated in proportion to
the relative asset values of Master Fund's portfolios at the time of allocation.
Subject to the provisions of Master Fund's Charter, determinations by the Board
of Directors as to the direct and allocable liabilities, and the allocable
portion of any general assets with respect to the Fund, are conclusive.
-37-
<PAGE>
As of MAY 19, 1995, U.S. Trust held of record substantially all of the
Shares in the Funds as agent or custodian for its customers, but did not own
such Shares beneficially because it did not have discretion to vote or invest
such Shares.
FINANCIAL STATEMENTS
--------------------
Master Fund's Annual Report to Shareholders for the fiscal year ended
March 31, 1995 (the "Annual Report") for the international equity portfolios
Annual Report accompanies this Statement of Additional Information. The
financial statements in the Annual Report for the International, Emerging
Americas, Pacific/Asia and Pan European Fund (the "Financial Statements") are
incorporated in this Statement of Additional Information by reference. The
Financial Statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. Additional copies of the Annual Report may be obtained
at no charge by telephoning the Distributor at the telephone number appearing on
the front page of this Statement of Additional Information.
-38-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to 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 earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or
A-3
<PAGE>
interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" 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.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most
A-6
<PAGE>
unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that
A-7
<PAGE>
the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in
A-9
<PAGE>
business, economic or financial conditions may increase investment risk albeit
not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-10
<PAGE>
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established
A-11
<PAGE>
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
UST MASTER FUNDS, INC.
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights for the Registrant's Managed Income
Fund for the period from January 9, 1986 (commencement
of operations) to the fiscal year ended March 31, 1986
and for the fiscal years ended March 31, 1987 through
March 31, 1995, Income and Growth Fund for the period
from January 6, 1987 (commencement of operations) to the
fiscal year ended March 31, 1987 and for the fiscal
years ended March, 1988 through March 31, 1995.
Equity Fund for the period from April 25, 1985
(commencement of operations) to the fiscal year ended
March 31, 1986 and for the fiscal years ended March 31,
1987 through March 31, 1995, Money Fund and Government
Money Fund for the periods from May 3, 1985 and May 8,
1985 (commencement of operations), respectively, to the
fiscal year ended March 31, 1986 and for the fiscal
years ended March 31, 1987 through March 31, 1995,
International Fund for the period from July 21, 1987 to
the fiscal year ended March 31, 1988 and for the fiscal
years ended March 31, 1989 through March 31, 1995,
Treasury Money Fund for the period from February 4, 1991
(commencement of operations) to the fiscal year ended
March 31, 1991 and for the fiscal years ended March 31,
1992 and March 31, 1995, and for the Aging of America
Fund, Business & Industrial Restructuring Fund,
Communication & Entertainment Fund, Early Life Cycle
Fund, Environmentally-Related Products & Services Fund,
Global Competitors Fund, Long-Term Supply of Energy
Fund, Productivity Enhancers Fund, Short-Term Government
Securities Fund, Intermediate-Term Managed Income Fund,
Pacific/Asia Fund, Pan European Fund and Emerging
Americas Fund for the period from December 28, 1992
(commencement of operations) to the fiscal year ended
March 31, 1993 and for the fiscal year ended March 31,
1995.
(2) Included in Part B:
The Registrant's March 31, 1995 Annual Report
to Shareholders has been filed with the
<PAGE>
Commission and the financial statements included therein
are incorporated herein by reference.
(b) Exhibits:
--------
(1) (a) Articles of Incorporation of Registrant
dated August 1, 1984 (1).
(b) Articles Supplementary of Registrant dated
October 30, 1985 (3).
(c) Articles Supplementary of Registrant dated
September 30, 1986 (4).
(d) Articles Supplementary of Registrant dated
April 10, 1987 (6).
(e) Articles Supplementary of Registrant dated
April 27, 1990 (12).
(f) Articles Supplementary of Registrant dated
October 26, 1990 (13).
(g) Articles Supplementary of Registrant
concerning the creation of the Treasury Fund (13).
(h) Articles Supplementary of Registrant
concerning the increase of authorized capital stock. (16)
(2) (a) Bylaws of Registrant (1).
(b) Amendment No. 1 to Bylaws of Registrant
(3).
(3) None.
(4) (a) Specimen copy of share certificate for
Class A Common Stock of Registrant (3).
(b) Specimen copy of share certificate for
Class B Common Stock of Registrant (3).
(c) Specimen copy of share certificate for
Class C Common Stock of Registrant (3).
(d) Specimen copy of share certificate for
Class D Common Stock of Registrant (3).
(e) Specimen copy of share certificate for
Class E Common Stock of Registrant (4).
(f) Specimen copy of share certificate for
Class F Common Stock of Registrant (5).
(g) Specimen copy of share certificate for
Class A Common Stock - Special Series 1 of Registrant (8).
(h) Specimen copy of share certificate for
Class B Common Stock - Special Series 1 of Registrant (8).
(i) Specimen copy of share certificate for
Class D Common Stock - Special Series 1 of Registrant (8).
-2-
<PAGE>
(j) Specimen copy of share certificate for
Class G Common Stock of Registrant (13).
(k) Specimen copy of share certificate for
Class G Common Stock - Special Series 1 of Registrant (13).
(l) Specimen copy of share certificate for
Class H Common Stock of Registrant. (15)
(m) Specimen copy of share certificate for
Class I Common Stock of Registrant. (15)
(n) Specimen copy of share certificate for
Class J Common Stock of Registrant. (15)
(o) Specimen copy of share certificate for
Class K Common Stock of Registrant. (15)
(p) Specimen copy of share certificate for
Class L Common Stock of Registrant. (15)
(q) Specimen copy of share certificate for
Class M Common Stock of Registrant. (15)
(r) Specimen copy of share certificate for
Class N Common Stock of Registrant. (15)
(s) Specimen copy of share certificate for
Class O Common Stock of Registrant. (15)
(t) Specimen copy of share certificate for
Class P Common Stock of Registrant. (15)
(u) Specimen copy of share certificate for
Class Q Common Stock of Registrant. (15)
(v) Specimen copy of share certificate for
Class R Common Stock of Registrant. (15)
(w) Specimen copy of share certificate for
Class S Common Stock of Registrant. (15)
(x) Specimen copy of share certificate for
Class S Common Stock - Special Series 1 of Registrant. (15)
(y) Specimen copy of share certificate for
Class T Common Stock of Registrant. (15)
(z) Specimen copy of share certificate for
Class T Common Stock - Special Series 1 of Registrant. (15)
(5) (a) Investment Advisory Agreement between
Registrant and United States Trust Company of New York
("U.S. Trust") dated February 6, 1985 (2).
(b) Amendment No. 1 to Investment Advisory
Agreement between Registrant and U.S. Trust dated
February 6, 1985 (10).
(c) Investment Advisory Agreement between
Registrant and U.S. Trust dated November 26, 1985 (3).
-3-
<PAGE>
(d) Amendment No. 1 to Investment Advisory
Agreement between Registrant and U.S. Trust dated
November 26, 1985 (10).
(e) Investment Advisory Agreement between
Registrant and U.S. Trust dated December 16, 1986 (5).
(f) Amendment No. 1 to Investment Advisory
Agreement between Registrant and U.S. Trust dated
December 16, 1986 (10).
(g) Investment Advisory Agreement between
Registrant and U.S. Trust dated May 27, 1987 (7).
(h) Amendment No. 1 to Investment Advisory
Agreement between Registrant and U.S. Trust dated May 27,
1987 (10).
(i) Sub-Advisory Agreement between U.S. Trust
and Foreign and Colonial Asset Management ("FACAM") dated
May 27, 1987 (7).
(j) Investment Advisory Agreement between
Registrant and United States Trust dated February 1, 1991
with respect to the Treasury Fund (13).
(k) Amendment No. 2 to Investment Advisory
Agreement between Registrant and U.S. Trust dated
February 6, 1985 with respect to Early Life Cycle Fund,
Long-Term Supply of Energy Fund, Productivity Enhancers
Fund, Environmentally-Related Products and Services Fund,
Aging of America Fund, Communications and Entertainment
Fund, Business and Industrial Restructuring Fund, Global
Competitors Fund, Emerging Americas Fund, Pacific/Asia Fund,
Pan European Fund, Short-Term Government Fund and
Intermediate-Term Managed Income Fund (17).
(l) Form of Sub-Advisory Agreement between U.S.
Trust and FACAM with respect to Pacific/Asia Fund and Pan
European Fund (16).
(m) Form of Agreement between FACAM and Latin
American Securities Limited with respect to the Emerging
Americas Fund (16).
(n) Form of Interim Sub-Advisory Agreement
between U.S. Trust and FCEML with respect to the Emerging
Americas Fund and the Pacific/Asia Fund dated July 1, 1993
(18).
(o) Form of Sub-Advisory Agreement between U.S.
Trust and FCEML with respect to the Emerging Americas Fund
and Pacific/Asia Fund (18).
(6) (a) Distribution Agreement between Registrant
and UST Distributors, Inc. ("Distributor") dated August 1,
1991 (14).
(b) Letter Agreement between Registrant and
Distributor with respect to Early Life Cycle Fund, Long-Term
Supply of Energy Fund, Productivity Enhancers Fund,
Environmentally-Related Products and Services Fund, Aging of
-4-
<PAGE>
America Fund, Communications and Entertainment Fund,
Business and Industrial Restructuring Fund, Global
Competitors Fund, Emerging Americas Fund, Pacific/Asia Fund,
Pan European Fund, Short-Term Government Fund and
Intermediate-Term Managed Income Fund (17).
(7) None.
(8) (a) Custody and Transfer Agency Agreement
between Registrant and U.S. Trust, Amended and Restated as
of November 1, 1987 (7).
(b) International Custodian Agreement between
U.S. Trust and Morgan Stanley Trust Company dated
December 15, 1989. (15)
(c) Amendment No. 1 dated December 18, 1989 to
the Amended and Restated Custody and Transfer Agency
Agreement between Registrant and U.S. Trust dated November
1, 1987 (10).
(d) Amendment No. 2 to Custody and Transfer
Agency Agreement between Registrant and U.S. Trust with
respect to Early Life Cycle Fund, Long-Term Supply of Energy
Fund, Productivity Enhancers Fund, Environmentally-Related
Products and Services Fund, Aging of America Fund,
Communications and Entertainment Fund, Business and
Industrial Restructuring Fund, Global Competitors Fund,
Emerging Americas Fund, Pacific/Asia Fund, Pan European
Fund, Short-Term Government Fund and Intermediate-Term
Managed Income Fund (17).
(9) (a) Administration Agreement between
Registrant, Mutual Funds Service Company and Concord Holding
Corporation date August 1, 1991 (14).
(b) Amendment No. 1 to Administration
Agreement between Registrant, Mutual Funds Service Company
and Concord Financial Group, Inc. with respect to Early Life
Cycle Fund, Long-Term Supply of Energy Fund, Productivity
Enhancers Fund, Environmentally-Related Products and
Services Fund, Aging of America Fund, Communications and
Entertainment Fund, Business and Industrial Restructuring
Fund, Global Competitors Fund, Emerging Americas Fund,
Pacific/Asia Fund, Pan European Fund, Short-Term Government
Fund and Intermediate-Term Managed Income Fund (17).
(c) Form of Administrative Services Plan and
related Shareholder Servicing Agreement (18).
(10) Opinion of counsel that shares are validly issued, fully
paid and non-assessable.
(11) (a) The Consent of Ernst & Young LLP will be filed with
Post-Effective Amendment No. 21 to be filed on or
about August 1, 1995.
(b) Consent of Drinker Biddle & Reath.
(12) None.
--------------------------------
* Filed with the SEC as part of Registrant's
Rule 24f2 Notice.
-5-
<PAGE>
(13) (a) Purchase Agreement between Registrant and
Shearson Lehman Brothers Inc. dated February 6, 1985 (2).
(b) Purchase Agreement between Registrant and
UST Distributors, Inc. dated December 29, 1992 (17).
(14) None.
(15) Form of Amended and Restated Distribution Plan and form of
Restated Distribution Agreement.
(16) (a) Schedule for computation of performance
quotation (14).
(b) Schedule for computation of performance
quotation (17).
(1) Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed August 8, 1984.
(2) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 1 to its Registration Statement on Form N-1A filed October
30, 1985.
(3) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 2 to its Registration Statement on Form N-1A filed June
6, 1986.
(4) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 3 to its Registration Statement on Form N-1A filed October
17, 1986.
(5) Incorporated herein by reference to Registrant's Post Effective
Amendment No. 4 to its Registration Statement on Form N-1A filed March
19, 1987.
(6) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 5 to its Registration Statement on Form N-1A filed July
23, 1987.
(7) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 6 to its Registration Statement on Form N-1A filed July
29, 1988.
(8) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 7 to its Registration Statement on Form N-1A filed
November 1, 1988.
(9) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 8 to its Registration Statement on Form N-1A filed June
2, 1989.
(10) Incorporated herein by reference to Registrant's and UST Master
Tax-Exempt Funds, Inc.'s ("Master T/E Fund") joint Post-Effective
Amendments Nos. 9 and 7, respectively, to their Registration Statements
on Form N-1A filed March 12, 1990.
(11) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 10 and 8, respectively, to their
Registration Statements on Form N-1A filed July 27, 1990.
-6-
<PAGE>
(12) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 11 and 9, respectively, to their
Registration Statements on Form N-1A filed December 7, 1990.
(13) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 12 and 10, respectively, to their
Registration Statements on Form N-1A filed May 31, 1991.
(14) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 13 and 11, respectively, to their
Registration Statements on Form N-1A filed August 1, 1991.
(15) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 15 to its Registration Statement on Form N-1A filed
October 29, 1992.
(16) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 16 to its Registration Statement on Form N-1A filed
December 24, 1992.
(17) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 17 to its Registration Statement on Form N-1A filed August
2, 1993.
(18) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 18 to its Registration Statement on Form N-1A filed
December 27, 1993.
Item 25. Persons Controlled By or Under
Common Control with Registrant
------------------------------
Registrant is controlled by its Board of Directors.
-7-
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
The following information is as of May 19, 1995:
------------
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Common Stock 2098
Class B Common Stock 750
Class C Common Stock 887
Class D Common Stock 563
Class E Common Stock 1093
Class F Common Stock 1503
Class G Common Stock 418
Class H Common Stock 1419
Class I Common Stock 810
Class J Common Stock 831
Class K Common Stock 411
Class L Common Stock 829
Class M Common Stock 1032
Class N Common Stock 1058
Class O Common Stock 907
Class P Common Stock 1565
Class Q Common Stock 1714
Class R Common Stock 1350
Class S Common Stock 383
Class T Common Stock 427
</TABLE>
Item 27. Indemnification
---------------
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated by reference as Exhibit (1) (a) hereto, and Article VI, Section
2 of Registrant's Bylaws, incorporated by reference as Exhibits (2) (a)
hereto, provide for the indemnification of Registrant's directors and officers.
Indemnification of Registrant's principal underwriter, custodian, and transfer
agent is provided for, respectively, in Section 1.12 of the Distribution
Agreement incorporated by reference as Exhibit (6) hereto and Sections 26
and 27 of the Custody and Transfer Agency Agreement, incorporated by reference
as Exhibit (8) (a) hereto. Registrant has obtained from a major insurance
carrier a directors' and officers' liability policy covering certain types
of errors and omissions. In no event will Registrant indemnify any of its
directors, officers, employees, or agents againt any liability to which
such person would otherwise be subject by reason of his willful misfeasance,
bad faith, gross negligence in the performance of his duties, or by reason
of his reckless disregard of the duties involved in the conduct of his
office or arising under his agreement with Registrant. Registrant will comply
with Rule 484 under the Securities Act of 1933 and Release No. 11330 under
the Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, 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 indeminification by
-8-
<PAGE>
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) United States Trust Company of New York.
United States Trust Company of New York ("U.S. Trust") is a full-service
state-chartered bank located in New York, New York. Set forth below are
the names and principal businesses of the trustees and certain senior executive
officers of U.S. Trust, including those who are engaged in any other business,
profession, vocation, or employment of a substantial nature.
Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ---------- --------
Trustee/ Samuel C. Butler Partner in Cravath, Law Firm
Director Cravath, Swaine Swaine & Moore
& Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Trustee/ Peter O. Crisp General Partner in
Director Venrock Associates Venrock Associates
Room 5600
30 Rockefeller Plaza
New York, NY 10112
Trustee/ Antonia M. Grumbach Partner in Patterson, Law Firm
Director Patterson, Belknap, Belknap, Webb
Webb & Tyler & Tyler
30 Rockefeller Plaza
New York, NY 10112
Trustee/ H. Marshall Schwarz Chairman of the Bank
Director, United States Trust Board & Chief
Chairman of the Co. of New York Executive Officer of
Board and Chief 114 West 47th Street U.S. Trust Corp. and
Executive New York, NY 10036 U.S. Trust Company
Officer of N.Y.
Trustee/ Philippe de Montebello Director of the Art Museum
Director Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Trustee/ Paul W. Douglas
Director 250 Park Avenue
Room 1900
New York, NY 10177
-9-
<PAGE>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ---------- --------
Trustee/ Frederic C. Hamilton Chairman of the Oil & Gas
Director Hamilton Oil Corp. Board of Hamilton Exploration
1560 Broadway Oil Corp.
Suite 2000
Denver, CO 80202
Trustee/ John H. Stookey
Director Hanson Industries
410 Park Avenue
New York, NY 10028
Trustee/ Robert N. Wilson Vice Chairman of
Director Johnson & Johnson the Board of Johnson
One Johnson & & Johnson
Johnson Plaza
New Brunswick, NJ 08933
Trustee/ Peter L. Malkin Chairman of Wein,
Director Wein, Malkin & Bettex Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165
Trustee/ Richard F. Tucker Retired
Director 11 Over Rock Lane
Westport, CT 06880
Trustee/ Carroll L. Wainright, Jr. Consulting Partner Law Firm
Director Milbank, Tweed, Hadley of Milbank, Tweed,
& McCloy Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005
Trustee/ Frederick S. Wonham Vice Chairman of Bank
Director and United States Trust the Board of U.S.
Vice Chairman Company of New York Trust Corporation
114 West 47th Street and United States
New York, NY 10036 Trust Company of
New York
Trustee/ Donald M. Roberts Vice Chairman of Bank
Director, United States Trust the Board and
Vice Chairman Company of New York Treasurer of U.S.
and Treasurer 114 West 47th Street Trust Corporation
New York, NY 10036 and United States
Trust Company of
New York
-10-
<PAGE>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- -------- ---- ---------- --------
Trustee/ Frederick B. Taylor Vice Chairman and Bank
Director, United States Trust Chief Investment
Vice Chairman Company of New York Officer of U.S. Trust
and Chief 114 West 47th Street Corporation and United
Investment New York, NY 10036 States Trust Company
Officer of New York
Trustee/ Jeffrey S. Maurer President of U.S. Bank
Director and United States Trust Trust Corporation and
President Company of New York United States Trust
114 West 47th Street Company of New York
New York, NY 10036
Trustee/ Daniel P. Davison Chairman, Christie, Fine Art
Director Christie, Manson & Woods Manson & Woods Auctioneer
International, Inc. International, Inc.
502 Park Avenue
New York, NY 10021
Trustee/ Orson D. Munn Chairman and Investment
Director Munn, Bernhard & Director of Munn, Advisory
Associates, Inc. Bernhard & Firm
6 East 43rd Street Associates, Inc.
28th Floor
New York, NY 10017
Trustee/ Philip L. Smith Corporate Director
Director P.O. Box 386 and Trustee
Ponte Verde Beach, FL 32004
Trustee/ Edwin D. Etherington President Emeritus, Education
Director P.O. Box 100 Wesleyan University
Old Lyme, CT 06371 and Former President
of American Stock
Exchange
-11-
<PAGE>
(b) Investment Sub-Adviser - Foreign and Colonial Asset Management.
Foreign and Colonial Asset Management ("FACAM") serves as sub-adviser
with respect to the International Fund and Pan European Fund. FACAM is a New
York partnership registered with the SEC under the Investment Advisers Act of
1940. Set forth below are the names and principal businesses of each senior
executive officer of FACAM, including those who are engaged in any other
business, profession, vocation or employment of a substantial nature.
Position
with Principal Type of
FACAM/1/ Name Occupation Business
- ---------- ---- ---------- --------
Simon James Director Foreign and Investment
Exchange House Colonial Management Adviser
Primrose Street,
London, England
EC2A 2NY
Oliver N. Dawson Chief Investment Investment
Exchange House Officer of Adviser
Primrose Street, Foreign &
London, England Colonial Management
EC2A 2NY Limited
Harry C. Rowney Senior Vice President Bank
114 W. 47th Street of United States
New York, NY 10036 Trust Company of New
York
Hon. James D. D. Ogilvy Chief Executive of Investment
Exchange House Foreign & Colonial Adviser
Primrose Street, Management Limited
London, England
EC2A 2NY
Managing Steve Darby Executive Vice Bank
Director 114 W. 47th Street President of U.S.
New York, NY 10036 Trust Company of
New York
Paul K. Napoli Executive Vice Bank
114 W. 47th Street President of United
New York, NY 10036 States Trust Company
of New York
Chairman Jeffrey S. Maurer President of Bank
114 W. 47th Street United States
New York, NY 10036 Trust Company
of New York
- -----------------------------------------------
1. All individuals listed above are members of FACAM's investment committee
that determines general investment advice to be given to clients.
-12-
<PAGE>
(c) Investment Sub-Adviser - Foreign & Colonial Emerging Markets Limited
("FCEML").
Foreign & Colonial Emerging Markets Limited ("FCEML") serves as
sub-adviser with respect to the Emerging Americas Fund and Pacific/Asia Fund.
FCEML is a joint venture between Foreign & Colonial Management Limited in London
and Banco de Investimentos Garantia in Sao Paulo. Set forth below are the names
and principal businesses of the executive and non-executive directors of FCEML,
including those who are engaged in any other business, profession, vocation or
employment of a substantial nature.
Position Type of
with FCEML Name Principal Occupation Business
- ---------- ---- -------------------- --------
Director Tobias Cepelowicz Director, Petroserv SA
Av. Almirante Barroso
52/7th
20031 Rio de Janeiro
Director Mailson Ferreira de Director of an economic
Nobrega consultancy firm in
Exchange House Brazil
Primrose Street
London EC2A 2NY
Director Juan Carlos Iarezza Head of Corporate Bank
Esmerelda 130 Finance, Banco
(1035) Buenos Aires General de Negocios
Director Jorge Esteban Kalledey Vice President
25 de Mayo 367 Bolsa de Comercio
8th/9th Floor de Buenos Aires
1002 Buenos Aires
Director Roberto Hernandez Chairman
Ramirez Acciones y
Casa de Bolsa Valores de
Paseo de la Reforma Mexico SA de CV
398 CP 06600 Mexico DF
Director Lorenzo H. Zambrano President
Avenida Constitucion Cemex SA
444 Pte.
Apartado Postal 392
CP 64000, NL, Mexico
Executive Audley Twiston Davies Director of Investment Adviser
Director Exchange House Foreign & Colonial
Primrose Street Management Ltd.
London EC2A 2NY
-13-
<PAGE>
Position Type of
with FCEML Name Principal Occupation Business
- ---------- ---- -------------------- --------
Executive Eduardo C. G. de Faria
Director Exchange House
Primrose Street
London EC2A 2NY
Executive Marc Wenhammar
Director Exchange House
Primrose Street
London EC2A 2NY
Item 29. Principal Underwriter
---------------------
(a) UST Distributors, Inc. (the "Distributor") currently serves
as distributor for Registrant and acts as principal underwriter or distributor
for UST Master Tax-Exempt Funds, Inc. and Excelsior Institutional Trust.
Positions and
(b) Name and Principal Positions and Officers with Offices with
Business Addresses UST Distributors, Inc. Registrant
------------------ --------------------------- -------------
William B. Blundin Director and President None
125 W. 55th Street
New York, NY 10019
Richard E. Stierwalt Director and Chief None
125 W. 55th Street Operating Officer
New York, NY 10019
(c) Not Applicable.
Item 30. Location of Accounts and Records
--------------------------------
(1) United States Trust Company of New York, 114 W. 47th Street,
New York, NY 10036 (records relating to its functions as investment adviser,
custodian and transfer agent).
(2) Foreign and Colonial Asset Management, Exchange House, Primrose
Street, London England EC2A 2NY (records relating to its function as sub-adviser
to the International and Pan European Funds).
(3) Foreign & Colonial Emerging Markets Limited, Exchange House,
Primrose Street, London EC2A 2NY (records relating to its function as
sub-adviser to the Emerging Americas and Pacific/Asia Funds.
(4) UST Distributors, Inc., 125 W. 55th Street, New York, NY
10019 (records relating to its function as distributor).
(5) Mutual Funds Service Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913; Concord Holding Corporation, 125 W. 55th Street,
New York, NY 10019 (records relating to their functions as administrators
and sub-transfer agent).
-14-
<PAGE>
(6) Drinker Biddle & Reath, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496 (Registrant's
Articles of Incorporation, Bylaws, and Minute Books).
Item 31. Management Services
-------------------
Inapplicable.
Item 32. Undertakings
------------
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of Registrant's latest available Annual Report
to Shareholders which includes Management's Discussion of Registrant's
performance, upon request and without charge.
-15-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, UST Master Funds, Inc. has duly caused
this Post-Effective Amendment No. 20 to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned thereunto duly authorized,
in the City of New York and the State of New York, on the 2nd day of June,
1995.
UST MASTER FUNDS, INC.
Registrant
/s/ Alfred Tannachion
-------------------------
Alfred Tannachion, President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 20 to UST Master Funds, Inc. Registration
Statement on Form N-1A has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alfred Tannachion
- ---------------------
Alfred Tannachion Chairman of the June 2, 1995
Board, President
and Treasurer
/s/ Joseph H. Dugan
- -------------------
Joseph H. Dugan Director June 2, 1995
/s/ Donald L. Campbell Director June 2, 1995
- ----------------------
Donald L. Campbell
/s/ Wolfe J. Frankl
- -------------------
Wolfe J. Frankl Director June 2, 1995
/s/ Robert Robinson
- -------------------
Robert Robinson Director June 2, 1995
-16-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(11)(b) Consent of Drinker Biddle &
Reath.
(15) Form of Amended and Restated
Distribution Plan and form
of related Distribution
Agreement.
</TABLE>
<PAGE>
EXHIBIT 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" in the Statements of Additional Information
that are included in Post-Effective Amendment Nos. 20 and 22 to the Registration
Statement (Nos. 2-92665; 811-4088) on Form N-1A of UST Master Funds, Inc. under
the Securities Act of 1933 and the Investment Company Act of 1940, respectively.
This consent does not constitute a consent under Section 7 of the Securities Act
of 1933, and in consenting to the use of our name and the references to our Firm
under such caption we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under Section 7 or the rules and regulations of the Securities and
Exchange Commission thereunder.
/s/DRINKER BIDDLE & REATH
-------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
June 2, 1995
<PAGE>
EXHIBIT 15
UST MASTER FUNDS, INC.
AMENDED AND RESTATED DISTRIBUTION PLAN
--------------------------------------
______________, 1995
This Distribution Plan (the "Plan") has been adopted by the Board of
Directors of UST Master Funds, Inc. (the "Company") in conformance with Rule
12b-1 under the Investment Company Act of 1940 (the "Act").
Section 1. Payments. The Company may reimburse its Distributor (or any
---------- --------
other person) for certain expenses that are incurred in connection with the
offering and sale of Special Series 1 shares of each of the Company's Funds (all
such shares, hereinafter called "Shares" and all such Funds hereinafter called
"Funds"). Reimbursements by the Company under the Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Company's Board
of Directors, provided that no rate set by the Board for any Fund may exceed the
annual rate of .75% of the average daily net asset value of Shares of such Fund.
For purposes of determining the reimbursements payable under the Plan, the net
asset value of the outstanding Shares of the respective Fund shall be computed
in the manner specified in the Company's prospectuses and statements of
additional information for such Shares.
Section 2. Expenses Covered by Plan. Payments to the Distributor under
---------- ------------------------
Section 1 of the Plan will be to reimburse the Distributor for its expenses in
connection with services intended to result in the sale of the Shares. Such
services may include but are not limited to: (a) direct out-of-pocket
promotional expenses incurred by the Distributor in connection with the
advertising and marketing of Shares; and (b) payments to one or more securities
dealers, financial institutions or other industry professionals and financial
intermediaries, such as but not limited to investment advisers, accountants and
estate planning firms that are not affiliated with the Distributor (severally, a
"Distribution Organization") for distribution assistance. As used herein,
"direct out-of-pocket promotional expenses" include without limitation amounts
spent by the Distributor in connection with advertising via radio, television,
newspapers, magazines and otherwise; preparing, printing and mailing sales
materials, brochures and prospectuses (except for prospectuses used for
regulatory purposes or for distribution to existing shareholders); and other
out-of-pocket expenses incurred in connection with the promotion of the Shares.
Payments made by a particular Fund must be for distribution services
rendered for or on behalf of such Fund. However, joint
<PAGE>
distribution financing with respect to Shares of the Funds (which financing may
also involve other investment portfolios or companies that are affiliated
persons of such a person, or affiliated persons of the Distributor) shall be
permitted in accordance with applicable regulations of the Securities and
Exchange Commission as in effect from time to time.
Upon proper authorization by the Company's Directors in accordance with
Rule 12b-1 under the Act, expenses covered by the Plan may also include other
expenses the Distributor (or any other person) may incur in connection with the
distribution of the Shares including, without limitation, expenditures for
telephone facilities and in-house telemarketing.
Section 3. Reports of Distributor. So long as the Plan is in effect, the
---------- ----------------------
Distributor shall provide to the Company's Board of Directors, and the Directors
shall review, at least quarterly, a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
Section 4. Approval of Plan. The Plan will become effective immediately,
---------- ----------------
as to any series of Shares, upon its approval by (a) a majority of the
outstanding Shares of such series, and (b) a majority of the Board of Directors,
including a majority of the Directors who are not "interested persons" (as
defined in the Act) of the Company and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements entered into in
connection with the Plan, pursuant to a vote cast in person at a meeting called
for the purpose of voting on the approval of the Plan.
Section 5. Continuance of Plan. The Plan shall continue in effect for so
---------- -------------------
long as its continuance is specifically approved at least annually by the
Company's Board of Directors in the manner described in Section 4.
Section 6. Amendments. The Plan may be amended at any time by the Board
---------- ----------
of Directors provided that (a) any amendment to increase materially the costs
which any series of Shares may bear for distribution pursuant to the Plan shall
be effective only upon approval by a vote of a majority of the outstanding
Shares of such series, and (b) any material amendments of the terms of the Plan
shall become effective only upon approval as provided in paragraph 4(b) hereof.
Section 7. Termination. The Plan is terminable, as to any series of
---------- -----------
Shares, without penalty at any time by (a) a vote of a majority of the Directors
who are not "interested persons" (as defined in the Act) of the Company and who
have no direct or indirect financial interest in the operation of the Plan or in
-2-
<PAGE>
any agreements entered into in connection with the Plan, or (b) a vote of a
majority of the outstanding Shares of such series.
Section 8. Selection/Nomination of Directors. While this Plan is in
---------- ---------------------------------
effect, the selection and nomination of those Directors who are not "interested
persons" (as defined in the Act) of the Company shall be committed to the
discretion of such non-interested Directors.
Section 9. Miscellaneous. The captions in this Agreement are included for
---------- -------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the Company has executed the Plan as of __________,
1995 on behalf of each of the Funds.
UST MASTER FUNDS, INC.
By:____________________
President
-3-
<PAGE>
DISTRIBUTION AGREEMENT
Gentlemen:
We wish to enter into this Distribution Agreement ("Agreement") with you
concerning the provision of distribution services in connection with Special
Series 1 shares ("Shares") of each Fund offered by UST Master Funds, Inc. (the
"Company"), of which we are the principal underwriter as defined in the
Investment Company Act of 1940 (the "Act") and the exclusive agent for the
continuous distribution of said Shares.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide reasonable assistance in connection with
the distribution of Shares to your Clients as requested from time to time by us,
which assistance may include without limitation forwarding sales literature and
advertising provided by us for Clients, and such other similar services as we
may reasonably request to the extent you are permitted to do so under applicable
statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Shares except those
contained in the Company's applicable prospectuses and statements of additional
information for the Shares, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by us in
writing.
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us or the
Company in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless and the
Company harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inactions of or by you or
your officers, employees or agents regarding your responsibilities hereunder or
the purchase, redemption, transfer of registration of Shares (or orders relating
to the same) by or on behalf of Clients. You and your employees will, upon
request, be available during normal
<PAGE>
business hours to consult with us or our designees concerning the performance of
your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefor, a
fee at the annual rate of __% of the average daily net asset value of the Shares
beneficially owned by your Clients for whom you are the dealer of record or
holder of record (the "Clients' Shares"), which fee will be computed daily and
payable monthly. For purposes of determining the fees payable under this
Section 5, the average daily net asset value of the Clients' Shares will be
computed in the manner specified in the Company's Registration Statement (as the
same is in effect from time to time) in connection with the computation of the
net asset value of the particular Shares involved for purposes of purchases and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion and without notice, suspend or withdraw the
sale of Shares, including the sale of Shares for the account of any Client or
Clients
Section 6. Any person authorized to direct the disposition of monies paid
or payable by us pursuant to this Agreement will provide to us and the Company,
and the Company's Directors will review, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
In addition, you will furnish us or our designees with such information as we or
they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of the services described
herein), and will otherwise cooperate with us and our designees (including,
without limitation, any auditors designated by us), in connection with the
preparation of reports to the Company's Board of Directors concerning this
Agreement and the monies paid or payable by us pursuant hereto, as well as any
other reports or filings that may be required by law.
Section 7. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that this Agreement has been entered into pursuant to Rule
12b-1 under the Act, and is subject to the provisions of said Rule, as well as
any other applicable rules or regulations promulgated by the Securities and
Exchange Commission.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our
-2-
<PAGE>
designee. Unless sooner terminated, this Agreement will continue until October
24, 199__ and thereafter will continue automatically for successive annual
periods provided such continuance is specifically approved at least annually by
the Company in the manner described in Section 12. This Agreement is terminable
with respect to any series of Shares, without penalty, at any time by the
Company (which termination may be by a vote of a majority of the Disinterested
Directors as defined in Section 12 or by vote of the holders of a majority of
the outstanding Shares of such series) or by us or you upon notice to the other
party hereto. This Agreement will also terminate automatically in the event of
its assignment (as defined in the Act).
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the laws
of the State of Maryland.
Section 12. This Agreement has been approved by vote of a majority of (i)
the Company's Board of Directors and (ii) those Directors of the Company who are
not "interested persons" (as defined in the Act) of the Company and have no
direct or indirect financial interest in the operation of the Distribution Plan
adopted by the Company regarding the provision of distribution services in
connection with the Shares or in any agreement related thereto cast in person at
a meeting called for the purpose of voting on such approval ("Disinterested
Directors").
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated
-3-
<PAGE>
below and promptly return it to us, at the following address:
____________________________________________________________.
Very truly,
_____________________________
By: _________________________
Date: ________________ (Authorized Officer)
Accepted and Agreed to:
[Distribution Organization]
By: ________________________
Date: ________________ (Authorized Officer)
Address of Distribution _______________________
Organization _______________________
_______________________
-4-
