<PAGE>
Registration No. 33-27958/811-5797
As Filed with the Securities and Exchange Commission
on October 17, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
--
Post-Effective Amendment No. 24 /X /
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X /
--
Amendment No. 26 /X /
--
NORTH AMERICAN FUNDS
(Exact Name of Registrant as Specified in Charter)
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6004
(Address of Principal Executive Offices)
Name and Address of Agent for Service:
James D. Gallagher, Esq.
General Counsel
North American Security
Life Insurance Company
116 Huntington Avenue
Boston, MA 02116
Copies to:
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J. Sumner Jones, Esq. Sarah E. Cogan, Esq.
Jones & Blouch L.L.P. Simpson Thatcher & Bartlett
1025 Thomas Jefferson Street, N.W. 425 Lexington Avenue
Suite 405 West New York, New York 10017
Washington, DC 20007
</TABLE>
It is proposed that this filing will become effective December 31, 1996
pursuant to paragraph (a)(2) of Rule 485.
Registrant has heretofore registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 and filed its Rule 24f-2
Notice for the fiscal year ended October 31, 1995 on December 26, 1995.
<PAGE>
NORTH AMERICAN FUNDS
CROSS REFERENCE TO ITEMS
REQUIRED BY RULE 404(a)
N-1A Item of Part A Caption in Prospectus
- ------------------- ---------------------
1. Cover Page
2. Summary
3. Financial Highlights; General Information -
Performance Information
4. General Information - Organization of the
Fund; Investment Portfolios; Risk Factors
5. Management of the Fund; General Information-
Custodian and Transfer and Dividend Disbursing
Agent
5A. Not Applicable
6. Multiple Pricing System; General Information-
Dividends and Distributions;General
Information-Taxes; Shareholder Services-
Shareholder Inquiries
7. Multiple Pricing System; Shareholder Services;
Purchase of Shares
8. Multiple Pricing System; Shareholder Services-
Redemption of Shares, and General Methods of
Redeeming Shares; Purchase of Shares
9. Not Applicable
<PAGE>
NORTH AMERICAN FUNDS
116 Huntington Avenue, Boston, Massachusetts 02116
(800) 872-8037
North American Funds (the "Fund") is an open-end, diversified management
investment company (mutual fund) providing a range of investment options through
thirty-two separate investment portfolios (the "Portfolios"), each of which has
a specific investment objective. This Prospectus relates to the following
portfolios of the Fund:
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PACIFIC RIM EMERGING MARKETS FUND EQUITY-INCOME FUND
SCIENCE & TECHNOLOGY FUND REAL ESTATE SECURITIES FUND
INTERNATIONAL SMALL CAP FUND BALANCED FUND
EMERGING GROWTH FUND HIGH YIELD FUND
PILGRIM BAXTER GROWTH FUND STRATEGIC INCOME FUND
SMALL/MID CAP FUND GLOBAL GOVERNMENT BOND FUND
INTERNATIONAL STOCK FUND. CAPITAL GROWTH BOND FUND
WORLDWIDE GROWTH FUND INVESTMENT QUALITY BOND FUND
GLOBAL EQUITY FUND NATIONAL MUNICIPAL BOND FUND
GROWTH EQUITY FUND U.S. GOVERNMENT SECURITIES FUND
COMMON STOCK FUND MONEY MARKET FUND
EQUITY INDEX FUND CONSERVATIVE LIFESTYLE FUND
BLUE CHIP GROWTH FUND MODERATE LIFESTYLE FUND
VALUE FUND BALANCED LIFESTYLE FUND
INTERNATIONAL GROWTH AND INCOME GROWTH LIFESTYLE FUND
FUND
AGGRESSIVE LIFESTYLE FUND
GROWTH AND INCOME FUND
</TABLE>
The investment objectives and certain policies of each Portfolio are set
forth on the inside front cover. There can be no assurance that any Portfolio
will achieve its investment objective and each of the Portfolios may employ
certain investment practices which involve special risk considerations. See also
the discussion of "RISK FACTORS" in this Prospectus. In pursuing their
investment objectives, the Strategic Income and High Yield Funds reserve the
right to invest without limitation, and the Investment Quality Bond and Equity-
Income Funds may invest up to 20% and 10%, respectively, of their assets, in
high yield/high risk securities, commonly known as "junk bonds." Investments of
this type involve comparatively greater risks, including price volatility and
risk of default in the payment of interest and principal, than higher-quality
securities. Although the Strategic Income Fund's Subadviser has the ability to
invest up to 100% of the Portfolio's assets in lower-rated securities, the
Portfolio's Subadviser does not anticipate investing in excess of 75% of the
Portfolio's assets in such securities. Purchasers should carefully assess the
risks associated with an investment in the Strategic Income Fund. See "RISK
FACTORS--High Yield/High Risk Securities." An investment in the Money Market
Fund is neither insured nor guaranteed by the U.S. Government, and there can be
no assurance that the Money Market Fund will be able to maintain a stable net
asset value of $1.00 per share. Shares of the Fund are not deposits or
obligations of, or guaranteed or endorsed by, any bank, and the shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before making an investment decision. Investors
are encouraged to read this Prospectus and to retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by writing
the Fund at the above address or calling (800) 872-8037 and requesting the
"Statement of Additional Information for North American Funds", dated the date
of this Prospectus (hereinafter "Statement of Additional Information"). The
Statement of Additional Information is incorporated by reference into this
Prospectus. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is December 31, 1996.
<PAGE>
The investment objectives and certain policies of each Portfolio
are set forth below.
PACIFIC RIM EMERGING MARKETS FUND--The investment objective of the Pacific Rim
Emerging Markets Fund is to achieve long-term growth of capital. MAC manages the
Pacific Rim Emerging Markets Fund and seeks to achieve this investment objective
by investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
SCIENCE & TECHNOLOGY FUND--The investment objective of the Science & Technology
Fund is long-term growth of capital. Current income is incidental to the
portfolio's objective. T. Rowe Price manages the Science & Technology Fund
INTERNATIONAL SMALL CAP FUND--The investment objective of the International
Small Cap Fund is to seek long term capital appreciation. Founders manages the
International Small Cap Fund and will pursue this objective by investing
primarily in securities issued by foreign companies which have total market
capitalizations or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
EMERGING GROWTH FUND--The investment objective of the Emerging Growth Fund is
maximum capital appreciation. Warburg manages the Emerging Growth Fund and will
pursue this objective by investing primarily in a portfolio of equity securities
of domestic companies. The Emerging Growth Fund ordinarily will invest at least
65% of its total assets in common stocks or warrants of emerging growth
companies that represent attractive opportunities for maximum capital
appreciation.
PILGRIM BAXTER GROWTH FUND--The investment objective of the Pilgrim Baxter
Growth Fund is capital appreciation. PBHG manages the Pilgrim Baxter Growth Fund
and seeks to achieve its objective by investing in companies believed by PBHG to
have an outlook for strong earnings growth and the potential for significant
capital appreciation.
SMALL/MID CAP FUND--The investment objective of the Small/Mid Cap Fund is to
seek long term capital appreciation. Alger manages the Small/Mid Cap Fund and
will pursue this objective by investing at least 65% of the portfolio's total
assets (except during temporary defensive periods) in small/mid cap equity
securities.
INTERNATIONAL STOCK FUND--The investment objective of the International Stock
Fund is long-term growth of capital. Price-Fleming manages the International
Stock Fund and seeks to attain this objective by investing primarily in common
stocks of established, non-U.S. companies.
WORLDWIDE GROWTH FUND--The investment objective of the Worldwide Growth Fund is
long-term growth of capital. Founders manages the Worldwide Growth Fund and
seeks to attain this objective by normally investing at least 65% of its total
assets in equity securities of growth companies in a variety of markets
throughout the world.
GLOBAL EQUITY FUND--The investment objective of the Global Equity Fund (prior to
October 1, 1996, the "Global Growth Fund") is long-term capital appreciation.
Morgan Stanley manages the Global Equity Fund and intends to pursue this
objective by investing primarily in a globally diversified portfolio of common
stocks and securities convertible into or exercisable for common stocks.
GROWTH EQUITY FUND--The investment objective of the Growth Equity Fund is to
seek long-term growth of capital. Founders manages the Growth Equity Fund and
will pursue this objective by investing, under normal market conditions, at
least 65% of its total assets in common stocks of well-established, high-quality
growth companies that Founders believes have the potential to increase earnings
faster than the rest of the market.
COMMON STOCK FUND--The investment objective of the Common Stock Fund is to
achieve intermediate and long-term growth through capital appreciation and
current income by investing in common stocks and other equity securities of well
established companies with promising prospects for providing an above average
rate of return. MAC manages the Common Stock Fund.
EQUITY INDEX FUND--The investment objective of the Equity Index Fund is to
achieve investment results which approximate the total return of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. MAC manages the Equity Index Fund.
BLUE CHIP GROWTH FUND--The primary investment objective of the Blue Chip Growth
Fund is to provide long-term growth of capital. Current income is a secondary
objective, and many of the stocks in the portfolio are expected to pay
dividends. T. Rowe Price manages the Blue Chip Growth Fund.
VALUE FUND--The investment objective of the Value Fund is to realize an above-
average total return over a market cycle of three to five years, consistent with
reasonable risk. MAS manages the Value Fund and seeks to attain this objective
by investing primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, ADRs and other equity securities
of companies with equity capitalizations usually greater than $300 million.
<PAGE>
INTERNATIONAL GROWTH AND INCOME FUND--The investment objective of the
International Growth and Income Fund is to seek long-term growth of capital and
income. The portfolio is designed for investors with a long-term investment
horizon who want to take advantage of investment opportunities outside the
United States.
GROWTH AND INCOME FUND--The investment objective of the Growth and Income Fund
is to provide long-term growth of capital and income consistent with prudent
investment risk. Wellington Management manages the Growth and Income Fund and
seeks to achieve the Fund's objective by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which Wellington Management believes
are of high quality.
EQUITY-INCOME FUND--The investment objective of the Equity-Income Fund (prior to
December 31, 1996, the "Value Equity Fund") is to provide substantial dividend
income and also long term capital appreciation. T. Rowe Price manages the
Equity-Income Fund and seeks to attain this objective by investing primarily in
dividend-paying common stocks, particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
REAL ESTATE SECURITIES FUND--The investment objective of the Real Estate
Securities Fund is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. MAC manages the Real Estate Securities Fund.
BALANCED FUND--The investment objective of the Balanced Fund (prior to October
1, 1996, the "Asset Allocation Fund") is current income and capital
appreciation. Founders is the manager of the Balanced Fund and seeks to attain
this objective by investing in a balanced portfolio of common stocks, U.S. and
foreign government obligations and a variety of corporate fixed-income
securities.
HIGH YIELD FUND--The investment objective of the High Yield Fund is to realize
an above-average total return over a market cycle of three to five years,
consistent with reasonable risk. MAS manages the High Yield Fund and seeks to
attain this objective by investing primarily in high yield debt securities,
including corporate bonds and other fixed-income securities.
STRATEGIC INCOME FUND--The investment objective of the Strategic Income Fund is
to seek a high level of total return consistent with preservation of capital.
The Strategic Income Fund seeks to achieve its objective by giving its
Subadviser, SBAM, broad discretion to deploy the Strategic Income Fund's assets
among certain segments of the fixed-income market as SBAM believes will best
contribute to the achievement of the portfolio's objective.
GLOBAL GOVERNMENT BOND FUND--The investment objective of the Global Government
Bond Fund is to seek a high level of total return by placing primary emphasis on
high current income and the preservation of capital. Oechsle International
manages the Global Government Bond Fund and intends to pursue this objective by
investing primarily in a selected global portfolio of high-quality, fixed-income
securities of foreign and U.S. governmental entities and supranational
issuers.
CAPITAL GROWTH BOND FUND--The investment objective of the Capital Growth Bond
Fund is to achieve growth of capital with income as a secondary consideration.
MAC manages the Capital Growth Bond Fund. The Capital Growth Bond Fund differs
from most "bond" funds in that its primary objective is capital appreciation,
not income.
INVESTMENT QUALITY BOND FUND--The investment objective of the Investment Quality
Bond Fund is to provide a high level of current income consistent with the
maintenance of principal and liquidity. Wellington Management manages the
Investment Quality Bond Fund and seeks to achieve the Fund's objective by
investing primarily in a diversified portfolio of investment grade corporate
bonds and U.S. Government bonds with intermediate to longer term maturities.
NATIONAL MUNICIPAL BOND FUND--The investment objective of the National Municipal
Bond Fund is to achieve a high level of current income which is exempt from
regular federal income taxes, consistent with the preservation of capital, by
investing primarily in a portfolio of municipal obligations. The Portfolio will
not invest in municipal obligations that are rated below investment grade at the
time of purchase.
U.S. GOVERNMENT SECURITIES FUND--The investment objective of the U.S. Government
Securities Fund is to obtain a high level of current income consistent with
preservation of capital and maintenance of liquidity. SBAM manages the U.S.
Government Securities Fund and seeks to attain its objective by investing a
substantial portion of its assets in debt obligations and mortgage backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and derivative securities such as collateralized mortgage
obligations backed by such securities.
<PAGE>
MONEY MARKET FUND--The investment objective of the Money Market Fund is to
obtain maximum current income consistent with preservation of principal and
liquidity. MAC manages the Money Market Fund and seeks to achieve this objective
by investing in high quality, U.S. dollar denominated money market instruments.
CONSERVATIVE LIFESTYLE FUND--The investment objective of the Conservative
Lifestyle Fund is to provide a high level of current income with some
consideration also given to growth of capital. NASL Financial manages the Funds
and seeks to achieve this objective by investing approximately 80% of the
Lifestyle Fund's assets in Underlying Portfolios which invest primarily in fixed
income securities and approximately 20% of its assets in Underlying Portfolios
which invest primarily in equity securities.
MODERATE LIFESTYLE FUND--The investment objective of the Moderate Lifestyle Fund
is to provide a balance between a high level of current income and growth of
capital with a greater emphasis given to high income. NASL Financial manages the
Fund and seeks to achieve this objective by investing approximately 60% of the
Lifestyle Fund's assets in Underlying Portfolios which invest primarily in fixed
income securities and approximately 40% of its assets in Underlying Portfolios
which invest primarily in equity securities.
BALANCED LIFESTYLE FUND--The investment objective of the Balanced Lifestyle Fund
is to provide a balance between a high level of current income and growth of
capital with a greater emphasis given to capital growth. NASL Financial manages
the Fund and seeks to achieve this objective by investing approximately 40% of
the Lifestyle Fund's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 60% of its assets in Underlying
Portfolios which invest primarily in equity securities.
GROWTH LIFESTYLE FUND--The investment objective of the Growth Lifestyle Fund is
to provide long term growth of capital with consideration also given to current
income. NASL Financial manages the Fund and seeks to achieve this objective by
investing approximately 20% of the Lifestyle Fund's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
80% of its assets in Underlying Portfolios which invest primarily in equity
securities.
AGGRESSIVE LIFESTYLE FUND--The investment objective of the Aggressive Lifestyle
Fund is to provide long term growth of capital. Current income is not a
consideration. NASL Financial manages the Fund and seeks to achieve this
objective by investing 100% of the Lifestyle Fund's assets in Underlying
Portfolios which invest primarily in equity securities.
<PAGE>
TABLE OF CONTENTS
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SUMMARY
The Fund....................................................
Classes of Shares...........................................
Fee Table and Example.......................................
FINANCIAL HIGHLIGHTS..........................................
MULTIPLE PRICING SYSTEM.......................................
INVESTMENT PORTFOLIOS.........................................
Pacific Rim Emerging Markets Fund...........................
Science & Technology Fund...................................
International Small Cap Fund................................
Emerging Growth Fund........................................
Pilgrim Baxter Growth Fund..................................
Small/Mid Cap Fund..........................................
International Stock Fund....................................
Worldwide Growth Fund.......................................
Global Equity Fund (formerly, the Global Growth Fund).......
Growth Equity Fund..........................................
Common Stock Fund...........................................
Equity Index Fund...........................................
Blue Chip Growth Fund.......................................
Value Fund..................................................
International Growth and Income Fund........................
Growth and Income Fund......................................
Equity-Income Fund (formerly, the Value Equity; and.........
prior thereto the Growth Fund)......................
Real Estate Securities Fund.................................
Balanced Fund (formerly, the Asset Allocation Fund).........
High Yield Fund.............................................
Strategic Income Fund.......................................
Global Government Bond Fund.................................
Capital Growth Bond Fund....................................
Investment Quality Bond Fund................................
National Municipal Bond Fund................................
U.S. Government Securities Fund.............................
Money Market Fund...........................................
The Lifestyle Funds.........................................
RISK FACTORS..................................................
Investment Restrictions Generally...........................
High Yield/High Risk Securities.............................
Foreign Securities..........................................
Warrants....................................................
Lending Portfolio Securities................................
When-Issued Securities ("Forward Commitments")..............
Hedging And Other Strategic Transactions....................
Illiquid Securities.........................................
Repurchase Agreements and Reverse Repurchase Agreements.....
Mortgage Dollar Rolls.......................................
MANAGEMENT OF THE FUND........................................
Advisory Arrangements.......................................
Subadvisory Arrangements1...................................
Fund Expenses...............................................
GENERAL INFORMATION...........................................
Net Asset Value.............................................
Dividends and Distributions.................................
Taxes.......................................................
National Municipal Bond Funds - Taxation....................
Performance Information.....................................
Organization of the Fund....................................
Custodian and Transfer and Dividend.........................
Disbursing Agents...........................................
Independent Accountants.....................................
PURCHASE OF SHARES............................................
Introduction................................................
General Methods of Purchasing Shares........................
Share Price.................................................
Class A Shares..............................................
Class B Shares..............................................
Class C Shares..............................................
Contingent Deferred Sales Charge............................
Waiver of CDSC..............................................
Other Dealer Compensation...................................
Distribution Expenses.......................................
SHAREHOLDER SERVICES..........................................
Automatic Investment Plan...................................
Exchange Privilege..........................................
Transfer of Shares..........................................
Redemption of Shares........................................
General Methods of Redeeming Shares.........................
Reinstatement Privilege.....................................
Minimum Account Balance.......................................
Redemption In Kind..........................................
Additional Shareholder Privileges.............................
Automatic Investment Plan...................................
Automatic Dividend Diversification (ADD)....................
Systematic Investing........................................
Systematic Withdrawal Plan..................................
Checkwriting................................................
Telephone Transactions......................................
Certificates................................................
How to Obtain Information on Your Investment................
APPENDIX I.................................................... A-1
APPENDIX II................................................... A-4
APPENDIX III.................................................. A-
</TABLE>
<PAGE>
SUMMARY
The Fund
The Fund is an open-end, diversified, management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on September 28, 1988.
NASL Financial Services, Inc. ("NASL Financial" or, in its capacity as
the Fund's investment adviser, the "Adviser") serves as the investment adviser
and distributor for the Fund. NASL Financial is a wholly-owned subsidiary of the
Fund's sponsor, North American Security Life Insurance Company, based in Boston,
Massachusetts, the ultimate controlling parent of which is The Manufacturers
Life Insurance Company ("Manulife"), a Canadian mutual life insurance company
based in Toronto, Canada.
NASL Financial provides certain expense guarantees and administrative
services to the Fund and its shareholders pursuant to an investment advisory
contract (the "Advisory Agreement"). In addition, it contracts with and
compensates thirteen investment subadvisers which provide portfolio management
services to all Portfolios of the Fund except the Lifestyle Funds (the
"Subadviser(s)"):
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<CAPTION>
Subadviser Subadviser To
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Fred Alger Management, Inc. ("Alger") Small/Mid Cap Fund
Founders Asset Management, Inc. ("Founders") Growth Equity Fund
Worldwide Growth Fund
Balanced Fund
International Small Cap Fund
Oechsle International Advisors, L.P. Global Government Bond Fund
("Oechsle International")
Wellington Management Company Growth and Income Fund
("Wellington Management") Investment Quality Bond Fund
Salomon Brothers Asset Management U.S. Government Securities Fund
("SBAM") Strategic Income Fund
National Municipal Bond Fund
J.P. Morgan Investment Management Inc.
("J.P. Morgan") International Growth and Income Fund
T. Rowe Price Associates, Inc. Science & Technology Fund
("T. Rowe Price") Blue Chip Growth Fund
Equity-Income Fund
Rowe Price-Fleming International, Inc. International Stock Fund
("Price-Fleming")
Morgan Stanley Asset Management Inc. Global Equity Fund
("Morgan Stanley")
Miller Anderson & Sherrerd, LLP ("MAS") Value Fund
High Yield Fund
Warburg Pincus Counsellors, Inc. ("Warburg") Emerging Growth Fund
Pilgrim Baxter & Associates, Ltd. ("PBHG") Pilgrim Baxter Growth Fund
</TABLE>
1
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<TABLE>
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Manufacturers Adviser Corporation ("MAC") Pacific Rim Emerging Markets Fund
Common Stock Fund
Real Estate Securities Fund
Equity Index Fund
Capital Growth Bond Fund
Money Market Fund
</TABLE>
Management services for the Lifestyle Funds are provided at no charge by the
Adviser. See "MANAGEMENT OF THE FUND."
NASL Financial also serves as the distributor of the Fund's shares and in
that role has entered into an exclusive promotional agent agreement with Wood
Logan Associates, Inc. ("Wood Logan") to provide marketing services in
connection with the sales of Fund's shares. See "PURCHASE OF SHARES--
Distribution Expenses."
Each Portfolio has a stated specific investment objectives, which
together with certain investment policies are set forth commencing on the inside
cover of this Prospectus and are also described below. See "INVESTMENT
PORTFOLIOS." There can be no assurance that any Portfolio will attain its
investment objective. The Fund's annual report to shareholders, which is
available without charge upon request, contains a discussion of Fund
performance.
In addition to the risks inherent in any investment in securities,
certain Portfolios of the Fund are subject to particular risks associated with
investing in high yield securities, investing in foreign securities, investing
in warrants, lending portfolio securities, investing in when-issued securities
and engaging in various hedging and other strategic transactions (also referred
to as "derivative transactions"). See "RISK FACTORS."
Classes of Shares
As of April 1, 1994, the Fund began offering three classes of shares in
each Portfolio ("Class A" shares, "Class B" shares and "Class C" shares) to the
general public with each class having a different sales charge structure and
expense level (the "Multiple Pricing System"). Each class has distinct
advantages and disadvantages for different investors, and investors may choose
the class that best suits their circumstances and objectives. As of December 31,
1995, the Fund also offered a Class D shares which is only available for sale to
the Lifestyle Funds. See "MULTIPLE PRICING SYSTEM."
Class A shares. Purchases of Class A shares of less than $1 million are
offered for sale at net asset value per share plus a front end sales charge of
up to 4.75% (with the exception of Class A shares of the Money Market Fund,
which are offered without such a charge). Purchases of Class A shares of $1
million or more made on or after May 1, 1995 are offered for sale at net asset
value without a front end sales charge but subject to a contingent deferred
sales charge ("CDSC") of 1% of the dollar amount subject thereto during the
first year after purchase. The applicable percentage is assessed on an amount
equal to the lesser of the original purchase price or the redemption price of
the shares redeemed. In addition, Class A shares are subject to a distribution
fee of up to .10% of their respective average annual net assets and a service
fee of up to .25% of their respective average annual net assets (with the
exception of Class A shares of the Money Market Fund and the Lifestyle Funds,
which bear no such fees, and Class A shares of the National Municipal Bond Fund,
which are subject to a service fee of up to .15% of Class A average annual net
assets and are not subject to any distribution fee).
Class B shares. Class B shares are offered for sale for purchases of
$250,000 or less. Class B shares are offered for sale at net asset value without
a front end sales charge but are subject to a CDSC of 5% of the dollar amount
subject thereto during the first and second year after purchase, and declining
by 1% each year thereafter to 0% after the sixth year. The applicable percentage
is assessed on an amount equal to the lesser of the original purchase price or
the redemption price of the shares redeemed. Class B shares are also subject to
a distribution fee of up to .75% of their respective average annual net assets
and a service fee of up to .25% of their respective average annual net assets
(with the exception of Class B shares of the Money Market Fund and the Lifestyle
Funds, which bear no such fees). Class B shares will automatically convert to
Class A shares of the same Portfolio six years after purchase.
Class C shares. Class C shares are offered for sale for purchases of
less than $1 million, at net asset value without a front end sales charge .
Class C shares purchased on or after May 1, 1995, are subject to a CDSC of 1% of
the dollar amount subject thereto during the first year after purchase. Shares
purchased prior to May 1, 1995 are not subject to any CDSC upon redemption. The
applicable percentage is assessed on an amount equal to the lesser of the
original purchase price or the redemption price of shares redeemed. Class C
shares are subject to a distribution fee of up to .75% of their respective
average
2
<PAGE>
annual net assets and a service fee of up to .25% of their respective
average annual net assets (with the exception of Class C shares of the Money
Market Fund and the Lifestyle Funds, which bear no such fees). Class C shares
will automatically convert to Class A shares of the same Portfolio ten years
after purchase.
Class D shares. Class D shares are only offered for sale to the
Lifestyle Funds and are offered for sale at net asset value without a front end
sales charge or CDSC. Class D shares are not subject to a distribution fee or
service fee.
The Fund implemented the Multiple Pricing System by reclassifying the
then existing shares of each Portfolio as shares of a particular class of each
such Portfolio. This reclassification was effected in such a manner so that the
shares of each Portfolio outstanding at April 1, 1994 would be subject to
identical distribution and service fees both before and after the
reclassification. Specifically, all outstanding shares of the Strategic Income,
Investment Quality Bond, U.S. Government Securities, National Municipal Bond,
and Money Market Funds were reclassified as Class A shares of each such
Portfolio, and all outstanding shares of the Global Equity, Equity-Income,
Growth and Income and Balanced Funds were reclassified as Class C shares of each
such Portfolio.
For a discussion of factors to consider in selecting the most beneficial
class of shares for a particular investor, see "MULTIPLE PRICING SYSTEM--Factors
for Consideration."
The Lifestyle Funds
There Lifestyle Funds have five investment styles - Conservative,
Moderate, Balanced, Growth and Aggressive. The Lifestyle Funds differ from the
portfolios described in this prospectus in that each Lifestyle Fund invests in
Class D shares of a number of the other portfolios of the Fund ("Underlying
Portfolios"). Each of the five investment styles has its own investment
objective and policies. The Lifestyle Funds are designed to provide a simple
means of obtaining a professionally-determined comprehensive investment program
designed for differing investment orientations. Each program is implemented by
means of selected long term investment allocations among the Underlying
Portfolios.
3
<PAGE>
Fee Table and Example
The following tables are intended to assist investors in understanding
the expenses applicable to each class of shares of each Portfolio:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Class A Class B Class C Class D#
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge
Imposed on Purchases of
shares (as a percentage of
offering price)
All Portfolios except
Money Market Fund......... 4.75%* None None None
Money Market Fund......... None None None NA
Sales charge imposed on
dividend reinvestment
All Portfolios............ None None None None
Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption price, whichever
is lower)
All Portfolios except
Money Market Fund......... 1% first year **5% first year 1%first year*** None
.......................... 0% after 5% second year 0% after first year
.......................... first year 4% third year
............................ 3% fourth year
............................ 2% fifth year
............................ 1% sixth year, and
............................ 0% after sixth year
............................
............................
............................
............................
Money Market Fund........... None None None NA
Exchange Fee................... None None None None
</TABLE>
*See schedule of sales charge breakpoints under "Purchases of Shares - Class A
Shares."
**For purchases of $1 million or more made on or after May 1, 1995.
***For purchases made on or after May 1, 1995.
#Class D shares are not offered to the general public and are only available for
sale to the Lifestyle Funds
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets after fee
waivers and expense reimbursements in certain cases). Total Fund Operating
Expenses absent reimbursement or waiver are set forth below under each Fund's
"Financial Highlights."
<TABLE>
<CAPTION>
Portfolio Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets Fund
Management fees................ 0.800% 0.800% 0.800% [Class D
Rule 12b-1 fees................ 0.350% 1.000% 1.000% to be supplied
Other expenses*(after fee by amendment]
waiver)........................ 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)............. 1.650% 2.300% 2.300%
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Science & Technology Fund
Management fees.................... 1.000% 1.000% 1.000%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.750% 2.400% 2.400%
International Small Cap Fund
Management fees.................... 1.050% 1.050% 1.050%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.900% 2.550% 2.550%
Emerging Growth Fund
Management fees.................... 0.950% 0.950% 0.950%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.700% 2.350% 2.350%
Pilgrim Baxter Growth Fund
Management fees.................... 1.000% 1.000% 1.000%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.750% 2.400% 2.400%
Small/Mid Cap Fund
Management fees.................... 0.925% 0.925% 0.925%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.675% 2.325% 2.325%
International Stock Fund
Management fees.................... 1.150% 1.150% 1.150%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 2.000% 2.650% 2.650%
Worldwide Growth Fund
Management fees.................... 1.000% 1.000% 1.000%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.850% 2.500% 2.500%
Global Equity Fund (formerly,
"Global Growth Fund")
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.750% 2.400% 2.400%
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Growth Equity Fund
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.650% 2.300% 2.300%
Common Stock Fund
Management fees.................... 0.675% 0.675% 0.675%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.425% 2.075% 2.075%
Equity Index Fund
Management fees.................... 0.500% 0.500% 0.500%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.250% 1.900% 1.900%
Blue Chip Growth Fund
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.650% 2.300% 2.300%
Value Fund
Management fees.................... 0.800% 0.800% 0.800%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.550% 2.200% 2.200%
International Growth and Income
Fund
Management fees.................... 0.900% 0.900% 0.900%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.750% 2.400% 2.400%
Growth and Income Fund
Management fees.................... 0.725% 0.725% 0.725%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.340% 1.990% 1.990%
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
Equity-Income Fund (formerly, "Value
Equity Fund" and previously
"Growth Fund")
Management fees..................... 0.800% 0.800% 0.800%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.415% 2.065% 2.065%
Real Estate Securities Fund
Management fees..................... 0.675% 0.675% 0.675%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.425% 2.075% 2.075%
Balanced Fund Fund (formerly, "Asset
Allocation Fund")
Management fees..................... 0.775% 0.775% 0.775%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.265% 0.265% 0.265%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.390% 2.040% 2.040%
High Yield Fund
Management fees..................... 0.750% 0.750% 0.750%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.500% 2.150% 2.150%
Strategic Income Fund
Management fees..................... 0.750% 0.750% 0.750%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.500% 2.150% 2.150%
Global Government Bond Fund
Management fees..................... 0.775% 0.775% 0.775%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.500% 0.500% 0.500%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.625% 2.275% 2.275%
Capital Growth Bond Fund
Management fees..................... 0.600% 0.600% 0.600%
Rule 12b-1 fees..................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver)... 0.400% 0.400% 0.400%
------ ------ ------
Total fund operating expenses*
(after fee waiver).................. 1.350% 2.000% 2.000%
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C>
Investment Quality Bond
Management fees.................... 0.600% 0.600% 0.600%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.250% 1.900% 1.900%
National Municipal Bond Fund
Management fees.................... 0.600% 0.600% 0.600%
Rule 12b-1 fees.................... 0.150% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.240% 0.240% 0.240%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 0.990% 1.840% 1.840%
U.S. Government Securities Fund
Management fees.................... 0.600% 0.600% 0.600%
Rule 12b-1 fees.................... 0.350% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*
(after fee waiver)................. 1.250% 1.900% 1.900%
Money Market Fund
Management fees.................... 0.200% 0.200% 0.200%
Rule 12b-1 fees.................... 0.000% 1.000% 1.000%
Other expenses*(after fee waiver).. 0.300% 0.300% 0.300%
------ ------ ------
Total fund operating expenses*.....
(after fee waiver)................. 0.500% 0.500% 0.500%
</TABLE>
<TABLE>
<CAPTION>
Conservative Lifestyle Fund*
.................................. Class A Class A Class B Class B Class C Class C
.................................. Minimum Maximum Minimum Maximum Minimum Maximum
.................................. Fee Fee Fee Fee Fee Fee
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Rule 12b-1 fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Other expenses*(after fee waiver). 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
------ ------ ------ ------ ------ ------
Total fund operating expenses*
(after fee waiver)................ 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
</TABLE>
Minimum Fees are determined assuming the following allocation for the
Underlying Portfolios:_____. Maximum Fees are determined assuming the following
allocation for the Underlying Portfolios:____________.
<TABLE>
<CAPTION>
Moderate Lifestyle Fund*
.................................. Class A Class A Class B Class B Class C Class C
.................................. Minimum Maximum Minimum Maximum Minimum Maximum
.................................. Fee Fee Fee Fee Fee Fee
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Rule 12b-1 fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Other expenses*(after fee waiver). 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
------ ------ ------ ------ ------ ------
Total fund operating expenses*
(after fee waiver)................ 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
</TABLE>
Minimum Fees are determined assuming the following allocation for the
Underlying Portfolios:_____. Maximum Fees are determined assuming the following
allocation for the Underlying Portfolios:____________.
Balanced Lifestyle Fund*
8
<PAGE>
<TABLE>
<CAPTION>
.................................. Class A Class A Class B Class B Class C Class C
.................................. Minimum Maximum Minimum Maximum Minimum Maximum
.................................. Fee Fee Fee Fee Fee Fee
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Rule 12b-1 fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Other expenses*(after fee waiver). 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
------ ------ ------ ------ ------ ------
Total fund operating expenses*
(after fee waiver)................ 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
</TABLE>
Minimum Fees are determined assuming the following allocation for the
Underlying Portfolios:_____. Maximum Fees are determined assuming the following
allocation for the Underlying Portfolios:____________.
<TABLE>
<CAPTION>
Growth Lifestyle Fund*
.................................. Class A Class A Class B Class B Class C Class C
.................................. Minimum Maximum Minimum Maximum Minimum Maximum
.................................. Fee Fee Fee Fee Fee Fee
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Rule 12b-1 fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Other expenses*(after fee waiver). 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
------ ------ ------ ------ ------ ------
Total fund operating expenses*
(after fee waiver)................ 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
</TABLE>
Minimum Fees are determined assuming the following allocation for the
Underlying Portfolios:_____. Maximum Fees are determined assuming the following
allocation for the Underlying Portfolios:____________.
<TABLE>
<CAPTION>
Aggressive Lifestyle Fund*
.................................. Class A Class A Class B Class B Class C Class C
.................................. Minimum Maximum Minimum Maximum Minimum Maximum
.................................. Fee Fee Fee Fee Fee Fee
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Rule 12b-1 fees................... 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
Other expenses*(after fee waiver). 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
------ ------ ------ ------ ------ ------
Total fund operating expenses*
(after fee waiver)................ 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
</TABLE>
Minimum Fees are determined assuming the following allocation for the
Underlying Portfolios:_____. Maximum Fees are determined assuming the following
allocation for the Underlying Portfolios:____________.
*Each Lifestyle Fund will invest in Class D shares of the Underlying
Portfolios without incurring any front-end sales charge or CDSC (in addition,
Class D shares are not subject to any Rule 12b-1 fee). Each Lifestyle Fund will
in addition to its own expenses, such as Rule 12b-1 fees and certain Other
Expenses, bear its pro rata share of the fees and expenses incurred by the
Underlying Portfolios and the investment return of each Lifestyle Fund will be
net of the Underlying Portfolio expenses
[Annual Fund Operating Expenses for Portfolios with 0.000% to be completed by
amendment]
*Amounts listed under "Other expenses" and "Total fund operating
expenses" in the table above for each class of all Portfolios (except the
International Small Cap, the Small/Mid Cap, the Emerging Growth, the Pilgrim
Baxter Growth, the Pacific Rim Emerging Markets, the International Stock, the
Worldwide Growth, the Science & Technology, the Growth Equity, the Real Estate
Securities, the Blue Chip Growth, the Value, the Equity Index, the High Yield,
the Global Government Bond, the Capital Growth Bond and the Lifestyle Funds) are
based on the application of expense limitations applicable during the most
recent fiscal year. See "Advisory Arrangements" below. Amounts listed under
"Other expenses" and "Total fund operating expenses" for the above-named
Portfolios are based on estimates for current fiscal year expenses. To the
extent that actual expenses are lower than the expense limitations, "Other
expenses" may vary as between classes of a Portfolio as a result of certain
class-specific incremental expenses being allocated to a particular class of
shares.
9
<PAGE>
The amounts set forth under the caption "Shareholder Transaction
Expenses" are the maximum sales charges applicable to purchases of Fund shares.
Because a portion of the 12b-1 fees payable by each class of shares is
considered an asset based sales charge by the National Association of Securities
Dealers, Inc. ("NASD"), long-term shareholders in each class of each Portfolio
(other than the Money Market Fund) may pay more than the economic equivalent of
the maximum front end sales charges permitted by the NASD. See "PURCHASE OF
SHARES--Class A Shares--Reduced Sales Charges" in this Prospectus.
The fees and expenses listed under the caption "Annual Fund Operating
Expenses" are described in this Prospectus under the captions "MANAGEMENT OF THE
FUND" and "PURCHASE OF SHARES--Distribution Expenses." The Advisory Agreement
and Distribution Plans operate to limit Total Fund Operating Expenses to the
amounts listed in the fee table. Such contractual expense limits shall remain in
effect unless the Adviser notifies the Fund (with 30 days notice) that it will
not continue the limits. See "MANAGEMENT OF THE FUND--Advisory Agreement."
Total Fund Operating Expenses for the year ended October 31, 1996, absent
reimbursement or waiver are set forth below under "Financial Highlights."
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period, with the exception of the lines marked "Class B No redemption" and
"Class C No redemption" in which case it is assumed that no redemption is made
at the end of each time period:
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
[Example of expenses for new portfolios to be completed by amendment]
Pacific Rim Emerging Markets
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Science & Technology
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
International Small Cap
Class A Shares $66 $104
Class B Shares $76 $119
Class B No redemption $26 $ 79
Class C Shares $36 $ 79
Class C No redemption $26 $ 79
Class D Shares**
Emerging Growth
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D shares**
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Pilgrim Baxter Growth
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Small/Mid Cap
Class A Shares $64 $ 98
Class B Shares $74 $113
Class B No redemption $24 $ 73
Class C Shares $34 $ 73
Class C No redemption $24 $ 73
Class D Shares**
International Stock
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Worldwide Growth
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Global Equity (formerly,
"Global Growth")
Class A Shares $64 $100 $138 $244
Class B Shares $74 $115 $148 $243*
Class B No redemption $24 $ 75 $128 $243*
Class C Shares $34 $ 75 $128 $274
Class C No redemption $24 $ 75 $128 $274
Class D Shares**
Growth Equity Fund
Class A Shares $63 $ 97
Class B Shares $73 $112
Class B No redemption $23 $ 72
Class C Shares $33 $ 72
Class C No redemption $23 $ 72
Class D Sharees**
Common Stock
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Equity Index
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Blue Chip Growth
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Value
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
International Growth and Income
Class A Shares $64 $100 $138 $244
Class B Shares $74 $115 $148 $243
Class B No redemption $24 $ 75 $128 $243
Class C Shares $34 $ 75 $128 $274
Class C No redemption $24 $ 75 $128 $274
Class D Shares**
Growth and Income
Class A Shares $60 $ 88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $ 62 $107 $200*
Class C Shares $30 $ 62 $107 $232
Class C No redemption $20 $ 62 $107 $232
Class D Shares**
Equity-Income (formerly, "Value
Equity" and previously
"Growth")
Class A Shares $60 $ 88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $ 62 $107 $200*
Class C Shares $30 $ 62 $107 $232
Class C No redemption $20 $ 62 $107 $232
Class D Shares**
Real Estate Securities
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class C No redemption $00 $000
Class D Shares**
Balanced (formerly, "Asset
Allocation")
Class A Shares $60 $ 88 $117 $201
Class B Shares $70 $102 $127 $200*
Class B No redemption $20 $ 62 $107 $200*
Class C Shares $30 $ 62 $107 $232
Class C No redemption $20 $ 62 $107 $232
Class D Shares**
High Yield
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Strategic Income
Class A Shares $62 $ 93 $125 $218
Class B Shares $72 $107 $135 $217*
Class B No redemption $22 $ 67 $115 $217*
Class C Shares $32 $ 67 $115 $248
Class C No redemption $22 $ 67 $115 $248
Class D Shares**
Global Government Bond
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Capital Growth Bond
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Class D Shares**
Investment Quality Bond
Class A Shares $60 $ 85 $113 $191
Class B Shares $69 $100 $123 $190*
Class B No redemption $19 $ 60 $103 $190*
Class C Shares $29 $ 60 $103 $222
Class C No redemption $19 $ 60 $103 $222
Class D Shares**
National Municipal Bond
Class A Shares $57 $ 78 $100 $163
Class B Shares $69 $ 98 $120 $173*
Class B No redemption $19 $ 58 $100 $173*
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class C Shares $29 $ 58 $100 $216
Class C No redemption $19 $ 58 $100 $216
Class D Shares**
U.S. Government Securities
Class A Shares $60 $ 85 $113 $191
Class B Shares $69 $100 $123 $190*
Class B No redemption $19 $ 60 $103 $190*
Class C Shares $29 $ 60 $103 $222
Class C No redemption $19 $ 60 $103 $222
Class D Shares**
Money Market
Class A Shares $ 5 $ 16 $ 28 $ 63
Class B Shares $ 5 $ 16 $ 28 $ 63
Class C Shares $ 5 $ 16 $ 28 $ 63
Class D Shares**
Conservative Lifestyle#
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Moderate Lifestyle#
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Balanced Lifestyle#
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Growth Lifestyle#
Class A Shares $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
Aggressive Lifestyle#
Class A Shares $00 $000
Class A Shares No Redemption $00 $000
Class B Shares $00 $000
Class B No redemption $00 $000
Class C Shares $00 $000
Class C No redemption $00 $000
</TABLE>
#The Example of Expenses for the Lifestyle Funds is calculated using the
midpoint of the minimum and maximum fees set forth under Annual Operating
Expenses.
14
<PAGE>
* Reflects the conversion to Class A shares six years after purchase; therefore
years seven through ten reflect Class A expenses.
**Class D shares are only available for sale to the Lifestyle Funds and are not
available for sale to the general public.
The foregoing Fee Table and Example are intended to assist investors in
understanding the various costs and expenses that investors in the Fund bear
directly and indirectly. The examples for the International Small Cap, the
Small/Mid Cap, the Emerging Growth, the Pilgrim Baxter Growth, the Pacific Rim
Emerging Markets, the International Stock, the Worldwide Growth, the Science &
Technology, the Growth Equity, the Real Estate Securities, the Blue Chip Growth,
the Value, the Equity Index, the High Yield, the Global Government Bond, the
Capital Growth Bond and the Lifestyle Funds do not include 5 and 10 year figures
because they are newly formed Portfolios. Actual expenses for all the Portfolios
may be higher or lower than the amounts shown in the Fee Table and,
consequently, the actual expenses incurred by an investor may be greater (in the
event the expense limitations are removed) or less than the amounts shown in the
Example. Moreover, while the Example assumes a 5% annual return, the performance
of each Portfolio will vary and may result in a return greater or less than
5%.
* * * * *
The information in the foregoing summary is qualified in its entirety by
the more detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.
Information about the performance of each Portfolio is contained in the
Fund's annual report to shareholders which may be obtained without charge.
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FINANCIAL HIGHLIGHTS
[To be supplied by amendment]
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MULTIPLE PRICING SYSTEM
The Fund's Multiple Pricing System permits an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
Class A Shares. Purchases of Class A shares of less than $1 million are
offered for sale at net asset value per share plus a front end sales charge of
up to 4.75% payable at the time of purchase (with the exception of Class A
shares of the Money Market Fund, which are offered without such a charge).
Purchases of Class A shares of $1 million or more made on or after May 1, 1995
are offered for sale at net asset value without a front end sales charge but are
subject to a contingent deferred sales charge ("CDSC") of 1% of the dollar
amount subject thereto during the first year after purchase. See "MULTIPLE
PRICING SYSTEM-Contingent Deferred Sales Charge." In addition, Class A shares
are subject to a distribution fee of up to .10% of their respective average
annual net assets and a service fee of up to .25% of their respective average
annual net assets (with the exception of Class A shares of the Money Market
Fund, which bear no such fees, and Class A shares of the National Municipal Bond
Fund, which are subject to a service fee of up to .15% of Class A average annual
net assets and are not subject to any distribution fee). Certain purchases of
Class A shares qualify for reduced front end sales charges. See "PURCHASE OF
SHARES--Class A Shares--Reduced Sales Charges" and "--Distribution
Expenses."
Class B Shares. Class B shares are offered for sale for purchases of
$250,000 or less. Class B shares are offered for sale at net asset value without
a front end sales charge, but are subject to a CDSC of 5% of the dollar amount
subject thereto during the first and second year after purchase, and declining
by 1% each year thereafter to 0% after the sixth year. See "MULTIPLE PRICING
SYSTEM- Contingent Deferred Sales Charge." In addition, Class B shares are
subject to a distribution fee of up to .75% of their respective average annual
net assets and a service fee of up to .25% of their respective average annual
net assets (with the exception of Class B shares of the Money Market Fund, which
bear no such fees). The Class B shares enjoy the benefit of permitting all of
the investor's dollars to work from the time the investment is made. The higher
ongoing distribution and service fees paid by Class B shares will cause such
shares to have a higher expense ratio and to pay lower dividends than Class A
shares. See "PURCHASE OF SHARES--Class B Shares" and "--Distribution
Expenses." Class B shares will automatically convert to Class A shares six years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. See "MULTIPLE PRICING SYSTEM--Conversion Feature."
Class C Shares. Class C shares are offered for purchases of less than $1
million, at net asset value without a front end sales charge. Class C shares
purchased on or after May 1, 1995 are subject to a CDSC of 1% of the dollar
amount subject thereto during the first year after purchase. Shares purchased
prior to May 1, 1995 are not subject to any CDSC upon redemption. See "MULTIPLE
CLASS PRICING SYSTEM-Contingent Deferred Sales Charge." Class C shares are
subject to a distribution fee of up to .75% of their respective average annual
net assets and a service fee of up to .25% of their respective average annual
net assets (with the exception of Class C shares of the Money Market Fund, which
bear no such fees). Class C shares, like Class B shares, enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment is
made. The higher ongoing distribution and service fees paid by Class C shares
will cause such shares to have a higher expense ratio and to pay lower dividends
than Class A shares. See "PURCHASE OF SHARES--Class C Shares" and
"--Distribution Expenses." Class C shares will automatically convert to Class A
shares ten years after the end of the calendar month in which the shareholder's
order to purchase was accepted. See "MULTIPLE PRICING SYSTEM--Conversion
Feature."
Class D shares. Class D shares are only offered for sale to the
Lifestyle Funds and are offered for sale at net asset value without a front end
sales charge or CDSC. Class D shares are not subject to a distribution fee or
service fee.
Contingent Deferred Sales Charge. Purchases of $1 million or more of
Class A shares made on or after May 1, 1995 are subject to a CDSC of 1% if
redeemed within one year of purchase; purchases of Class B shares are subject to
a CDSC of 5% during the first and second year after purchase declining by 1%
each year thereafter to 0% after the sixth year; and Class C shares purchased on
or after May 1, 1995 are subject to a CDSC of 1% if redeemed within one year of
purchase. The applicable percentage is assessed on an amount equal to the lesser
of the original purchase price or the redemption price of the shares redeemed.
The CDSC is not applicable with respect to redemption of shares of the Money
Market Fund which were initially purchased as such and which were never
exchanged for shares of the same class of another Portfolio. However, in the
case of shares of the Money Market Fund which were obtained through an exchange,
such shares are subject to any applicable CDSC due at redemption. Similarly,
shares initially purchased as shares of the Money Market Fund which are
subsequently exchanged for shares of the same class of other Portfolios will be
subject to any applicable CDSC due at redemption. See "SHAREHOLDER SERVICES--
Exchange Privilege."
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Conversion Feature. Class B shares and Class C shares will automatically
convert to Class A shares six years and ten years, respectively, after the end
of the calendar month in which the shareholder's order to purchase was accepted
and will thereafter no longer be subject to the higher distribution and service
fees. Such conversion will be on the basis of the relative net asset values per
share, without the imposition of any sales charge, fee or other charge. The
purpose of the conversion feature is to relieve the holders of Class B shares
and Class C shares from most of the burden of distribution-related expenses at
such time as when the shares have been outstanding for a duration sufficient for
the Fund's distributor, NASL Financial Services, Inc. (in such capacity, the
"Distributor"), to have been substantially compensated for distribution-related
expenses incurred in connection with Class B shares or Class C shares, as the
case may be. Accordingly, Class B and Class C shares of the Money Market Fund do
not convert to Class A shares of the Money Market Fund at any time, as shares of
all classes of the Money Market Fund do not bear any distribution or service
fees. In addition, because Class B and Class C shares of the Money Market Fund
are not subject to any distribution or service fees, the applicable conversion
period is tolled for any period of time in which Class B or Class C shares are
held in that Portfolio. For example, if Class B shares of a Portfolio other than
the Money Market Fund are exchanged for Class B shares of the Money Market Fund
two years after purchase and are subsequently exchanged one year later for Class
B shares of a Portfolio other than the Money Market Fund, the one year of
ownership in the Money Market Fund does not count in the determination of the
time of conversion to Class A shares.
For purposes of the conversion of Class B and Class C shares to Class A
shares, shares purchased through the reinvestment of dividends and distributions
paid on Class B shares or Class C shares, as the case may be, in a shareholder's
Fund account will be considered to be held in a separate sub-account. Each time
any Class B shares or Class C shares in the shareholder's Fund account (other
than those in the sub-account) convert to Class A shares, a pro rata portion of
the Class B shares or Class C shares, as the case may be, in the sub-account
will also convert to Class A shares.
The conversion of Class B shares to Class A shares and the conversion of
Class C shares to Class A shares are both subject to the continuing availability
of a ruling of the Internal Revenue Service that payment of different dividends
on Class A shares and Class B shares, and on Class A shares and Class C shares,
does not result in the Portfolios' dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and the continuing availability of an opinion of counsel to the
effect that the conversion of shares does not constitute a taxable event under
Federal income tax law. The conversion of Class B shares and Class C shares may
be suspended if such an opinion is no longer available. In that event, no
further conversions of Class B shares or Class C shares would occur, and those
shares might continue to be subject to higher distribution and service fees for
an indefinite period which may extend beyond the period ending six years or ten
years, respectively, after the end of the calendar month in which the
shareholder's order to purchase was accepted.
Factors for Consideration. The Fund's Multiple Pricing System is
designed to provide investors with the option of choosing the class of shares
which is best suited to their individual circumstances and objectives. The
different sales charges, distribution and service fees and conversion features
applicable to each class, as outlined above, should all be taken into
consideration by investors in making the determination of which alternative is
best suited for them. To assist investors in evaluating the costs and benefits
of purchasing shares of each class, the information provided above under the
caption "Fee Table and Example" sets forth the charges applicable to each class
of shares and illustrates an example of a hypothetical investment in each class
of shares of each Portfolio.
There are several key distinctions among the classes of shares that
investors should understand and evaluate in comparing the options presented by
the Multiple Pricing System. Class A shares are subject to lower distribution
and service fees than are Class B and Class C shares, and, accordingly, pay
correspondingly higher dividends per share. However, because for purchases of
less than $1 million of Class A shares a front end sales charge is deducted at
the time of purchase, investors purchasing Class A shares do not have all of
their funds invested initially and, therefore, initially own fewer shares than
they would own if they had invested the identical sum in Class B shares or Class
C shares instead. In addition, Class C shares are subject to the same ongoing
distribution and service fees as Class B shares but are subject to a CDSC for a
shorter period of time (one year as opposed to six years) than Class B shares.
However, Class B shares convert to Class A shares, and lower ongoing
distribution and service fees, in a shorter time frame than do Class C shares.
In light of these distinctions among the classes of shares, investors
should weigh such factors as (i) whether they qualify for a reduced front end
sales load for a purchase of Class A shares; (ii) whether, at the time of
purchase, they anticipate being subject to a CDSC upon redemption if they
purchase Class A shares (purchases of $1 million or more), Class B shares or
Class C shares; (iii) the differential in the relative amounts that would be
paid during the anticipated life of investments (which are made at the same time
and in the same amount) in each class which are attributable to (a) the front
end sales charge (for
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purchases of less than $1 million) and any applicable CDSC (for purchases of $1
million or more) and accumulated distribution and service fees payable with
respect to Class A shares and (b) the accumulated distribution and service fees
(and any applicable CDSC) payable with respect to Class B shares or Class C
shares prior to their conversion to Class A shares; and (iv) to what extent the
differential referred to above might be offset by the higher yield of Class A
shares. Investors should also weigh these considerations against the fact that
the higher continued distribution and service fees associated with Class B
shares and Class C shares will be offset to the extent any return is realized on
the additional funds initially invested and that there can be no assurance as to
the return, if any, which will be realized on such additional funds. Class A
shares are, in general, the most beneficial for the investor who qualifies for
reduced front end sales charges, as described herein under "PURCHASE OF SHARES--
Class A Shares." For this reason, Class B shares are not offered for purchases
in excess of $250,000 and Class C shares are not offered for purchases of $1
million or more. Investors should consult their investment representative for
assistance in evaluating the relative benefits of the different classes of
shares.
The distribution and shareholder service expenses incurred by the
Distributor in connection with the sale of shares will be paid, in the case of
Class A shares (purchases of less than $1 million), from the proceeds of front
end sales charges and ongoing distribution and service fees and in the case of
Class A shares (purchases of $1 million or more), Class B shares and Class C
shares, from the proceeds of CDSCs and ongoing distribution and service fees.
Sales personnel of broker-dealers distributing the Fund's shares and any other
persons entitled to receive compensation for selling or servicing the Fund's
shares may receive different compensation for selling or servicing one class of
shares over another. Investors should understand that front end sales charges,
CDSCs and ongoing distribution and service fees are all intended to compensate
the Distributor for distribution services. See "PURCHASE OF SHARES--
Distribution Expenses."
Dividends paid by the Fund with respect to each class of shares will be
calculated in substantially the same manner at the same time on the same day,
except that distribution and service fees and any other costs specifically
attributable to a particular class of shares will be borne solely by the
applicable class. See "GENERAL INFORMATION--Dividends and Distributions."
Shares of the Fund may be exchanged for shares of the same class of any other
Portfolio, but not for shares of other classes of any Portfolio. See
"SHAREHOLDER SERVICES--Exchange Privilege."
The Trustees of the Fund have determined that currently no conflict of
interest exists between the classes of shares. On an ongoing basis, the Trustees
of the Fund, pursuant to their fiduciary duties under the Investment Company Act
of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.
INVESTMENT PORTFOLIOS
Each Portfolio has a stated investment objective which it pursues through
separate investment policies. The differences in objectives and policies among
the Portfolios can be expected to affect the return of each Portfolio and the
degree of market and financial risk to which each Portfolio is subject.
The investment objective of each Portfolio represent fundamental policies
of each such Portfolio and may not be changed without the approval of the
holders of a majority of the outstanding shares of the Portfolio. Except for
certain investment restrictions, the policies by which a Portfolio seeks to
achieve its investment objectives may be changed by the Trustees of the Fund
without the approval of the shareholders.
The following is a description of the investment objective and policies
of each Portfolio. More complete descriptions of the money market instruments
and certain other investments in which each Portfolio may invest and of the
options, futures and currency transactions that certain Portfolios may engage in
are set forth in the Statement of Additional Information. With regard to fixed
income securities there is an inverse relationship between changes in the
direction of interest rates and the market value of the securities. A more
complete description of the debt security ratings used by the Fund assigned by
Moody's Investors Service, Inc. ("Moody's"), Standard and Poor's Ratings Group
("Standard & Poor's" or "S&P") or Fitch Investors Service, Inc. ("Fitch") is
included in Appendix I to this Prospectus.
Pacific Rim Emerging Markets Fund
The investment objective of the Pacific Rim Emerging Markets Fund is to
achieve long-term growth of capital. MAC manages the Pacific Rim Emerging
Markets Fund and seeks to achieve this investment objective by investing in a
diversified portfolio that is comprised primarily of common stocks and equity-
related securities of corporations domiciled in countries in the Pacific Rim
region. Current income from dividends and interest will not be an important
consideration in the selection of portfolio securities.
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In pursuit of its investment objective, the Pacific Rim Emerging Markets
Fund will vary the geographical distribution of its investments based upon the
continuous evaluation of political, economic and market trends throughout the
world. Investments will be shifted among the world's capital markets in
accordance with the ongoing analyses of trends and developments affecting such
markets and securities. The Pacific Rim Emerging Markets Fund will invest
primarily in companies domiciled in potentially all countries of the Pacific Rim
region. As used herein, the countries of the Pacific Rim region are India,
Pakistan, Japan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Australia,
South Korea, Taiwan, Philippines, New Zealand and China.
The Pacific Rim Emerging Markets Fund will, under normal conditions,
invest at least 65% of its net assets in common stocks and equity-related
securities of established larger-capitalization non-U.S. companies that have
attractive long-term prospects for growth of capital. Equity-related securities
in which the portfolio may invest include: preferred stocks, warrants and
securities convertible into or exchangeable into common stocks.
The Pacific Rim Emerging Markets Fund may, for defensive purposes, invest
all or a portion of its assets in non-convertible fixed income securities
denominated in U.S. and non-U.S. dollars. These non-convertible fixed income
securities will include debt of corporations, foreign governments and
supranational organizations. The portfolio may also maintain a portion of its
assets in cash or short term debt securities pending the selection of certain
long-term investments.
The Pacific Rim Emerging Markets Fund will be subject to special risks as
a result of its ability to invest up to 100% of its total assets in foreign
securities. These risks are described under the caption "RISK FACTORS--Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION--Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Pacific Rim Emerging Markets Fund may also purchase and sell the
following equity-related financial instruments: exchange-listed call and put
options on equity indices, over-the-counter ("OTC") and exchange-listed equity
index futures, OTC and exchange-listed call and put options on various
currencies in the portfolio, and OTC foreign currency futures contracts on
various currencies in the portfolio. The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.
Science & Technology Fund
The investment objective of the Science & Technology Fund is long-term
growth of capital. Current income is incidental to the portfolio's objective. T.
Rowe Price manages the Science & Technology Fund
The Science & Technology Fund will invest at least 65% of its total
assets in the common stocks of companies expected to benefit from the
development, advancement, and use of science and technology. Industries likely
to be represented in the portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical devices,
biotechnology, environmental services, chemicals and synthetic materials, and
defense and aerospace. Investments may also include companies that should
benefit from the commercialization of technological advances even if they are
not directly involved in research and development.
Most of the assets of the Science & Technology Fund will be invested in
U.S. common stocks. However, the portfolio may also purchase other types of
securities, for example, foreign securities, convertible stocks and bonds, and
warrants, when considered consistent with the portfolio's investment objective
and program. The portfolio will hold a certain portion of its assets in U.S. and
foreign dollar-denominated money market securities, including repurchase
agreements, in the two highest rating categories, maturing in one year or less.
For temporary, defensive purposes, the portfolio may invest without limitation
in such securities. This reserve position provides flexibility in meeting
redemptions, expenses, and the timing of new investments and serves as a short-
term defense during periods of unusual market volatility.
Stock selection for the portfolio is not based on company size but rather
on an assessment of the company's fundamental prospects. As a result, holdings
can range from small companies developing new technologies or pursuing
scientific breakthroughs to large, blue chip firms with established track
records of developing and marketing such advances.
Companies in the rapidly changing fields of science and technology face
special risks. For example, their products or services may not prove
commercially successful or may become obsolete quickly. Therefore, a portfolio
of these stocks will likely be more volatile in price than one with broader
diversification that includes investments in more economic sectors. The level of
risk will be increased to the extent that the portfolio has significant exposure
to smaller or unseasoned
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companies (those with less than a three-year operating history). Small
companies often have limited product lines, markets, or financial resources,
and they may depend on a small group of inexperienced managers. The securities
of small companies may be subject to more abrupt or erratic market declines
than securities of larger companies or the market averages in general.
The Science & Technology Fund may also engage in a variety of investment
management practices, such as buying and selling futures and options. The
portfolio may invest up to 10% of its total assets in hybrid instruments,
which are a type of high-risk derivative which can combine the characteristics
of securities, futures and options. For example, the principal amount,
redemption or conversion terms of a security could be related to the market
price of some commodity, currency or securities index. Such securities may
bear interest or pay dividends at below market (or even relatively nominal)
rates. The Statement of Additional Information contains a fuller description
of such instruments and the risks associated therewith.
The Science & Technology Fund will be subject to special risks as a
result of its ability to invest up to 30% of its total assets in foreign
securities. These include nondollar-denominated securities traded outside of
the U.S. and dollar-denominated securities of foreign issuers traded in the
U.S. (such as ADRs).These risks are described under the caption "RISK FACTORS
--Foreign Securities" in this Prospectus. Moreover, substantial investments
in foreign securities may have adverse tax implications as described under
"GENERAL INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Science & Technology Fund is currently authorized to use all of the
various investment strategies referred to under "RISK FACTORS -- Hedging and
Other Strategic Transactions." The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.
International Small Cap Fund
The investment objective of the International Small Cap Fund is to seek
long-term capital appreciation. Founders manages the International Small Cap
Fund and will pursue this objective by investing primarily in securities
issued by foreign companies which have total market capitalizations (present
market value per share multiplied by the total number of shares outstanding)
or annual revenues of $1 billion or less. These securities may represent
companies in both established and emerging economies throughout the world.
At least 65% of the Portfolio's total assets will normally be invested in
foreign securities representing a minimum of three countries (other than the
United States). The Portfolio may invest in larger foreign companies or in
U.S. based companies if, in Founders' opinion, they represent better prospects
for capital appreciation.
The International Small Cap Fund may invest a significant portion of its
assets in the securities of small companies. Small companies are those which
are still in the developing stages of their life cycles and are attempting to
achieve rapid growth in both sales and earnings. Investments in small
companies involve greater risk than is customarily associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of large companies. Such growth rates may be
reflected in more rapid share price appreciation. However, smaller companies
often have limited operating histories, product lines, markets or financial
resources, and they may be dependent upon one-person management. These
companies may be subject to intense competition from larger entities, and the
securities of such companies may have limited marketability and may be subject
to more abrupt or erratic movements in price than securities of larger
companies or the market averages in general. Therefore, the net asset value
of the International Small Cap Fund may fluctuate more widely than the popular
market averages. Accordingly, an investment in the Portfolio may not be
appropriate for all investors.
The International Small Cap Fund will invest primarily in equity
securities but may also invest in convertible securities, preferred stocks,
bonds, debentures and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current
income will not be a substantial factor in the selection of these securities.
The portfolio will only invest in bonds, debentures and corporate obligations-
-other than convertible securities and preferred stock--rated investment-grade
(Baa or higher by Moody's or BBB or higher by S&P) at the time of purchase or,
if unrated, of comparable quality in the opinion of Founders. Convertible
securities and preferred stocks purchased by the Portfolio may be rated in
medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB
or lower by S&P) but will not be rated lower than B. The portfolio may also
invest in unrated convertible securities and preferred stocks in instances in
which Founders believes that the financial condition of the issuer or the
protection afforded by the terms of the securities limits risk to a level
similar to that of securities rated in categories no lower than B. At no time
will the portfolio have more than 5% of its
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total assets invested in any fixed-income securities which are unrated or are
rated below investment grade either at the time of purchase or as a result of
a reduction in rating after purchase. The portfolio is not required to dispose
of debt securities whose ratings are downgraded below these ratings subsequent
to the portfolio's purchase of the securities, unless such a disposition is
necessary to reduce the portfolio's holdings of such securities to less than
5% of its total assets. See "RISK FACTORS - High Yield/High Risk Securities."
A description of the ratings used by Moody's and S & P is set forth in
Appendix I to the Prospectus.
The International Small Cap Fund may invest up to 100% of its assets
temporarily in the following securities if Founders determines that it is
appropriate for purposes of enhancing liquidity or preserving capital in light
of prevailing market or economic conditions: cash, cash equivalents, U.S.
government obligations, commercial paper, bank obligations, repurchase
agreements, and negotiable U.S. dollar-denominated obligations of domestic and
foreign branches of U.S. depository institutions, U.S. branches of foreign
depository institutions, and foreign depository institutions. The portfolio
may also acquire certificates of deposit and bankers' acceptances of banks
which meet criteria established by the Fund's Trustees. When the portfolio is
in a defensive position, the opportunity to achieve capital growth will be
limited, and, to the extent that this assessment of market conditions is
incorrect, the portfolio will be foregoing the opportunity to benefit from
capital growth resulting from increases in the value of equity investments and
may not achieve its investment objective.
Foreign Securities. The portfolio may invest up to 100% of its total
assets in foreign securities and will be subject to special risks as a result
of these investments. These risks are described under the caption "RISK
FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION -Taxes" in this Prospectus.
Foreign investments of the International Small Cap Fund may include
securities issued by companies located in countries not considered to be major
industrialized nations. Such countries are subject to more economic,
political and business risk than major industrialized nations, and the
securities they issue and of issuers located in such countries are expected to
be more volatile and more uncertain as to payments of interest and principal.
The secondary market for such securities is expected to be less liquid than
for securities of major industrialized nations. Such countries may include
(but are not limited to) Argentina, Australia, Austria, Belgium, Bolivia,
Brazil, Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark,
Ecuador, Egypt, Finland, Greece, Hong Kong, Hungary, India, Indonesia,
Ireland, Israel, Italy, Jordan, Malaysia, Mexico, Netherlands, New Zealand,
Nigeria, North Korea, Norway, Pakistan, Paraguay, Peru, Philippines, Poland,
Portugal, Singapore, Slovak Republic. South Africa, South Korea, Spain, Sri
Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and the countries of the former Soviet Union. Investments of the
Portfolio may include securities created through the Brady Plan, a program
under which heavily indebted countries have restructured their bank debt into
bonds. See "OTHER INSTRUMENTS--High Yield Foreign Sovereign Debt Securities"
in the Statement of Additional Information.
Since the International Small Cap Fund's assets will be invested
primarily in foreign securities and since substantially all of the portfolio's
revenues will be received in foreign currencies, the portfolio's net asset
values will be affected by changes in currency exchange rates. The portfolio
will pay dividends in dollars and will incur currency conversion costs.
Use of Hedging and Other Strategic Transactions. The International Small
Cap Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.
Emerging Growth Fund
The investment objective of the Emerging Growth Fund is maximum capital
appreciation. Warburg manages the Emerging Growth Fund and will pursue this
objective by investing primarily in a portfolio of equity securities of
domestic companies.
The Emerging Growth Fund ordinarily will invest at least 65% of its total
assets in common stocks or warrants of emerging growth companies that
represent attractive opportunities for maximum capital appreciation. Emerging
growth companies are small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time.
The Emerging Growth Fund is classified as a non-diversified investment
company under the 1940 Act, which means that portfolio is not limited by the
1940 Act in the proportion of its assets that it may invest in the obligations
of a single issuer. As a non-diversified investment company, the portfolio may
invest a greater proportion of its assets in the obligations of a small number
of issuers and, as a result, may be subject to greater risk with respect to
portfolio securities. To the extent that the portfolio assumes large positions
in the securities of a small number of issuers, its return may
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fluctuate to a greater extent than that of a diversified company as a result
of changes in the financial condition or in the market's assessment of the
issuers.
Although under current market conditions the Emerging Growth Fund expects
to invest in companies having stock market capitalizations of up to
approximately $500 million, the portfolio may invest in emerging growth
companies without regard to their market capitalization. Emerging growth
companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors and
include smaller companies experiencing unusual developments affecting their
market value. These "special situation companies" include companies that are
involved in the following: an acquisition or consolidation; a reorganization;
a recapitalization; a merger, liquidation, or distribution of cash, securities
or other assets; a tender or exchange offer; a breakup or workout of a holding
company; litigation which, if resolved favorably, would improve the value of
the company's stock; or a change in corporate control.
The Emerging Growth Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by
Warburg. Because the market value of debt obligations can be expected to vary
inversely to changes in prevailing interest rates, investing in debt
obligations may provide an opportunity for capital appreciation when interest
rates are expected to decline. The success of such a strategy is dependent
upon Warburg's ability to accurately forecast changes in interest rates. The
market value of debt obligations may also be expected to vary depending upon,
among other factors, the ability of the issuer to repay principal and
interest, any change in investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within
the four highest grades by Moody's or S&P or, if unrated, is determined to be
of comparable quality by Warburg. Bonds rated in the fourth highest grade may
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by the portfolio, an issue of securities may cease to be rated or
its rating may be reduced below the minimum required for purchase by the
portfolio. Neither event will require sale of such securities, although
Warburg will consider such event in its determination of whether the portfolio
should continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the Emerging
Growth Fund may invest temporarily without limit in investment grade debt
obligations and in domestic and foreign money market obligations, including
repurchase agreements.
The Emerging Growth Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments
consist of obligations issued or guaranteed by the U.S. government or a
foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar
institutions) that are high quality investments or, if unrated, deemed by
Warburg to be high quality investments; commercial paper rated no lower than
A-2 by S&P or Prime-2 by Moody's or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt
issue then rated within the three highest rating categories; and repurchase
agreements with respect to the foregoing.
Investing in securities of emerging growth and small-sized companies may
involve greater risks since these securities may have limited marketability
and, thus, may be more volatile. Because small- and medium-sized companies
normally have fewer shares outstanding than larger companies, it may be more
difficult for the Emerging Growth Fund to buy or sell significant amounts of
such shares without an unfavorable impact on prevailing prices. In addition,
small- and medium-sized companies are typically subject to a greater degree of
changes in earnings and business prospects than are larger, more established
companies. There is typically less publicly available information concerning
small- and medium-sized companies than for larger, more established ones.
Securities of issuers in "special situations" also may be more volatile, since
the market value of these securities may decline in value if the anticipated
benefits do not materialize. Although investing in securities of emerging
growth companies or "special situations" offers potential for above-average
returns if the companies are successful, the risk exists that the companies
will not succeed and the prices of the companies' shares could significantly
decline in value. Therefore, an investment in the portfolio may involve a
greater degree of risk than an investment in other mutual funds that seek
capital appreciation by investing in better-known, larger companies.
The Emerging Growth Fund will be subject to certain risks as a result of
its ability to invest up to 20% of its total assets in the securities of
foreign issuers. These risks are described under the caption "RISK FACTORS --
Foreign
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Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under
"GENERAL INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions The Emerging Growth
Fund is currently authorized to use all of the investment strategies referred
to under "RISK FACTORS -- Hedging and Other Strategic Transactions." However,
it is not presently contemplated that any of these strategies will be used to
a significant degree by the portfolio.
Pilgrim Baxter Growth Fund
The investment objective of the Pilgrim Baxter Growth Fund is capital
appreciation. PBHG manages the Pilgrim Baxter Growth Fund and seeks to achieve
its objective by investing in companies believed by the Subadviser to have an
outlook for strong earnings growth and the potential for significant capital
appreciation.
The Pilgrim Baxter Growth Fund will normally be as fully invested as
practicable in common stocks and securities convertible into common stocks,
but also may invest up to 5% of its assets in warrants and rights to purchase
common stocks. In the opinion of the Subadviser, there may be times when the
shareholders' interests are best served and the investment objective is more
likely to be achieved by having varying amounts of the portfolio's assets
invested in convertible securities.
Under normal market conditions, the Pilgrim Baxter Growth Fund will
invest at least 65% of its total assets in common stocks and convertible
securities of small and medium sized growth companies (market capitalization
or annual revenues up to $2 billion). The average market capitalizations or
annual revenues of holdings in the portfolio may, however, fluctuate over time
as a result of market valuation levels and the availability of specific
investment opportunities. In addition, the portfolio may continue to hold
securities of companies whose market capitalizations or annual revenues grow
above $2 billion subsequent to purchase, if the company continues to satisfy
the other investment policies of the portfolio.
The Subadviser tries to keep the portfolio fully invested at all times
However, for temporary defensive purposes, when the Subadviser determines that
market conditions warrant, each portfolio may invest up to 100% of its assets
in cash and money market instruments (consisting of securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations having net assets of at least $500
million as stated on their most recently published financial statements;
commercial paper rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization ("NRSRO");
repurchase agreements involving such securities; and, to the extent permitted
by applicable law and the portfolio's investment restrictions, shares of other
investment companies investing solely in money market securities). To the
extent the portfolio is invested in temporary defensive instruments, it will
not be pursuing its investment objective.
The Subadviser's investment process in managing the assets of the Pilgrim
Baxter Growth Fund is both quantitative and fundamental, and is extremely
focused on quality earnings growth. In seeking to identify investment
opportunities for the portfolio, the Subadviser begins by creating a universe
of rapidly growing companies with market capitalizations within the parameters
described above and that possess certain quality characteristics. Using
proprietary software and research models that incorporate important attributes
of successful growth, such as positive earnings surprises, upward earnings
estimate revisions, and accelerating sales and earnings growth, the Subadviser
creates a universe of growing companies. Then, using fundamental research, the
Subadviser evaluates each company's earnings quality and assesses the
sustainability of the company's current growth trends. Through this highly
disciplined process, the Subadviser seeks to construct an investment portfolio
that possesses strong growth characteristics.
While the Subadviser intends to invest in small and medium capitalization
companies that have strong balance sheets and that the Subadviser's research
indicates should exceed consensus earnings expectations, any investment in
small and medium capitalization companies involves greater risk and price
volatility than that customarily associated with investments in larger, more
established companies. This increased risk may be due to the greater business
risks of small size, limited markets and financial resources, narrow product
lines and frequent lack of management depth. The securities of small and
medium capitalization companies are often traded in the over-the-counter
market, and might not be traded in volumes typical of securities traded on a
national securities exchange. Thus, the securities of small and medium
capitalization companies are likely to be less liquid, and subject to more
abrupt or erratic market movements, than securities of larger, more
established companies
Securities will be sold when the Subadviser believes that anticipated
appreciation is no longer probable, alternative investments offer superior
appreciation prospects, or the risk of a decline in market price is too great.
Because of its policy with respect to the sales of investments, the Pilgrim
Baxter Growth Fund may from time to time realize short-term gains
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or losses. The portfolio will likely have somewhat greater volatility than the
stock market in general, as measured by the S&P 500 Index.
Normally, the Pilgrim Baxter Growth Fund will purchase only securities
traded in the United States or Canada on registered exchanges or in the over-
the-counter market. The Portfolio may invest up to 15% of its total assets in
securities of foreign issuers (including ADRs). To the extent the portfolio
invests in foreign securities, it will be subject to certain risks as
described under the caption "RISK FACTORS --Foreign Securities" in this
Prospectus.
Use of Hedging and Other Strategic Transactions
The Pilgrim Baxter Growth Fund is currently authorized to use all of the
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." With the exception of forward foreign currency
contracts, however, it is not presently contemplated that any of these
strategies will be used to a significant degree by the portfolio. The
Statement of Additional Information contains a description of these strategies
and certain risks associated therewith.
Small/Mid Cap Fund
The investment objective of the Small/Mid Cap Fund is to seek long term
capital appreciation. Alger manages the Small/Mid Cap Fund and will pursue
this objective by investing at least 65% of the Portfolio's total assets
(except during temporary defensive periods) in small/mid cap equity
securities. As used in this Prospectus small/mid cap equity securities are
equity securities of companies that, at the time of purchase, have "total
market capitalization" -- present market value per share multiplied by the
total number of shares outstanding -- between $500 million and $5 billion.
The Portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization of
$5 billion or greater and in excess of that amount (up to 100% of its assets )
during temporary defensive periods.
The Small/Mid Cap Fund seeks to achieve its investment objective by
investing in equity securities, such as common or preferred stocks, or
securities convertible into or exchangeable for equity securities, including
warrants and rights. The Portfolio will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market.
The Small/Mid Cap Fund may invest a significant portion of its assets in
the securities of small companies. Small companies are those which are still
in the developing stages of their life cycles and will attempt to achieve
rapid growth in both sales and earnings. Investments in small companies
involve greater risk than is customarily associated with more established
companies. These companies often have sales and earnings growth rates which
exceed those of large companies. Such growth rates may be reflected in more
rapid share price appreciation. However, smaller companies often have limited
operating histories, product lines, markets or financial resources, and they
may be dependent upon the management of only a few people. These companies
may be subject to intense competition from larger entities, and the securities
of such companies may have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of larger companies or
the market averages in general. Therefore, the net asset values of the
Small/Mid Cap Fund may fluctuate more widely than the popular market averages.
Accordingly, an investment in the portfolio may not be appropriate for all
investors.
In order to afford the Portfolio the flexibility to take advantage of new
opportunities for investments in accordance with its investment objectives, it
may hold up to 15% of its net assets (up to 100% of their assets during
temporary defensive periods) in money market instruments, bank and thrift
obligations, obligations issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities, foreign bank obligations and obligations of
foreign branches of domestic banks, variable rate master demand notes and
repurchase agreements. When the Portfolio is in a defensive position, the
opportunity to achieve capital growth will be limited, and, to the extent that
this assessment of market conditions is incorrect, the Portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of its investments and may not achieve its investment
objective.
Foreign Securities. The Portfolio may invest up to 20% of its total
assets in foreign securities and will be subject to certain risks as a result
of these investments. These risks are described under the caption "RISK
FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION -Taxes" in this Prospectus. The
Portfolio may also purchase American Depository Receipts ("ADRs") or U.S.
dollar-denominated securities of foreign issuers that are not included in the
20% foreign securities limitation. See "RISK FACTORS - Foreign Securities" in
this Prospectus for a description of ADRs.
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Use of Hedging and Other Strategic Transactions. The Small/Mid Cap Fund
is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions".
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
International Stock Fund
The investment objective of the International Stock Fund is long-term
growth of capital. Price-Fleming manages the International Stock Fund and
seeks to attain this objective by investing primarily in common stocks of
established, non-U.S. companies. The portfolio expects to invest substantially
all of its assets outside the U.S. and to diversify broadly among countries
throughout the world -- developed, newly industrialized, and emerging. The
portfolio will invest in at least three countries outside the United States.
The International Stock Fund expects to invest substantially all of its
assets in common stocks. However, the portfolio may also invest in a variety
of other equity-related securities, such as preferred stocks, warrants and
convertible securities, as well as corporate and governmental debt securities,
when considered consistent with the portfolio's investment objectives and
program. Under normal market conditions, the portfolio's investment in
securities other than common stocks is limited to no more than 35% of total
assets. However, for temporary defensive purposes, the portfolio may invest
all or a significant portion of its assets in U.S. Government and corporate
debt obligations. The portfolio will not purchase any debt security which at
the time of purchase is rated below investment grade. This would not prevent
the portfolio from retaining a security downgraded to below investment grade
after purchase.
The International Stock Fund will hold a certain portion of its assets in
U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments and serves as a short-term defense during periods of unusual
market volatility.
Price-Fleming uses a "bottom-up" approach to stock selection based on
fundamental research. A company's prospects for achieving and sustaining
above-average, long-term earnings growth is generally the Subadviser's primary
focus. However, valuation factors, such as price/earnings, price/cash flow,
and price/book are also important considerations. In conjunction with
identifying potential stocks for investment, external factors are also
reviewed. For example, a country's or region's political, economic, and
financial status help shape the outlook for individual stocks and also affect
decisions regarding the prudent level of overall exposure to particular areas.
It is the present intention of Price-Fleming to invest in companies based
in (or governments of or within) the Far East (for example, Japan, Hong Kong,
Singapore, and Malaysia), Europe (for example, United Kingdom, Germany,
Hungary, Poland, Netherlands, France, Spain, and Switzerland), South Africa,
Australia, Canada, Latin America, and such other areas and countries as Price-
Fleming may determine from time to time.
In determining the appropriate distribution of investments among various
countries and geographic regions, Price-Fleming ordinarily considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors. In
analyzing companies for investment, Price-Fleming ordinarily looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound financial
and accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing;
efficient service; pricing flexibility; strength of management; and general
operating characteristics which will enable the companies to compete
successfully in their market place.
While current dividend income is not a prerequisite in the selection of
International Stock Fund companies, the companies in which the portfolio
invests normally will have a record of paying dividends, and will generally be
expected to increase the amounts of such dividends in future years as earnings
increase. It is expected that the portfolio's investments will ordinarily be
traded on exchanges located at least in the respective countries in which the
various issuers of such securities are principally based.
The International Stock Fund may purchase the securities of certain
foreign investment portfolios or trusts called passive foreign investment
companies. Such trusts have been the only or primary way to invest in certain
countries. In addition to bearing their proportionate share of the trust's
expenses (management fees and operating expenses), shareholders will also
indirectly bear similar expenses of such trusts. Capital gains on the sale of
such holdings are considered ordinary income regardless of how long the
portfolio held its investment. In addition, the portfolio may be subject to
corporate income tax and an interest charge on certain dividends and capital
gains earned from these investments,
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regardless of whether such income and gains are distributed to shareholders.
To avoid such tax and interest, the portfolio intends to treat these
securities as sold on the last day of its fiscal year and recognize any gains
for tax purposes at that time; losses will not be recognized. Such gains will
be considered ordinary income, which the portfolio will be required to
distribute even though it has not sold the security.
The International Stock Fund may also engage in a variety of investment
management practices, such as buying and selling futures and options and
engaging in foreign currency exchange contracts. The portfolio may invest up
to 10% of its total assets in hybrid instruments, which are a type of high-
risk derivative which can combine the characteristics of securities, futures
and options. For example, the principal amount, redemption or conversion
terms of a security could be related to the market price of some commodity,
currency or securities index. Such securities may bear interest or pay
dividends at below market (or even relatively nominal) rates. The Statement of
Additional Information contains a fuller description of such instruments and
the risks associated therewith.
The International Stock Fund will be subject to special risks as a result
of its ability to invest up to 100% of its total assets in foreign securities.
These include non-dollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The International Stock Fund is currently authorized to use all of the
various investment strategies referred to under "RISK FACTORS -- Hedging and
Other Strategic Transactions." The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.
Worldwide Growth Fund
The investment objective of the Worldwide Growth Fund is long-term growth
of capital. Founders manages the Worldwide Growth Fund and seeks to attain
this objective by normally investing at least 65% of its total assets in
equity securities of growth companies in a variety of markets throughout the
world.
The Worldwide Growth Fund will emphasize common stocks of both emerging
and established growth companies that generally have proven performance
records and strong market positions. The portfolio's holdings will usually
consist of investments in companies in various countries throughout the world,
but it will always invest at least 65% of its total assets in three or more
countries. The portfolio will not invest more than 25% of its total assets in
the securities of any one foreign country.
The Worldwide Growth Fund has the ability to purchase securities in any
foreign country as well as in the United States. Foreign investments of the
portfolio may include securities issued by companies located in countries not
considered to be major industrialized nations. Such countries are subject to
more economic, political and business risk than major industrialized nations,
and the securities they issue are expected to be more volatile and more
uncertain as to payments of interest and principal. Investments of the
portfolio may include securities created through the Brady Plan, a program
under which heavily indebted countries have restructured their bank debt into
bonds.
Since the Worldwide Growth Fund's assets will be invested primarily in
foreign securities and since substantially all of the portfolio's revenues
will be received in foreign currencies, the portfolio's net asset values will
be affected by changes in currency exchange rates. The portfolio will pay
dividends in dollars and will incur currency conversion costs.
The Worldwide Growth Fund may invest in convertible securities, preferred
stocks, bonds, debentures, and other corporate obligations when Founders
believes that these investments offer opportunities for capital appreciation.
Current income will not be a substantial factor in the selection of these
securities.
The portfolio will only invest in bonds, debentures, and corporate
obligations -- other than convertible securities and preferred stocks -- rated
investment grade (BBB or higher) at the time of purchase or, if unrated, of
comparable quality in the opinion of Founders. Convertible securities and
preferred stocks purchased by the portfolio may be rated in medium and lower
categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P),
but will not be rated lower than B. The portfolio may also invest in unrated
convertible securities and preferred stocks in instances in which Founders
believes that the financial condition of the issuer or the protection afforded
by the terms of the securities limits risk to a level similar to that of
securities eligible for purchase by the portfolio rated in categories no lower
than B. At no time will the portfolio have more than 5% of its total assets
invested in any fixed-income securities which are unrated or are rated below
investment grade either at the time of purchase or as a result of a reduction
in rating after purchase. The portfolio is not required to dispose of debt
securities whose ratings are downgraded below these ratings subsequent to the
portfolio's
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purchase of the securities, unless such a disposition is necessary
to reduce the portfolio's holdings of such securities to less than 5% of its
total assets. See "RISK FACTORS -- High Yield/High Risk Securities." A
description of the ratings used by Moody's and S&P is set forth in Appendix I
to the Prospectus.
Up to 100% of the assets of the Worldwide Growth Fund may be invested
temporarily in U.S. Government obligations, commercial paper, bank
obligations, repurchase agreements, and negotiable U.S. dollar-denominated
obligations of domestic and foreign branches of U.S. depository institutions,
U.S. branches of foreign depository institutions, and foreign depository
institutions, in cash, or in other cash equivalents, if Founders determines it
to be appropriate for purposes of enhancing liquidity or preserving capital in
light of prevailing market or economic conditions. The portfolio may also
acquire certificates of deposit and bankers' acceptances of banks which meet
criteria established by the Fund's Trustees. While the portfolio is in a
defensive position, the opportunity to achieve capital growth will be limited,
and, to the extent that this assessment of market conditions is incorrect, the
portfolio will be foregoing the opportunity to benefit from capital growth
resulting from increases in the value of equity investments.
The Worldwide Growth Fund may invest in the securities of small and
medium-sized companies. The Subadviser considers small and medium-sized
companies to be those which are still in the developing stages of their life
cycles and are attempting to achieve rapid growth in both sales and earnings.
Investments in small and medium-sized companies involve greater risk than is
customarily associated with more established companies. These companies often
have sales and earnings growth rates which exceed those of large companies.
Such growth rates may in turn be reflected in more rapid share price
appreciation. However, smaller companies often have limited operating
histories, product lines, markets, or financial resources, and they may be
dependent upon one-person management. These companies may be subject to
intense competition from larger entities, and the securities of such companies
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of larger companies or the market averages
in general. Therefore, the net asset value of the Worldwide Growth Fund's
shares may fluctuate more widely than the popular market averages.
The Worldwide Growth Fund will be subject to special risks as a result of
its ability to invest up to 100% of its total assets in foreign securities.
These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Worldwide Growth Fund is currently authorized to use all of the
various investment strategies referred to under "RISK FACTORS -- Hedging and
Other Strategic Transactions." The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.
Global Equity Fund
The investment objective of the Global Equity Fund (prior to October 1,
1996, the "Global Growth Fund") is long-term capital appreciation. Morgan
Stanley manages the Global Equity Fund and seeks to attain this objective by
investing primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, American and Global Depository
Receipts and other equity securities of issuers throughout the world,
including issuers in the U.S. and emerging market countries.
Under normal circumstances, at least 65% of the value of the total assets
of the Global Equity Fund will be invested in equity securities and at least
20% of the value of the portfolio's total assets will be invested in the
common stocks of U.S. issuers. The portfolio may also invest in money market
instruments. Although the portfolio intends to invest primarily in securities
listed on stock exchanges, it will also invest in equity securities that are
traded over-the-counter or that are not admitted to listing on a stock
exchange or dealt in on a regulated market. As a result of the absence of a
public trading market, such securities may pose liquidity risks.
The Subadviser's approach is oriented to individual stock selection and
is value driven. In selecting stocks for the portfolio, the Subadviser
initially identifies those stocks that it believes to be undervalued in
relation to the issuer's assets, cash flow, earnings and revenues, and then
evaluates the future value of such stocks by running the results of an in-
depth study of the issuer through a dividend discount model. In selecting
investments, the Subadviser utilizes the research of a number of sources,
including Morgan Stanley Capital International, an affiliate of the Subadviser
located in Geneva, Switzerland. Portfolio holdings are regularly reviewed and
subjected to fundamental analysis to determine whether they continue to
conform to the Subadviser's value criteria. Equity securities which no longer
conform to such investment criteria will be sold. Although the portfolio will
not invest for short-term trading purposes, investment securities may be sold
from time to time without regard to the length of time they have been
held.
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The Global Equity Fund may engage in forward foreign currency exchanges
and when-issued or delayed delivery securities.
The Global Equity Fund will be subject to special risks as a result of
its ability to invest up to 100% of its total assets in foreign securities.
These risks, including the risks of the possible increased likelihood of
expropriation or the return to power of a communist regime which would
institute policies to expropriate, nationalize or otherwise confiscate
investments, are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Global Equity Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the portfolio. The Statement of Additional
Information contains a description of these strategies and of certain risks
associated therewith.
Growth Equity Fund
The investment objective of the Growth Equity Fund is to seek long-term
growth of capital. Founders manages the Growth Equity Fund and will pursue
this objective by investing, under normal market conditions, at least 65% of
its assets in common stocks of well-established, high-quality growth companies
that Founders believes have the potential to increase earnings faster than the
rest of the market. These companies tend to have strong performance records,
solid market positions and reasonable financial strength, and have continuous
operating records of three years or more.
The Growth Equity Fund may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when Founders
believes that these investments offer opportunities for capital appreciation.
Current income will not be a substantial factor in the selection of these
securities. The Growth Equity Fund will only invest in bonds, debentures and
corporate obligations--other than convertible securities and preferred stock--
rated investment-grade (Baa or higher by Moody's and BBB or higher by S&P) or,
if unrated, of comparable quality in the opinion of Founders at the time of
purchase. Convertible securities and preferred stocks purchased by the
Portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or
lower by Moody's and BB or lower by S&P) but will not be rated lower than B.
The Growth Equity Fund may also invest in unrated convertible securities and
preferred stocks in instances in which Founders believes that the financial
condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities rated in
categories no lower than B. At no time will the portfolio have more than 5% of
its total assets invested in any fixed-income securities which are unrated or
are rated below investment grade either at the time of purchase or as a result
of a reduction in rating after purchase. The portfolio is not required to
dispose of debt securities whose ratings are downgraded below these ratings
subsequent to the portfolio's purchase of the securities, unless such a
disposition is necessary to reduce the portfolio's holdings of such securities
to less than 5% of its total assets. See "RISK FACTORS - High Yield
Securities."
The Growth Equity Fund may invest up to 100% of its assets temporarily in
the following securities if Founders determines that it is appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions: cash, cash equivalents, U.S. government
obligations, commercial paper, bank obligations, repurchase agreements, and
negotiable U.S. dollar-denominated obligations of domestic and foreign
branches of U.S. depository institutions, U.S. branches of foreign depository
institutions, and foreign depository institutions. The portfolio may also
acquire certificates of deposit and bankers' acceptances of banks which meet
criteria established by the Fund's Trustees. When the Growth Equity Fund is in
a defensive position, the opportunity to achieve capital growth will be
limited, and, to the extent that this assessment of market conditions is
incorrect, the Growth Equity Fund will be foregoing the opportunity to benefit
from capital growth resulting from increases in the value of equity
investments and may not achieve its investment objective.
Foreign Securities. The Growth Equity Fund may invest without limit in
ADRs and up to 30% of its total assets in foreign securities (other than
ADRs), with no more than 25% invested in any one foreign country. The Growth
Equity Fund will be subject to certain risks as a result of these investments.
These risks are described under the caption "RISK FACTORS -- Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION -Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Growth Equity Fund
is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
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Common Stock Fund
The investment objective of the Common Stock Fund is to achieve
intermediate and long-term growth through capital appreciation and current
income by investing in common stocks and other equity securities of well
established companies with promising prospects for providing an above average
rate of return. MAC manages the Common Stock Fund.
In pursuit of its objective, the Common Stock Fund will invest
principally in common stocks or in securities convertible into common stocks
or carrying rights or warrants to purchase common stock or to participate in
earnings. In selecting investments, emphasis will be placed on companies with
good financial resources, strong balance sheet, satisfactory rate of return on
capital, good industry position, superior management skills, and earnings that
tend to grow at above average rates. The Fund's investments are not limited
to any particular type or size of company, but high-quality growth amd income
stocks are emphasized.
Investments will be made primarily in securities listed on national
securities exchanges, but the Fund may purchase securities traded in the
United States over-the-counter market. When, in the opinion of management,
market or economic conditions warrant a defensive posture, the Fund may place
all or a portion of its assets in fixed-income securities. The Fund may also
maintain a portion of its assets in cash or short-term debt securities pending
selection of particular long-term investments. The Fund may purchase
securities on a forward-commitment, when-issued or delayed-delivery basis.
The Common Stock Fund will be subject to certain risks as a result of its
ability to invest up to 100% of its total assets in the following types of
----
foreign securities: (i) U.S. dollar denominated obligations of foreign
branches of U.S. banks, (ii) securities represented by ADRs listed on a
national securities exchange or traded in the U.S. over-the-counter market,
(iii) securities of a corporation organized in a jurisdiction other than the
U.S. and listed on the New York Stock Exchange or NASDAQ or (iv) securities
denominated in U.S. dollars but issued by non U.S. issuers and issued under
U.S. federal securities regulations (for example, U.S. dollar denominated
obligations issued or guaranteed as to principal or interest by the Government
of Canada or any Canadian Crown agency). These risks are described under the
caption "RISK FACTORS --Foreign Securities" in this Prospectus. Moreover,
substantial investments in foreign securities may have adverse tax
implications as described under "GENERAL INFORMATION --Taxes" in this
Prospectus.
Use of Hedging and Other Strategic Transactions The Common Stock Fund
does not presently use any of the investment strategies referred to under
"RISK FACTORS -- Hedging and Other Strategic Transactions."
Equity Index Fund
The investment objective of the Equity Index Fund is to achieve
investment results which approximate the total return of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index (the "Index"). MAC manages the Equity Index Fund.
The Equity Index Fund is designed to provide an economical and convenient
means of maintaining a widely diversified investment in the United States
equity market as part of an overall investment strategy. The portfolio uses
the Index as its standard performance comparison because it represents more
than 70% of the total market value of all publicly traded common stocks in the
United States and is widely viewed among investors as representative of the
performance of publicly traded common stocks in the United States.
The Index is composed of 500 selected common stocks, over 95% of which
are listed on the New York Stock Exchange. The Index is an unmanaged index of
common stock prices. The performance of the Index is based on changes in the
prices of stocks comprising the Index and assumes the reinvestment of all
dividends paid on such stocks. Taxes, brokerage, commissions and other fees
are disregarded in computing the level of the Index. Standard & Poor's selects
the stocks to be included in the Index on a proprietary basis but does
incorporate such factors as the market capitalization and trading activity of
each stock and its adequacy as representative of stocks in a particular
industry group. Stocks in the Index are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the
stock's current price)./1/
_______________________
/1/"Standard & Poor's (R)", "S&P 500 (R)", "S&P (R)", "Standard & Poor's 500
(R) and "500" are trademarks of McGraw-Hill, Inc.
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The Index fluctuates in value with changes in the market value of the 500
stocks included in the Index at any point in time. An investment in the
Equity-Index Fund involves risks similar to the risks of investing directly in
the stocks included in the Index.
The Subadviser will not attempt to "manage" the Equity Index Fund in the
traditional portfolio management sense which generally involves the buying and
selling of securities based upon investment analysis of economic, financial
and market factors. Instead, the portfolio, utilizing a "passive" or
"indexing" investment approach, attempts to duplicate the performance of the
Index. The adverse financial situation of a company will not directly result
in its elimination from the portfolio unless, of course, the company in
question is removed from the Index. Conversely, the projected superior
financial performance of a company would not normally lead to an increase in
the portfolio's holdings of the company. Under normal circumstances, the net
assets of the Equity Index Fund will be invested in any combination of the
following investments: 1) representative common stocks, 2) Standard &
Poor's 500 Futures Contracts and 3) Standard & Poor's Depository Receipts (R).
With regard to the portion of the Equity Index Fund invested in common
stocks, the method used to select investments for the portfolio involves
investing in common stocks in approximately the order of their respective
market value weightings in the Index, beginning with those having the highest
weightings. For diversification purposes, the portfolio can purchase stocks
with smaller weightings in order to represent other sectors of the Index. The
portfolio will invest only in those stocks, and in such amounts, as its
Subadviser deems necessary and appropriate in order for the portfolio to
approximate the performance of the Index.
There is no minimum or maximum number of stocks included in the Index
which the Equity Index Fund must hold. Under normal circumstances, it is
expected that the portion of the portfolio invested in stocks would hold
between 300 and 500 different stocks included in the Index. The portfolio may
compensate for the omission of a stock that is included in the Index, or for
purchasing stocks in other than the same proportion that they are represented
in the Index, by purchasing stocks that are believed to have characteristics
that correspond to those of the omitted stocks. The portfolio may invest in
short-term debt securities to maintain liquidity or pending investment in
stocks or Standard & Poor's Stock Index Futures Contracts (S&P 500 Futures
Contracts).
Tracking error is measured by the difference between the total return for
the Index and the total return for the portfolio after deductions of fees and
expenses. All tracking error deviations are reviewed to determine the
effectiveness of investment policies and techniques. Tracking error is
reviewed at least weekly and more frequently if such a review is indicated by
significant cash balance changes, market conditions or changes in the
composition of the Index. If deviation accuracy is not maintained, the Equity
Index Fund will rebalance its composition by selecting securities which, in
the opinion of the Subadviser, will provide a more representative sampling of
the capitalization of the securities in the Index as a whole or a more
representative sampling of the sector diversification in the Index.
S&P licenses certain trademarks and trade names to the Fund but disclaims
any responsibility or liability to the Fund and its shareholders. See
Appendix III for such disclaimer.
Use of Hedging and Other Strategic Transactions The Equity Index Fund
may (i) invest any portion of its net assets in S&P 500 Futures Contracts
until the portfolio reaches $25 million in net assets and (ii) once the
portfolio reaches $25 million in net assets, invest no more than 20% of its
net assets in S&P 500 Futures Contracts. A description of this investment
strategy appears under "RISK FACTORS -- Hedging and Other Strategic
Transactions" below in this Prospectus and under "Hedging and Other Strategic
Transactions" in the Statement of Additional Information..
Blue Chip Growth Fund
The primary investment objective of the Blue Chip Growth Fund is to
provide long-term growth of capital. Current income is a secondary objective,
and many of the stocks in the portfolio are expected to pay dividends. T. Rowe
Price manages the Blue Chip Growth Fund.
The portfolio will invest at least 65% of its total assets in the common
stocks of large and medium-sized blue chip companies, as defined by T. Rowe
Price. These companies will be well established in their industries and have
the potential for above-average growth in earnings.
In identifying blue chip companies, T. Rowe Price will generally take the
following into consideration:
*Leading market positions. Blue chip companies often have leading market
positions that are expected to be maintained or enhanced over time.
Strong positions, particularly in growing industries, can give a company
pricing flexibility as well as the potential for good unit sales. These
factors, in turn, can lead to higher earnings growth and greater share
price appreciation.
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*Seasoned management teams. Seasoned management teams with a track record
of providing superior financial results are important for a company's
long-term growth prospects. T. Rowe Price analysts will evaluate the
depth and breadth of a company's management experience.
*Strong financial fundamentals. Companies should demonstrate faster
earnings growth than their competitors and the market in general; high
profit margins relative to competitors; strong cash flow; a healthy
balance sheet with relatively low debt; and a high return on equity with a
comparatively low dividend payout ratio.
Most of the assets of the portfolio will be invested in U.S. common
stocks. However, the portfolio may also purchase other types of securities,
for example, foreign securities, convertible stocks and bonds, and warrants,
when considered consistent with the portfolio's investment objective and
program. Investments in convertible securities, preferred stocks and debt
securities are limited to 25% of total assets. The portfolio will hold a
certain portion of its assets in U.S. and foreign dollar-denominated money
market securities, including repurchase agreements, in the two highest rating
categories, maturing in one year or less. For temporary, defensive purposes,
the portfolio may invest without limitation in such securities. This reserve
position provides flexibility in meeting redemptions, expenses, and the timing
of new investments and serves as a short-term defense during periods of
unusual market volatility.
T. Rowe Price analysts evaluate the growth prospects of companies and the
industries in which they operate. This approach seeks to identify companies
with strong market franchises in industries that appear to be strategically
poised for long-term growth. The investment approach reflects T. Rowe Price's
belief that the combination of solid company fundamentals (with emphasis on
the potential for above-average growth in earnings) along with a positive
outlook for the overall industry will ultimately reward investors with a
higher stock price. While primary emphasis is placed on a company's prospects
for future growth, the portfolio will not purchase securities that, in T. Rowe
Price's opinion, are overvalued considering the underlying business
fundamentals. In the search for substantial capital appreciation, the
portfolio looks for stocks attractively priced relative to their anticipated
long-term value.
The Blue Chip Growth Fund may invest in debt securities of any type
without regard to quality or rating. Such securities would be purchased in
companies which meet the investment criteria for the portfolio. The total
return and yield of lower-quality (high-yield/high-risk) bonds, commonly
referred to as "junk" bonds, can be expected to fluctuate more than the total
return and yield of higher-quality, shorter-term bonds, but not as much as
common stocks. Junk bonds (those rated below BBB or in default) are regarded
as predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The portfolio will not purchase a
noninvestment-grade debt security (or junk bond) if immediately after such
purchase the portfolio would have more than 5% of its total assets invested in
such securities. See "RISK FACTORS -- High Yield /High Risk Securities" for
further information.
The Blue Chip Growth Fund may also engage in a variety of investment
management practices, such as buying and selling futures and options. The
portfolio may invest up to 10% of its total assets in hybrid instruments,
which are a type of high-risk derivative which can combine the characteristics
of securities, futures and options. For example, the principal amount,
redemption or conversion terms of a security could be related to the market
price of some commodity, currency or securities index. Such securities may
bear interest or pay dividends at below market (or even relatively nominal)
rates. The Statement of Additional Information contains a fuller description
of such instruments and the risks associated therewith.
The Blue Chip Growth Fund will be subject to special risks as a result of
its ability to invest up to 20% of its total assets in foreign securities.
These include nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Blue Chip Growth Fund is currently authorized to use all of the
various investment strategies referred to under "RISK FACTORS -- Hedging and
Other Strategic Transactions." The Statement of Additional Information
contains a description of these strategies and of certain risks associated
therewith.
Value Fund
The investment objective of the Value Fund is to realize an above-average
total return over a market cycle of three to five years, consistent with
reasonable risk. MAS manages the Value Fund and seeks to attain this objective
by investing
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primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, ADRs and other equity
securities of companies with equity capitalizations usually greater than $300
million.
Under normal circumstances, the Value Fund will invest at least 65% of
its total assets in equity securities. The portfolio may also invest in
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities, corporate bonds, foreign bonds, zero coupons, repurchase
agreements, cash equivalents, foreign currencies, investment company
securities and derivatives, including when-issued or delayed delivery
securities, forward foreign currency exchange contracts, futures, options and
swaps. See "OTHER INSTRUMENTS" and "HEDGING AND OTHER STRATEGIC TRANSACTIONS"
in the Statement of Additional Information.
The Subadviser's approach is to select equity securities which are deemed
to be undervalued relative to the stock market in general as measured by the
Standard & Poor's 500 Index, based on value measures such as price/earnings
ratios and price/book ratios, as well as fundamental research. While capital
return will be emphasized somewhat more than income return, the Value Fund's
total return will consist of both capital and income returns. Stocks that are
deemed to be under-valued in the marketplace have, under most market
conditions, provided higher dividend income returns than stocks that are
deemed to have long-term earnings growth potential which normally sell at
higher price/earnings ratios.
The Value Fund may invest without limit in ADRs and up to 5% of its total
assets in foreign equities excluding ADRs. The risks associated with foreign
securities are described under the caption "RISK FACTORS --Foreign Securities"
in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Value Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
International Growth and Income Fund
The investment objective of the International Growth and Income Fund is
to seek long-term growth of capital and income. The Portfolio is designed for
investors with a long-term investment horizon who want to take advantage of
investment opportunities outside the United States.
J.P. Morgan manages the International Growth and Income Fund and will
seek to achieve the Portfolio's investment objective by investing, under
normal circumstances, at least 65% of its total assets in equity securities of
foreign issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The Portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. For this
purpose, a developed country is any country included in the MSCI World Index.
The countries currently included in this Index are: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom and the U.S. The Portfolio invests in securities
listed on foreign or domestic securities exchanges and securities traded in
foreign or domestic over-the-counter markets, and may invest in certain
restricted or unlisted securities. See "RISK FACTORS -- Foreign Securities."
Under normal circumstances, the International Growth and Income Fund expects
to invest primarily in equity securities. However, the Portfolio may invest
up to 35% of its assets in debt obligations of corporate, sovereign issuers or
supranational organizations rated A or higher by Moody's or S&P, or if
unrated, of equivalent credit quality as determined by the Subadviser. See
"Strategic Income Fund" below for additional information on supranational
organizations. Under normal circumstances, the Portfolio will be invested
approximately 85% in equity securities and 15% in fixed income securities.
J.P. Morgan may allocate the Portfolio's investment in these asset classes in
a manner consistent with the Portfolio's investment objective and current
market conditions. Using a variety of analytical tools, J.P. Morgan assesses
the relative attractiveness of each asset class and determines an optimal
allocation between them. Yields on non-U.S. equity securities tend to be
lower than those on equity securities of U.S. issuers. Therefore, current
income from the Portfolio may not be as high as that available from a
portfolio of U.S. equity securities.
In pursuing the International Growth and Income Fund's objective, J.P.
Morgan will actively manage the assets of the Portfolio through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques and experienced judgment, J.P. Morgan uses a
structured decision-making process to allocate the Portfolio
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<PAGE>
primarily across the developed countries of the world outside the United
States. This universe is typically represented by the Morgan Stanley Europe,
Australia and Far East Index (the "EAFE Index").
Using a dividend discount model and based on analysts' industry
expertise, securities within each country are ranked within industry sectors
according to their relative value. Based on this valuation, J.P. Morgan
selects the securities which appear the most attractive for the Portfolio.
J.P. Morgan believes that under normal market conditions, industrial sector
weightings generally will be similar to those of the EAFE index.
Finally, J.P. Morgan actively manages currency exposure, in conjunction
with country and stock allocation, in an attempt to protect and possibly
enhance the International Growth and Income Fund's market value. Through the
use of forward foreign currency exchange contracts, J.P. Morgan will adjust
the Portfolio's foreign currency weightings to reduce its exposure to
currencies that the Subadviser deems unattractive and, in certain
circumstances, increase exposure to currencies deemed attractive, as market
conditions warrant, based on fundamental research, technical factors and the
judgment of a team of experienced currency managers.
The International Growth and Income Fund intends to manage its portfolio
actively in pursuit of its investment objective. The Portfolio does not
expect to trade in securities for short-term profits; however, when
circumstances warrant, securities may be sold without regard to the length of
time held. See "GENERAL INFORMATION -- Taxes." To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs.
The International Growth and Income Fund may also invest in securities on
a when-issued or delayed delivery basis, enter into repurchase and reverse
repurchase agreements, loan its portfolio securities and purchase certain
privately placed securities. See "RISK FACTORS."
The International Growth and Income Fund may make money market
investments pending other investments or settlement or for liquidity purposes.
In addition, when J.P. Morgan believes that investing for defensive purposes
is appropriate, such as during periods of unusual or unfavorable market or
economics conditions, up to 100% of the Portfolio's assets may be temporarily
invested in money market instruments. The money market investments permitted
for the Portfolio include obligations of the U.S. Government and its agencies
and instrumentalities, other debt securities, commercial paper, bank
obligations and repurchase agreements, as described below under "Money Market
Fund."
The International Growth and Income Fund will be subject to special risks
as a result of its ability to invest up to 100% of its assets in foreign
securities. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. The ability to diversify its
investments among the equity markets of different countries may, however,
reduce the overall level of market risk to the extent it may reduce the
Portfolio's exposure to a single market. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under
"GENERAL INFORMATION -- Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions. The International
Growth and Income Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions". With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Portfolio. The Statement of Additional
Information contains a description of these strategies and of certain risks
associated therewith.
Growth and Income Fund
The investment objective of the Growth and Income Fund is to provide
long-term growth of capital and income consistent with prudent investment
risk.
Wellington Management manages the Growth and Income Fund and seeks to
achieve the Portfolio's objective by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which Wellington Management
believes are of high quality. Wellington Management believes that high
quality is evidenced by a leadership position within an industry, a strong or
improving balance sheet, relatively high return on equity, steady or
increasing dividend payout, and strong management skills. The Growth and
Income Fund's investments will primarily emphasize dividend paying stocks of
larger companies. The Growth and Income Fund may also invest in securities
convertible into or which carry the right to buy common stocks, including
those convertible securities issued in the Euromarket; preferred stocks; and
marketable debt securities of domestic issuers and of foreign issuers (payable
in U.S. dollars), if such marketable debt
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securities of domestic issuers and foreign issuers are rated at the time of
purchase "A" or better by Moody's or S&P or, if unrated, deemed to be of
equivalent quality in Wellington Management's judgment. When market or
financial conditions warrant a temporary defensive posture, the Growth and
Income Fund may, in order to reduce risk and achieve attractive total
investment return, invest in securities which are authorized for purchase by
the Investment Quality Bond Fund or the Money Market Fund. The Subadviser
expects that under normal market conditions, the Growth and Income Fund's
portfolio will consist primarily of equity securities.
Investments will be selected on the basis of fundamental analysis to
identify those securities that, in Wellington Management's judgment, provide
the potential for long-term growth of capital and income. Fundamental
analysis involves assessing a company and its business environment,
management, balance sheet, income statement, anticipated earnings and
dividends and other related measures of value. When selecting securities of
issuers domiciled outside of the United States, Wellington Management will
also monitor and evaluate the economic and political climate and the principal
securities markets of the country in which each company is located.
The Growth and Income Fund will invest primarily in securities listed on
national securities exchanges, but from time to time it may also purchase
securities traded in the "over-the-counter" market.
The Growth and Income Fund will be subject to certain risks as a result
of its ability to invest up to 20% of its assets in foreign securities. These
risks are described under the caption "RISK FACTORS -- Foreign Securities" in
this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION --
Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Growth and Income
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
However, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Portfolio. The Statement of Additional
Information contains a description of these strategies and of certain risks
associated therewith.
Equity-Income Fund
The investment objective of the Equity-Income Fund (prior to December 31,
1996 the "Value Equity Fund") is to provide substantial dividend income and
also long term capital appreciation. T. Rowe Price manages the Equity-Income
Fund and seeks to attain this objective by investing primarily in dividend-
paying common stocks, particularly of established companies with favorable
prospects for both increasing dividends and capital appreciation.
Under normal circumstances, the Equity-Income Fund will invest at least
65% of total assets in the common stocks of established companies paying
above-average dividends. T. Rowe Price believes that income can be a
significant contributor to total return over time and expects the portfolio's
yield to be above that of the Standard & Poor's 500 Stock Index.
The Equity-Income Fund will generally consider companies with the
following characteristics:
-- Established operating histories;
-- Above-average current dividend yield relative to the average yield of
the S&P 500;
-- Low price/earnings ratios relative to the S&P 500;
-- Sound balance sheets and other financial characteristics;
-- Low stock price relative to a company's underlying value as measured
by assets, earnings, cash flow, or business franchises.
The Equity-Income Fund will tend to take a "value" approach and invest in
stocks and other securities that appear to be temporarily undervalued by
various measures, such as price/earnings ratios. Value investors seek to buy
a stock (or other security) when its price is low in relation to what they
believe to be its real worth or future prospects. By identifying companies
whose stocks are currently out of favor, value investors hope to realize
significant appreciation as other investors recognize the stock's intrinsic
value and the price rises accordingly. Finding undervalued stocks requires
considerable research to identify the particular stock, to analyze the
company's underlying financial condition and
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<PAGE>
prospects, and to assess the likelihood that the stock's underlying value will
be recognized by the market and reflected in its price.
The Equity-Income Fund may also purchase other types of securities, for
example, foreign securities, preferred stocks, convertible stocks and bonds,
and warrants, when considered consistent with the portfolio's investment
objective and program. The portfolio will hold a certain portion of its assets
in U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments and serves as a short-term defense during periods of unusual
market volatility
The Equity-Income Fund may also invest in debt securities of any type
including municipal securities without regard to quality or rating. The total
return and yield of lower-quality (high-yield/high-risk) bonds, commonly
referred to as "junk" bonds, can be expected to fluctuate more than the total
return and yield of higher-quality, shorter-term bonds, but not as much as
common stocks. Junk bonds (those rated below BBB or in default) are regarded
as predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The portfolio will not purchase a
noninvestment-grade debt security (or junk bond) if immediately after such
purchase the portfolio would have more than 10% of its total assets invested
in such securities.
The Equity-Income Fund may also engage in a variety of investment
management practices, such as buying and selling futures and options. The
portfolio may invest up to 10% of its total assets in hybrid instruments,
which are a type of high-risk derivative which can combine the characteristics
of securities, futures and options. For example, the principal amount,
redemption or conversion terms of a security could be related to the market
price of some commodity, currency or securities index. Such securities may
bear interest or pay dividends at below market (or even relatively nominal)
rates. The Statement of Additional Information contains a fuller description
of such instruments and the risks associated therewith.
The Equity-Income Fund will be subject to special risks as a result of
its ability to invest up to 25% of its total assets in foreign securities.
These include nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Equity-Income Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
Real Estate Securities Fund
The investment objective of the Real Estate Securities Fund is to achieve
a combination of long-term capital appreciation and satisfactory current
income by investing in real estate related equity and debt securities. MAC
manages the Real Estate Securities Fund and seeks to attain this objective by
investing principally in real estate investment trust equity and debt
securities and other securities issued by companies which invest in real
estate or interests therein.
The Real Estate Securities Fund may also purchase the common stocks,
preferred stocks, convertible securities and bonds of companies operating in
industry groups relating to the real estate industry. This would include
companies engaged in the development of real estate, building and
construction, and other market segments related to real estate. The portfolio
will not invest directly in real property nor will it purchase mortgage notes
directly.
Under normal circumstances, at least 65% of the value of the Real Estate
Securities Fund's total assets will be invested in real estate related equity
and debt securities. When, in the opinion of the Subadviser, market or
economic conditions warrant a defensive posture, the portfolio may place all
or a portion of its assets in fixed-income securities which may or may not be
real estate debt related securities. The portfolio may also maintain a
portion of its assets in cash or short-term debt securities pending selection
of particular long-term investments. The portfolio may purchase securities on
a forward-commitment, when-issued or delayed-delivery basis. For a discussion
of these securities, please see the discussion under "When-Issued Securities
("Forward Commitments") below.
The Real Estate Securities Fund will be subject to certain risks as a
result of its ability to invest up to 100% of its total assets in the
following types of foreign securities: (i) U.S. dollar denominated obligations
of foreign branches of U.S. banks, (ii) securities represented by ADRs listed
on a national securities exchange or traded in the U.S. over-the-counter
market, (iii) securities of a corporation organized in a jurisdiction other
than the U.S. and listed on the New York Stock
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Exchange or NASDAQ or (iv) securities denominated in U.S. dollars but issued
by non U.S. issuers and issued under U.S. federal securities regulations (for
example, U.S. dollar denominated obligations issued or guaranteed as to
principal or interest by the Government of Canada or any Canadian Crown
agency). These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions The Real Estate
Securities Fund does not presently use any of the investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
Balanced Fund
The investment objective of the Balanced Fund is current income and
capital appreciation. Founders is the manager of the Balanced Fund and seeks
to attain this objective by investing in a balanced portfolio of common
stocks, U.S. and foreign government obligations and a variety of corporate
fixed-income securities.
Normally, the Balanced Fund will invest a significant percentage (up to
75%) of its total assets in common stocks, convertible corporate obligations,
and preferred stocks. The portfolio emphasizes investment in dividend-paying
common stocks with the potential for increased dividends, as well as capital
appreciation. The portfolio also may invest in non-dividend-paying companies
if, in Founders' opinion, they offer better prospects for capital
appreciation.
The Balanced Fund may invest in convertible securities, preferred stocks,
bonds, debentures, and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current
income is also a factor in the selection of these securities.
The Balanced Fund will maintain a minimum of 25% of its total assets in
fixed-income, investment-grade securities rated Baa or higher by Moody's or
BBB or higher by S&P. There is, however, no limit on the amount of straight
debt securities in which the portfolio may invest. Up to 5% of the Balanced
Fund's total assets may be invested in lower-grade (Ba or less by Moody's, BB
or less by S&P) or unrated straight debt securities, generally referred to as
junk bonds, where Founders determines that such securities present attractive
opportunities. The portfolio will not invest in securities rated lower than B.
Securities rated B generally lack characteristics of a desirable investment
and are deemed speculative with respect to the issuer's capacity to pay
interest and repay principal over a long period of time.
The Balanced Fund may also invest in convertible corporate obligations
and preferred stocks. Convertible securities and preferred stocks purchased by
the portfolio may be rated in medium and lower categories by Moody's or S&P
(Ba or lower by Moody's and BB or lower by S&P) but will not be rated lower
than B. The portfolio may also invest in unrated convertible securities and
preferred stocks in instances in which Founders believes that the financial
condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the portfolio rated in categories no lower than B. At no time will
the portfolio have more than 5% of its total assets invested in any fixed-
income securities which are unrated or are rated below investment grade either
at the time of purchase or as a result of a reduction in rating after
purchase. The portfolio is not required to dispose of debt securities whose
ratings are downgraded below these ratings subsequent to the portfolio's
purchase of the securities, unless such a disposition is necessary to reduce
the portfolio's holdings of such securities to less than 5% of its total
assets. See "RISK FACTORS -- High Yield /High Risk Securities." A description
of the ratings used by Moody's and S&P is set forth in Appendix I to the
Prospectus.
Up to 100% of the assets of the Balanced Fund may be invested temporarily
in U.S. Government obligations, commercial paper, bank obligations, repurchase
agreements, and negotiable U.S. dollar-denominated obligations of domestic and
foreign branches of U.S. depository institutions, U.S. branches of foreign
depository institutions, and foreign depository institutions, in cash, or in
other cash equivalents, if Founders determines it to be appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions. The portfolio may also acquire certificates of
deposit and bankers' acceptances of banks which meet criteria established by
the Fund's Board of Trustees. While the portfolio is in a defensive position,
the opportunity to achieve capital growth will be limited, and, to the extent
that this assessment of market conditions is incorrect, the portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of equity investments.
The Balanced Fund may invest without limit in ADRs and up to 30% of its
total assets in foreign securities (other than ADRs). The portfolio will not
invest more than 25% of its total assets in the securities of any one country.
The Balanced Fund will be subject to special risks as a result of its
ability to invest up to 30% of its total assets in foreign securities,
excluding ADRs. These risks are described under the caption "RISK FACTORS --
Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under
"GENERAL INFORMATION --Taxes" in this Prospectus.
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Use of Hedging and Other Strategic Transactions
The Balanced Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
High Yield Fund
The investment objective of the High Yield Fund is to realize an above-
average total return over a market cycle of three to five years, consistent
with reasonable risk. MAS manages the High Yield Fund and seeks to attain this
objective by investing primarily in high yield debt securities, including
corporate bonds and other fixed-income securities.
The High Yield Fund expects to achieve its objective through maximizing
current income, although the portfolio may seek capital growth opportunities
when consistent with its objective. The portfolio's average weighted maturity
ordinarily will be greater than five years. Under normal circumstances, the
portfolio will invest at least 65% of the value of its total assets in high
yield debt securities.
High yield securities are generally considered to include corporate
bonds, preferred stocks and convertible securities rated Ba through C by
Moody's or BB through D by S&P, and unrated securities considered to be of
equivalent quality. Securities rated less than Baa by Moody's or BBB by S&P's
are classified as non-investment grade securities and are commonly referred to
as junk bonds or high yield securities. Such securities carry a high degree of
risk and are considered speculative by the major credit rating agencies.
While such securities offer high yields, they also normally carry with
them a greater degree of risk than securities with higher ratings. Lower-rated
bonds are considered speculative by traditional investment standards. High
yield securities may be issued as a consequence of corporate restructuring or
similar events. Also, high yield securities are often issued by smaller, less
credit worthy companies, or by highly leveraged (indebted) firms, which are
generally less able than more established or less leveraged firms to make
scheduled payments of interest and principal. The price movement of these
securities is influenced less by changes in interest rates and more by the
financial and business position of the issuing corporation when compared to
investment grade bonds. The risks posed by securities issued under such
circumstances are substantial. If a security held by the portfolio is down-
graded, the portfolio may retain the security. See "RISK FACTORS -- High
Yield/High Risk Securities." A description of the ratings used by Moody's and
S&P is set forth in Appendix I to the Prospectus.
The Subadviser's approach is to use equity and fixed-income valuation
techniques and analyses of economic and industry trends to determine portfolio
structure. Individual securities are selected and monitored by fixed-income
portfolio managers who specialize in credit analysis of fixed-income
securities and use in-depth financial analysis to uncover opportunities in
undervalued issues. The Subadviser seeks to invest in high yield securities
based on the Subadviser's analysis of economic and industry trends and
individual security characteristics. The Subadviser conducts credit analysis
for each security considered for investment to evaluate its attractiveness
relative to its risk. A high level of diversification is also maintained to
limit credit exposure to individual issuers.
One of two primary components of the Subadviser's fixed-income strategy
is value investing, whereby the Subadviser seeks to identify undervalued
sectors and securities through analysis of credit quality, option
characteristics and liquidity. Quantitative models are used in conjunction
with judgment and experience to evaluate and select securities with embedded
put or call options which are attractive on a risk- and option-adjusted basis.
Successful value investing will permit a portfolio to benefit from the price
appreciation of individual securities during periods when interest rates are
unchanged.
The other primary component of the Subadviser's fixed-income investment
strategy is maturity and duration management. The maturity and duration
structure of a portfolio investing in fixed-income securities is actively
managed in anticipation of cyclical interest rate changes. Adjustments are not
made in an effort to capture short-term, day-to- day movements in the market,
but instead are implemented in anticipation of longer term shifts in the
levels of interest rates. Adjustments made to shorten portfolio maturity and
duration are made to limit capital losses during periods when interest rates
are expected to rise. Conversely, adjustments made to lengthen maturity are
intended to produce capital appreciation in periods when interest rates are
expected to fall. The foundation for maturity and duration strategy lies in
analysis of the U.S. and global economies, focusing on levels of real interest
rates, monetary and fiscal policy actions, and cyclical indicators.
At times it is anticipated that greater than 50% of High Yield Fund's
assets may be invested in mortgage-backed securities. These include securities
which represent pools of mortgage loans made by lenders such as commercial
banks,
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savings and loan associations, mortgage bankers and others. The pools
are assembled by various Governmental, Government-related and private
organizations. It is expected that the portfolio's primary emphasis will be in
mortgage-backed securities issued by the various Government-related
organizations. However, the portfolio may invest, without limit, in mortgage-
backed securities issued by private issuers when the Subadviser deems that the
quality of the investment, the quality of the issuer, and market conditions
warrant such investments. Securities issued by private issuers will be rated
investment grade by Moody's or Standard & Poor's or be deemed by the
Subadviser to be of comparable investment quality. It is not anticipated that
greater than 25% of a portfolio's assets will be invested in mortgage pools
comprised of private organizations. See "OTHER INSTRUMENTS --Hybrid
Instruments" in the Statement of Additional Information for a description of
these instruments and of certain risks associated therewith.
The High Yield Fund will invest in foreign bonds and other fixed income
securities denominated in foreign currencies, where, in the opinion of the
Subadviser, the combination of current yield and currency value offer
attractive expected returns. Foreign securities in which the portfolio may
invest include emerging market securities. The Subadviser's approach to
emerging markets investing is based on the Subadviser's evaluation of both
short-term and long-term international economic trends and the relative
attractiveness of emerging markets and individual emerging market securities.
Emerging markets describes any country which is generally considered to be an
emerging, or developing country by the international financial community such
as the International Bank for Reconstruction and Development (more commonly
known as the World Bank) and the International Finance Corporation. Securities
available to the portfolio also include securities created through the Brady
Plan, a program under which heavily indebted countries have restructured their
bank debt into bonds.
The High Yield Fund will be subject to special risks as a result of its
ability to invest up to 100% of its total assets in foreign securities,
including emerging market securities. These risks, including the risks of the
possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments, are described under the caption "RISK
FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The High Yield Fund is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
Strategic Income Fund
The investment objective of the Strategic Income Fund is to seek a high
level of total return consistent with preservation of capital.
The Strategic Income Fund seeks to achieve its objective by giving its
Subadviser, SBAM, broad discretion to deploy the Strategic Income Fund's
assets among certain segments of the fixed-income market as SBAM believes will
best contribute to the achievement of the Portfolio's objective. At any point
in time, SBAM will deploy the Portfolio's assets based on SBAM's analysis of
current economic and market conditions and the relative risks and
opportunities present in the following market segments: U.S. Government
obligations, investment grade domestic corporate debt, high yield corporate
debt securities, mortgage-backed securities and investment grade and high
yield international debt securities. SBAM is an affiliate of Salomon Brothers
Inc ("SBI"), and in making investment decisions is able to draw on the
research and market expertise of SBI with respect to fixed-income securities.
In addition, SBAM has entered into a subadvisory consulting agreement with its
London based affiliate, Salomon Brothers Asset Management Limited ("SBAM
Limited") pursuant to which SBAM Limited will provide certain advisory
services to SBAM relating to currency transactions and investments in non-
dollar denominated debt securities for the benefit of the Portfolio.
In pursuing the Strategic Income Fund's investment objective, the
Portfolio reserves the right to invest without limitation in lower-rated
securities, commonly known as "junk bonds." (i.e., rated "B" or below by
Moody's (Moody's lowest rating is C, See Appendix I.) or "BB" or below by
S&P(S&P lowest rating is D, see Appendix I.), or if unrated, of comparable
quality as determined by SBAM). No minimum rating standard is required for a
purchase by the Portfolio. Investments of this type involve comparatively
greater risks, including price volatility and risk of default in the payment
of interest and principal, than higher-quality securities. Although the
Portfolio's Subadviser has the ability to invest up to 100% of the Portfolio's
assets in lower-rated securities, the Portfolio's Subadviser does not
anticipate investing in excess of 75% of the Portfolio's assets in
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such securities. Purchasers should carefully assess the risks associated with
an investment in this Portfolio. See "RISK FACTORS -- High Yield/High Risk
Securities."
SBAM will determine the amount of assets to be allocated to each type of
security in which it invests based on its assessment of the maximum level of
total return that can be achieved from a portfolio which is invested in these
securities without incurring undue risks to principal value. In making this
determination, SBAM will rely in part on quantitative analytical techniques
that measure relative risks and opportunities of each type of security based
on current and historical economic, market, political and technical data for
each type of security, as well as on its own assessment of economic and market
conditions both on a global and local (country) basis. In performing
quantitative analysis, SBAM will employ prepayment analysis and option
adjusted spread technology to evaluate mortgage securities, mean variance
optimization models to evaluate international debt securities, and total rate
of return analysis to measure relative risks and opportunities in other fixed-
income markets. Economic factors considered will include current and
projected levels of growth and inflation, balance of payment status and
monetary policy. The allocation of assets to international debt securities
will further be influenced by current and expected currency relationships and
political and sovereign factors. The Portfolio's assets may not always be
allocated to the highest yielding securities if SBAM feels that such
investments would impair the Portfolio's ability to preserve shareholder
capital. SBAM will continuously review this allocation of assets and make
such adjustments as it deems appropriate. The Portfolio does not plan to
establish a minimum or a maximum percentage of the assets which it will invest
in any particular type of fixed-income security.
In addition, SBAM will have discretion to select the range of maturities
of the various fixed-income securities in which the Portfolio invests. Such
maturities may vary substantially from time to time depending on economic and
market conditions.
The types and characteristics of the U.S. Government obligations,
mortgage-backed securities, investment grade corporate debt securities and
investment grade international debt securities to be purchased by the
Portfolio are set forth in the discussion of investment objectives and
policies for the Investment Quality Bond and U.S. Government Securities Funds,
and in the section entitled "OTHER INSTRUMENTS" in the Statement of Additional
Information; and the types and characteristics of the money market securities
to be purchased are set forth in the discussion of investment objectives and
policies of the Money Market Fund. Potential investors should review the
discussion therein in considering an investment in shares of the Strategic
Income Fund. As described below, the Strategic Income Fund may also invest in
high yield domestic and foreign debt securities.
The Strategic Income Fund may also invest in debt obligations issued or
guaranteed by a foreign sovereign government or one of its agencies or
political subdivisions and debt obligations issued or guaranteed by
supranational organizations. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the "World Bank"), the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development Bank.
Such supranational issued instruments may be denominated in multi-national
currency units.
The Strategic Income Fund currently intends to invest substantially all
of its assets in fixed-income securities. In order to maintain liquidity,
however, the Strategic Income Fund may invest up to 20% of its assets in high-
quality short-term money market instruments. If at some future date, in the
opinion of SBAM, adverse conditions prevail in the market for fixed-income
securities, the Strategic Income Fund for temporary defensive purposes may
invest its assets without limit in high-quality short-term money market
instruments.
As discussed above, the Strategic Income Fund may invest in U.S. dollar-
denominated securities issued by domestic issuers that are rated below
investment grade or, if unrated, determined by SBAM to be of comparable
quality. Although SBAM does not anticipate investing in excess of 75% of the
Strategic Income Fund's assets in domestic and developing country debt
securities that are rated below investment grade, the Strategic Income Fund
may invest a greater percentage in such securities when, in the opinion of
SBAM, the yield available from such securities outweighs their additional
risks. By investing a portion of the Strategic Income Fund's assets in
securities rated below investment grade, as well as through investments in
mortgage securities and international debt securities, as described below,
SBAM expects to provide investors with a higher yield than a high-quality
domestic corporate bond fund while at the same time presenting less risk than
a fund that invests principally in securities rated below investment grade.
Certain of the debt securities in which the Strategic Income Fund may invest
may have, or be considered comparable to securities having, the lowest ratings
for non-subordinated debt
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instruments assigned by Moody's or S&P (i.e., rated C by Moody's or CCC or
lower by S&P). See "RISK FACTORS -- High Yield/High Risk Securities --
General."
In light of the risks associated with high yield corporate and sovereign
debt securities, SBAM will take various factors into consideration in
evaluating the creditworthiness of an issuer. For corporate debt securities,
these will typically include the issuer's financial resources, its sensitivity
to economic conditions and trends, the operating history of the issuer, and
the experience and track record of the issuer's management. For sovereign
debt instruments, these will typically include the economic and political
conditions within the issuer's country, the issuer's overall and external debt
levels and debt service ratios, the issuer's access to capital markets and
other sources of funding, and the issuer's debt service payment history. SBAM
will also review the ratings, if any, assigned to the security by any
recognized rating agencies, although SBAM's judgment as to the quality of a
debt security may differ from that suggested by the rating published by a
rating service. The Strategic Income Fund's ability to achieve its investment
objective may be more dependent on SBAM's credit analysis than would be the
case if it invested in higher quality debt securities. A description of the
ratings used by Moody's and S&P is set forth in Appendix I to this Prospectus.
The high yield sovereign debt securities in which the Strategic Income
Fund may invest are U.S. dollar-denominated and non-dollar-denominated debt
securities, including Brady Bonds, that are issued or guaranteed by
governments or governmental entities of developing and emerging countries.
SBAM expects that these countries will consist primarily of those which have
issued or have announced plans to issue Brady Bonds, but the Portfolio is not
limited to investing in the debt of such countries. Brady Bonds are debt
securities issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness. SBAM anticipates that the Portfolio's initial investments in
sovereign debt will be concentrated in Latin American countries, including
Mexico and Central and South American and Caribbean countries. SBAM expects
to take advantage of additional opportunities for investment in the debt of
North African countries, such as Nigeria and Morocco, Eastern European
countries, such as Poland and Hungary, and Southeast Asian countries, such as
the Philippines. Sovereign governments may include national, provincial,
state, municipal or other foreign governments with taxing authority.
Governmental entities may include the agencies and instrumentalities of such
governments, as well as state-owned enterprises. For a more detailed
discussion on high yield sovereign debt securities, see "OTHER INSTRUMENTS --
5. High Yield/High Risk Foreign Sovereign Debt Securities" in the Statement
of Additional Information.
The Strategic Income Fund will be subject to special risks as a result of
its ability to invest up to 100% of its assets in foreign securities. These
risks are described under the captions "RISK FACTORS -- High Yield/High Risk
Securities" and "RISK FACTORS -- Foreign Securities" in this Prospectus.
Moreover, substantial investments in foreign securities may have adverse tax
implications as described under "GENERAL INFORMATION -- Taxes" in this
Prospectus. The ability to spread its investments among the fixed-income
markets in a number of different countries may, however, reduce the overall
level of market risk to the extent it may reduce the Strategic Income Fund's
exposure to a single market.
Use of Hedging and Other Strategic Transactions. The Strategic Income
Fund is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
With the exception of currency transactions, however, it is not presently
anticipated that any of these strategies will be used to a significant degree
by the Portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
Global Government Bond Fund
The investment objective of the Global Government Bond Fund is to seek a
high level of total return by placing primary emphasis on high current income
and the preservation of capital. Oechsle International manages the Global
Government Bond Fund and intends to pursue this objective by investing
primarily in a selected global portfolio of high-quality, fixed-income
securities of foreign and U.S. governmental entities and supranational
issuers.
Oechsle International will select the Global Government Bond Fund's
assets from among countries and in currency denominations where opportunities
for total return are expected to be the most attractive. Fundamental economic
strength, credit quality, and currency and interest rate trends will be the
principal determinants of the various country and sector weightings within the
Global Government Bond Fund. The Global Government Bond Fund may
substantially invest in one or more countries but intends to have represented
in its portfolio securities from a number of different countries, although
there is no limit on the value of the portfolio's assets that may be invested
in any one country or in assets denominated in any one
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country's currency. Moreover, the Global Government Bond Fund may for
temporary defensive purposes choose to invest substantially all its assets in
U.S. securities or cash and cash items.
The Global Government Bond Fund, unlike the other portfolios of the
Trust, is non-diversified for purposes of the Investment Company Act of 1940.
Due to its status as non-diversified, the Global Government Bond Fund is not
subject to the general limitation under the Investment Company Act of 1940
that it not invest more than 5% of its total assets in the securities of a
single issuer. The Global Government Bond Fund has elected non-diversified
status so that it may invest more than 5% of its assets in the obligations of
a foreign government and this practice may expose the Global Government Bond
Fund to increased financial and market risks. While non-diversified for
purposes of the Investment Company Act of 1940, the Global Government Bond
Fund remains subject to certain diversification requirements imposed under the
Internal Revenue Code which are described under the caption "Taxes" in this
Prospectus.
The Global Government Bond Fund will generally invest at least 65% of its
assets in the following investments: (i) debt obligations issued or
guaranteed by the U.S. government or one of its agencies or political
subdivisions; (ii) debt obligations issued or guaranteed by a foreign
sovereign government or one of its agencies or political subdivisions; (iii)
debt obligations issued or guaranteed by supranational organizations.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the
Asian Development Bank and the Inter-American Development Bank. Such
supranational issued instruments may be denominated in multi-national currency
units. Investments in multi-currency, debt securities will be limited to
those assigned within the four highest bond ratings by Moody's or S&P or, if
not rated, that are of equivalent investment quality as determined by Oechsle
International. The Global Government Bond Fund may also invest up to 35% of
its assets in (i) corporate debt securities assigned within the three highest
bond ratings by Moody's or S&P or, if not rated, that are of equivalent
investment quality as determined by Oechsle International, (ii) preferred
stocks and (iii) securities convertible into or exercisable for common stocks.
In addition, the Global Government Bond Fund will hold short-term cash
reserves (money market instruments maturing in a period of thirteen months or
less) as Oechsle International believes is advisable to maintain liquidity or
for temporary defensive purposes. Reserves may be held in any currency deemed
attractive by Oechsle International.
Oechsle International intends to invest in fixed-income securities in
countries where the combination of fixed-income market returns and exchange
rate movements is judged to be attractive. Oechsle International will
actively manage the Global Government Bond Fund's maturity structure according
to its interest rate outlook for each foreign economy. In response to rising
interest rates and falling prices, the Global Government Bond Fund may invest
in securities with shorter maturities to protect its principal value.
Conversely, when certain interest rates are falling and prices are rising, the
Global Government Bond Fund may invest in securities with longer maturities to
take advantage of higher yields and to seek capital appreciation. The Global
Government Bond Fund will seek to invest in countries having favorable
currency and interest rate trends. Investments in countries where the
currency trend is unfavorable may be made when the currency risk can be
minimized through hedging. The Global Government Bond Fund does not intend to
invest in longer-term fixed income securities in countries where the fixed
income market is fundamentally unattractive, regardless of the currency trend,
but may invest in short-term fixed income securities in such countries.
Use of Hedging and Other Strategic Transactions
The Global Government Bond Fund is currently authorized to use all of the
various investment strategies referred to under "RISK FACTORS -- Hedging and
Other Strategic Transactions." With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the portfolio. The Statement of Additional
Information contains a description of these strategies and of certain risks
associated therewith. The Global Government Bond Fund will be subject to
special risks as a result of its ability to invest up to 100% of its assets in
foreign securities. These risks are described under the caption "RISK FACTORS
-- Foreign Securities" in this Prospectus. Moreover, substantial investments
in foreign securities may have adverse tax implications as described under
"GENERAL INFORMATION -- Taxes" in this Prospectus. The ability to spread its
investments among the fixed-income markets in a number of different countries
may, however, reduce the overall level of market risk to the extent it may
reduce the Global Government Bond Fund's exposure to a single market.
Capital Growth Bond Fund
The investment objective of the Capital Growth Bond Fund is to achieve
growth of capital with income as a secondary consideration. MAC manages the
Capital Growth Bond Fund and seeks to achieve this objective by investing
primarily in medium-grade or better debt securities.
The Capital Growth Bond Fund differs from most "bond" funds in that its
primary objective is capital appreciation, not income. Opportunities for
capital appreciation will usually exist only when the levels of prevailing
interest rates
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are falling. During periods when MAC expects interest rates to
decline, the portfolio will invest primarily in intermediate-term and long-
term corporate and government debt securities. However, during periods when
the Subadviser expects interest rates to rise or believes that market or
economic conditions otherwise warrant such action, the portfolio may invest
substantially all of its assets in short-term debt securities to preserve
capital and maintain income. The portfolio may also maintain a portion of its
assets temporarily in cash or short-term debt securities pending selection of
particular long-term investments.
The Capital Growth Bond Fund will be carefully positioned in relation to
the term of debt obligations and the anticipated movement of interest rates.
It is contemplated that at least 65% of the value of the portfolio's total
investment in corporate debt securities, excluding commercial paper, will be
represented by debt securities which have, at the time of purchase, a rating
within the four highest grades as determined by Moody's (Aaa, Aa, A or Baa),
S&P's (AAA, AA, A or BBB), or Fitch's Investors Service ("Fitch's") (AAA, AA,
A or BBB) and debt securities of banks and other issuers which, although not
rated as a matter of policy by either Moody's, S&P's, or Fitch's, are
considered by the Subadviser to have investment quality comparable to
securities receiving ratings within such four highest grades.The portfolio may
also invest up to 20% of its total assets in debt securities rated below
investment grade (rated below Baa or BBB). Such securities, commonly referred
to as "junk" bonds, are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. The
portfolio will dispose of any securities rated below investment grade if such
dispositon is necessary to keep its total holdings in such securities from
exceeding 20%, provided such disposition would not be detrimental to the
portfolio. See "RISK FACTORS - High Yield/High Risk Securities" for further
information regarding the risks of investint in these securities.
Government obligations in which the Capital Growth Bond Fund may invest
include those of foreign governments provided they are denominated in U. S.
dollars. The portfolio may purchase securities on a forward-commitment, when-
issued or delayed-delivery basis.
The Capital Growth Bond Fund may purchase corporate debt securities which
carry certain equity features, such as conversion or exchange rights or
warrants for the acquisition of stock of the same or a different issuer or
participations based on revenues, sales, or profits. The portfolio will not
exercise any such conversion, exchange or purchase rights if, at the time, the
value of all equity interests so owned would exceed 10% of the value of the
portfolio's total assets. The porfolio may also purchase mortgage securities
and asset-backed securities as described under the caption "OTHER INSTRUMENTS"
in the Statement of Additional Information.
The Capital Growth Bond Fund will be subject to certain risks as a result
of its ability to invest up to 100% of its total assets in the following types
of foreign securities: (i) U.S. dollar denominated obligations of foreign
branches of U.S. banks, (ii) securities represented by American Depository
Receipts listed on a national securities exchange or traded in the U.S. over-
the-counter market, (iii) securities of a corporation organized in a
jurisdiction other than the U.S. and listed on the New York Stock Exchange or
NASDAQ ("Interlisted Securities") or (iv) securities denominated in U.S.
dollars but issued by non U.S. issuers and issued under U.S. federal
securities regulations (for example, U.S. dollar denominated obligations
issued or guaranteed as to principal or interest by the Government of Canada
or any Canadian Crown agency). These risks are described under the caption
"RISK FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as
described under "GENERAL INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions The Capital Growth
Bond Fund is currently authorized to use all of the investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions."
However, it is not presently contemplated that any of these strategies will be
used to a significant degree by the portfolio.
Investment Quality Bond Fund
The investment objective of the Investment Quality Bond Fund is to
provide a high level of current income consistent with the maintenance of
principal and liquidity.
Wellington Management manages the Investment Quality Bond Fund and seeks
to achieve its objective by investing primarily in a diversified portfolio of
investment grade corporate bonds and U.S. Government bonds with intermediate
to longer term maturities. Investment management will emphasize sector
analysis, which focuses on relative value and yield spreads among security
types and among quality, issuer, and industry sectors, call protection and
credit research. Credit research on corporate bonds is based on both
quantitative and qualitative criteria established by Wellington Management,
such as an issuer's industry, operating and financial profiles, business
strategy, management quality, and projected financial and business conditions.
Wellington Management will attempt to maintain a high, steady and possibly
growing income stream.
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At least 65% of the Investment Quality Bond Fund's assets will be
invested in the following types of bonds:
* marketable debt securities of domestic issuers and of foreign
issuers (payable in U.S. dollars) rated at the time of purchase "A" or
better by Moody's or S&P or, if unrated, of comparable quality as
determined by Wellington Management; and
* securities issued or guaranteed as to principal or interest by the
U.S. Government or its agencies or instrumentalities, including mortgage-
backed securities (described below under U.S. Government Securities
Fund).
The balance of the Investment Quality Bond Fund's investments may
include: domestic and foreign debt securities rated below "A" by Moody's and
S&P (and unrated securities of comparable quality as determined by Wellington
Management), preferred stocks, convertible securities (including those issued
in the Euromarket) and securities carrying warrants to purchase equity
securities, privately placed debt securities, asset-backed securities and
privately issued mortgage securities. The Portfolio may also invest in cash
or cash equivalent securities which are authorized for purchase by the Money
Market Fund. At least 65% of the Investment Quality Bond Fund's assets will
be invested in bonds and debentures.
In pursuing its investment objective, the Investment Quality Bond Fund
may invest up to 20% of its assets in domestic and foreign high yield
corporate and government debt securities, commonly known as "junk bonds"
(i.e., rated "B" or below by Moody's (Moody's lowest rating is "C", See
Appendix I) or "BB" or below by S&P (S&P's lowest rating is "D", See Appendix
I), or if unrated, of comparable quality as determined by Wellington
Management). No minimum rating standard is required for a purchase by the
Portfolio. The high yield sovereign debt securities in which the Portfolio
will invest are described above under "Strategic Income Fund." Domestic and
foreign high yield debt securities involve comparatively greater risks,
including price volatility and risk of default in the payment of interest and
principal, than higher-quality securities. See "RISK FACTORS -- High
Yield/High Risk Securities."
The Investment Quality Bond Fund may also invest in debt securities
carrying the fourth highest quality rating ("Baa" by Moody's or "BBB" by S&P)
and unrated securities of comparable quality as determined by Wellington
Management. While such securities are considered investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. While the Investment Quality Bond Fund may only invest up to 20%
of its assets in bonds rated below "Baa" by Moody's or "BBB" by S&P (or, if
unrated, of comparable quality as determined by Wellington Management) at the
time of investment, it is not required to dispose of downgraded bonds that
cause the Investment Quality Bond Fund to exceed this 20% maximum.
The Investment Quality Bond Fund will be subject to certain risks as a
result of its ability to invest up to 20% of its assets in foreign securities.
These risks are described under the caption "RISK FACTORS -- Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION -- Taxes" in this Prospectus. The Investment Quality Bond Fund
may also invest in forward commitments and warrants. See "RISK FACTORS --
Warrants" and "-- When-Issued Securities ("Forward Commitments")."
Use of Hedging and Other Strategic Transactions. The Investment Quality
Bond Fund is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description
of these strategies and of certain risks associated therewith.
National Municipal Bond Fund
The National Municipal Bond Fund's investment objective is to achieve a
high level of current income which is exempt from regular federal income
taxes, consistent with the preservation of capital, by investing primarily in
a portfolio of municipal obligations. SBAM manages the National Municipal
Bond Fund and as a matter of fundamental policy, the Portfolio will invest
under normal circumstances, at least 80% of its net assets in municipal
obligations the interest on which is exempt from regular federal income tax.
A portion of the Portfolio's dividends paid in respect of its shares may be
subject to the federal alternative minimum tax. For a discussion on taxation
of the National Municipal Bond Fund, see "GENERAL INFORMATION -- National
Municipal Bond Fund -- Taxation."
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The Portfolio will not invest in municipal obligations that are rated
below investment grade at the time of investment. However, the Portfolio may
retain in its portfolio a municipal obligation whose rating drops below "Baa"
or "BBB" after its acquisition by the Portfolio, if SBAM considers the
retention of such obligation advisable. The Portfolio intends to emphasize
investments in municipal obligations with long-term maturities and expects to
maintain an average portfolio maturity of 20 to 30 years and an average
portfolio duration of 8 to 11 years. The average portfolio maturity and
duration, however, may be shortened from time to time depending on market
conditions.
The types of obligations in which the National Municipal Bond Fund may
invest include the following:
Municipal Bonds
The Portfolio may invest in municipal bonds that are rated at the time of
purchase within the four highest ratings assigned by Moody's, S&P or Fitch, or
determined by SBAM to be of comparable quality. The four highest ratings
currently assigned by Moody's to municipal bonds are "Aaa", "Aa", "A" and
"Baa"; the four highest ratings assigned by S&P and Fitch to municipal bonds
are "AAA", "AA", "A" and "BBB". A more complete description of the debt
security ratings used by the Portfolio assigned by Moody's, S&P and Fitch is
included in Appendix I to this Prospectus.
Although municipal obligations rated in the fourth highest rating
category by Moody's (i.e., "Baa") or S&P or Fitch (i.e., "BBB") are considered
investment grade, they may be subject to greater risks than other higher rated
investment grade securities. Municipal obligations rated "Baa" by Moody's,
for example, are considered medium grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well.
Municipal obligations rated "BBB" by S&P and Fitch are regarded as having an
adequate capacity to pay principal and interest.
Municipal bonds are debt obligations that are typically issued to obtain
funds for various public purposes, such as construction of public facilities
(e.g., airports, highways, bridges and schools). Municipal bonds at the time
of issuance are generally long-term securities with maturities of as much as
twenty years or more, but may have remaining maturities of shorter duration at
the time of purchase by the Portfolio.
Municipal Notes
The Fund may invest in municipal notes rated at the time of purchase
"MIG1", "MIG2" (or "VMIG-1" or "VMIG-2", in the case of variable rate demand
notes), "P-2" or better by Moody's, "SP-2", "A-2" or better by S&P, or "F-2"
or better by Fitch, or if not rated, determined by SBAM to be of comparable
quality.
Municipal notes are issued to meet the short-term funding requirements of
local, regional and state governments. Municipal notes generally have
maturities at the time of issuance of three years or less. Municipal notes
that may be purchased by the Portfolio include, but are not limited to:
Tax Anticipation Notes. Tax anticipation notes ("TANs") are sold as
interim financing in anticipation of collection of taxes. An uncertainty in a
municipal issuer's capacity to raise taxes as a result of such factors as a
decline in its tax base or a rise in delinquencies could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Bond Anticipation Notes. Bond anticipation notes ("BANs") are sold as
interim financing in anticipation of a bond sale. The ability of a municipal
issuer to meet its obligations on its BANs is primarily dependent on the
issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
Revenue Anticipation Notes. Revenue anticipation notes ("RANs") are sold
as interim financing in anticipation of receipt of other revenues. A decline
in the receipt of certain revenues, such as anticipated revenues from another
level of government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs.
TANs, BANs and RANs are usually general obligations of the issuer.
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Municipal Commercial Paper
The Portfolio may also purchase municipal commercial paper that is rated
at the time of purchase "P-2" or better by Moody's, "A-2" or better by S&P, or
"F-2" or better by Fitch, or if not rated, determined by SBAM to be of
comparable quality.
Municipal commercial paper that may be purchased by the Portfolio
consists of short term obligations of a municipality. Such paper is likely to
be issued to meet seasonal working capital needs of a municipality or as
interim construction financing. Municipal commercial paper, in many cases, is
backed by a letter of credit lending agreement, note repurchase agreement or
other credit facility agreement offered by banks or other institutions.
Characteristics of Municipal Obligations
Municipal obligations are debt obligations issued by or on behalf of
states, cities, municipalities and other public authorities. The two
principal classifications of municipal obligations that may be held by the
Portfolio are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of a facility being financed. Revenue securities may include private
activity bonds. Such bonds may be issued by or on behalf of public
authorities to finance various privately operated facilities and are not
payable from the unrestricted revenues of the issuer. As a result, the credit
quality of private activity bonds is frequently related directly to the credit
standing of private corporations or other entities. In addition, the interest
on private activity bonds issued after August 7, 1986 is subject to the
federal alternative minimum tax. The Portfolio will not be restricted with
respect to the proportion of its assets that may be invested in such
obligations. Accordingly, the Portfolio may not be a suitable investment
vehicle for individuals or corporations that are subject to the federal
alternative minimum tax.
The National Municipal Bond Fund's portfolio may also include "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality that created the issuer.
In addition, the Portfolio may invest in municipal lease obligations
("MLOs"). MLOs are not fully backed by the municipality's credit and their
interest may become taxable if the lease is assigned. If the governmental
user does not appropriate sufficient funds for the following year's lease
payments, the lease will terminate, with the possibility of default on the MLO
and loss to the Portfolio. SBAM intends to invest more than 5% of the
Portfolio's net assets in municipal lease obligations and the Trustees of the
Fund have established procedures the Subadviser will use to examine certain
factors in evaluating the liquidity of such obligations. These factors
include (i) the frequency of trades and quotes for the MLO; (ii) the number of
dealers willing to purchase or sell such MLO and the number of other potential
purchasers; (iii) the willingness of dealers to undertake to make a market in
the MLO; (iv) the nature of the MLO and the nature of the marketplace trades
(e.g., the time needed to dispose of the security and the method of soliciting
- -
offers); (v) the nature of the offering of such MLO (e.g., the size of the
- -
issue and the number of anticipated holders); (vi) the ability of the MLO to
maintain its marketability throughout the time the instrument is held in the
Portfolio; and (vii) other factors, if any, which SBAM deems relevant to
determining the existence of a trading market for such MLO. The Portfolio
also may invest in resource recovery bonds, which may be general obligations
of the issuing municipality or supported by corporate or bank guarantees. The
viability of the resource recovery project, environmental protection
regulations and project operator tax incentives may affect the value and
credit quality of resource recovery bonds.
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Other Permitted Investments
The Portfolio currently intends to invest substantially all of its assets
in obligations the interest on which is exempt from regular federal income
taxes. However, in order to maintain liquidity, the Portfolio may invest up
to 20% of its assets in taxable obligations, including taxable high-quality
short-term money market instruments. The Portfolio may invest in the
following taxable high-quality short-term money market instruments:
obligations of the U.S. Government or its agencies or instrumentalities;
commercial paper of issuers rated, at the time of purchase, "A-2" or better by
S&P, "P-2" or better by Moody's, or "F-2" or better by Fitch or which if
unrated, in the opinion of SBAM, are of comparable quality; certificates of
deposit, bankers' acceptances or time deposits of U.S. banks with total assets
of at least $1 billion (including obligations of foreign branches of such
banks) and of the 75 largest foreign commercial banks in terms of total assets
(including domestic branches of such banks), and repurchase agreements with
respect to such obligations.
If at some future date, in the opinion of SBAM, adverse conditions
prevail in the market for obligations the interest on which is exempt from
regular federal income taxes, the Portfolio may invest its assets without
limit in taxable high-quality short-term money market instruments. Dividends
paid by the Portfolio that are attributable to interest derived from taxable
money market instruments will be taxable to investors.
From time to time, the Portfolio may invest more than 25% of its assets
in obligations whose interest payments are from revenues of similar projects
(such as utilities or hospitals) or whose issuers share the same geographic
location. As a result, the Portfolio may be more susceptible to a single
economic, political or regulatory development than would a portfolio of
securities with a greater variety of issuers. These developments include
proposed legislation or pending court decisions affecting the financing of
such projects and market factors affecting the demand for their services or
products.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Portfolio nor SBAM will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.
Additional Investment Activities
Floating and Variable Rate Obligations. Certain of the obligations that
the National Municipal Bond Fund may purchase may have a floating or variable
rate of interest. Floating or variable rate obligations bear interest at
rates that are not fixed, but vary with changes in specified market rates or
indices, such as the prime rate, and at specified intervals. Certain of the
floating or variable rate obligations that may be purchased by the Portfolio
may carry a demand feature that would permit the holder to tender them back to
the issuer of the underlying instrument or to a third party at par value prior
to maturity. Such obligations include variable rate demand notes, which are
instruments issued pursuant to an agreement between the issuer and the holder
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate.
Participation Certificates. The instruments that may be purchased by the
Portfolio include participation certificates issued by a bank, insurance
company or other financial institution in obligations owned by such
institutions or affiliated organizations that may otherwise be purchased by
the Portfolio. A participation certificate gives the Portfolio an undivided
interest in the underlying obligations in the proportion that the Portfolio's
interest bears to the total principal amount of such obligations. Certain of
such participation certificates may carry a demand feature that would permit
the holder to tender them back to the issuer or to a third party prior to
maturity.
Variable Rate Auction Securities and Inverse Floaters. The National
Municipal Bond Fund may invest in variable rate auction securities and inverse
floaters which are instruments created when an issuer or dealer separates the
principal portion of a long-term, fixed-rate municipal bond into two long-
term, variable-rate instruments. The interest rate on the variable rate
auction portion reflects short-term interest rates, while the interest rate on
the inverse floater portion is typically higher than the rate available on the
original fixed-rate bond. Changes in the interest rate paid on the portion of
the issue relative to short-term interest rates inversely affect the interest
rate paid on the latter portion of the issue. The latter portion therefore is
subject to greater price volatility than the original fixed-rate bond. Since
the market for these instruments is new, the holder of one portion may have
difficulty finding a ready purchaser. Depending on market availability, the
two portions may be recombined to form a fixed-rate municipal bond.
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Use of Hedging and Other Strategic Transactions
The National Municipal Bond Fund is currently authorized to use only
certain of the various investment strategies referred to under "RISK FACTORS--
Hedging and Other Strategic Transactions." Specifically, the Portfolio may
purchase or sell futures contracts on (a) debt securities that are backed by
the full faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds and Treasury Notes and (b) municipal bond indices. Currently,
at least one exchange trades futures contracts on an index of long-term
municipal bonds, and the Portfolio reserves the right to conduct futures
transactions based on an index which may be developed in the future to
correlate with price movements in municipal obligations. It is not presently
anticipated that any of these strategies will be used to a significant degree
by the Portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
U.S. Government Securities Fund
The investment objective of the U.S. Government Securities Fund is to
obtain a high level of current income consistent with preservation of capital
and maintenance of liquidity. SBAM manages the U.S. Government Securities
Fund and seeks to attain its objective by investing under normal circumstances
100% of its assets in debt obligations and mortgage-backed securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. The
securities in which the U.S. Government Securities Fund may invest are:
(1) mortgage-backed securities guaranteed by the Government National
Mortgage Association ("GNMA"), popularly known as "Ginnie Maes," that are
supported by the full faith and credit of the U.S. Government and which are
the "modified pass-through" type of mortgage-backed security ("GNMA
Certificates"). Such securities entitle the holder to receive all interest
and principal payments due whether or not payments are actually made on the
underlying mortgages;
(2) U.S. Treasury obligations;
(3) obligations issued or guaranteed by agencies or instrumentalities
of the U.S. Government which are backed by their own credit and may not be
backed by the full faith and credit of the U.S. Government;
(4) mortgage-backed securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own
credit but not the full faith and credit of the U.S. Government, such as the
Federal Home Loan Mortgage Corporation and the Federal National Mortgage
Association; and
(5) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage-backed securities serving as collateral are
backed (i) by the credit alone of the U.S. Government agency or
instrumentality which issues or guarantees the mortgage-backed securities, or
(ii) by the full faith and credit of the U.S. Government.
The mortgage-backed securities in which the U.S. Government Securities
Fund invests represent participating interests in pools of residential
mortgage loans which are guaranteed by the U.S. Government, its agencies or
instrumentalities of the U.S. Government. However, the guarantee of these
types of securities runs only to the principal and interest payments and not
to the market value of such securities. In addition, the guarantee only runs
to the portfolio securities held by the U.S. Government Securities Fund and
not to the purchase of shares of the Portfolio.
Mortgage-backed securities are issued by lenders such as mortgage
bankers, commercial banks, and savings and loan associations. Such securities
differ from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semiannually) with principal payments at
maturity or specified call dates. Mortgage-backed securities provide monthly
payments which are, in effect, a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans. Principal prepayments result from the
sale of the underlying property or the refinancing or foreclosure of
underlying mortgages.
The yield of mortgage-backed securities is based on the average life of
the underlying pool of mortgage loans, which is computed on the basis of the
maturities of the underlying instruments. The actual life of any particular
pool may be shortened by unscheduled or early payments of principal and
interest. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed rate 30-year mortgages, it has been common practice to assume that
prepayments will result in a 12-year average life. The actual prepayment
experience of a pool of mortgage loans may cause the yield realized by the
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U.S. Government Securities Fund to differ from the yield calculated on the
basis of the average life of the pool. In addition, if any of these mortgage-
backed securities are purchased at a premium, the premium may be lost in the
event of early prepayment which may result in a loss to the Portfolio.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. Reinvestment by the U.S. Government Securities Fund of scheduled
principal payments and unscheduled prepayments may occur at higher or lower
rates than the original investment, thus affecting the yield of the Portfolio.
Monthly interest payments received by the Portfolio have a compounding effect
which will increase the yield to shareholders as compared to debt obligations
that pay interest semiannually. Because of the reinvestment of prepayments of
principal at current rates, mortgage-backed securities may be less effective
than Treasury bonds of similar maturity at maintaining yields during periods
of declining interest rates. Also, although the value of debt securities may
increase as interest rates decline, the value of these pass-through type of
securities may not increase as much due to the prepayment feature.
While the Portfolio seeks a high level of current income, it cannot
invest in instruments such as lower grade corporate obligations which offer
higher yields but are subject to greater risks. The Portfolio will not
knowingly invest in a high risk mortgage security. The term "high risk
mortgage security" is defined generally as any mortgage security that exhibits
greater price volatility than a benchmark security, the Federal National
Mortgage Association current coupon 30-year mortgage-backed pass through
security. Shares of the Portfolio are neither insured nor guaranteed by the
U.S. Government, its agencies or instrumentalities.
In order to make the U.S. Government Securities Fund an eligible
investment for federal credit unions ("FCUs"), federal savings and loan
institutions and national banks, the Portfolio will invest in U.S. Government
securities that are eligible for investment by such institutions without
limitation, and will also generally be managed so as to qualify as an eligible
investment for such institutions. The Portfolio will comply with all
investment limitations applicable to FCUs including (i) the requirement that a
FCU may only purchase collateralized mortgage obligations which would meet the
high risk securities test of Part 703 of the National Credit Union
Administration Rules and Regulations or would be held solely to reduce
interest rate risk and (ii) the requirement that a FCU may not purchase zero
coupon securities having maturities greater than ten years.
The ability of the U.S. Government Securities Fund to provide a high
level of current income is restrained because that Portfolio invests
predominantly in U.S. Government bonds; debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and U.S. dollar-denominated money market instruments,
respectively.
Use of Hedging and Other Strategic Transactions. The U.S. Government
Securities Fund is not currently authorized to use any of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." However, such strategies may be used in the future
by the Portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
Money Market Fund
The investment objective of the Money Market Fund is to obtain maximum
current income consistent with preservation of principal and liquidity as is
available from short-term investments. MAC manages the Money Market Fund and
seeks to achieve this objective by investing in high quality, U.S. dollar-
denominated money market instruments of the following types:
(1) obligations issued or guaranteed as to principal or interest by the
U.S. Government, or any agency or authority controlled or supervised by and
acting as an instrumentality of the U.S. Government pursuant to authority
granted by Congress (hereinafter "U.S. Government securities");
(2) certificates of deposit, bank notes, time deposits, Eurodollars,
Yankee obligations and bankers' acceptances of U.S. banks, foreign branches of
U.S. banks, foreign banks and U.S. savings and loan associations which at the
date of investment have capital, surplus and undivided profits as of the date
of their most recent published financial statements in excess of $100,000,000
(or less than $100,000,000 if the principal amount of such bank obligations is
insured by the Federal Deposit Insurance Corporation or the Savings
Association Insurance Fund);
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(3) commercial paper which at the date of investment is rated (or
guaranteed by a company whose commercial paper is rated) within the two
highest rating categories by any nationally recognized statistical rating
organization ("NRSRO") (such as "P-1" or "P-2" by Moody's or "A-1" or "A-2" by
S&P) or, if not rated, is issued by a company which MAC, acting pursuant to
guidelines established by the Trustees, has determined to be of minimal credit
risk and comparable quality;
(4) corporate obligations maturing in 397 days or less which at the
date of investment are rated within the two highest rating categories by any
NRSRO (such as "Aa" or higher by Moody's or "AA" or higher by S&P);
(5) short-term obligations issued by state and local governmental
issuers;
(6) obligations of foreign governments, including Canadian and
Provincial Government and Crown Agency Obligations;
(7) securities that have been structured to be eligible money market
instruments such as participation interests in special purpose trusts that
meet the quality and maturity requirements in whole or in part due to
arrangements for credit enhancement or for shortening effective maturity; and
(8) repurchase agreements with respect to any of the foregoing
obligations (without limitation).
Commercial paper may include variable amount master demand notes, which
are obligations that permit investment of fluctuating amounts at varying rates
of interest. Such notes are direct lending arrangements between the Money
Market Fund and the note issuer, and MAC will monitor the creditworthiness of
the issuer and its earning power and cash flow, and will also consider
situations in which all holders of such notes would redeem at the same time.
Variable amount master demand notes are redeemable on demand.
The Money Market Fund will invest only in U.S. dollar-denominated
instruments. All of the Money Market Fund's investments will mature in 397
days or less and the Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less. By limiting the maturity of its
investments, the Money Market Fund seeks to lessen the changes in the value of
its assets caused by fluctuations in short-term interest rates. Due to the
short maturities of its investments, the Money Market Fund will tend to have a
lower yield than, and the value of its underlying investments will be less
volatile than the investments of, portfolios that invest in longer-term
securities. In addition, the Money Market Fund will invest only in securities
the Trustees determine to present minimal credit risks and which at the time
of purchase are "eligible securities" as defined by Rule 2a-7 under the 1940
Act. Generally, eligible securities must be rated by a NRSRO in one of the
two highest rating categories for short-term debt obligations or be of
comparable quality. The Money Market Fund also intends to maintain a stable
per share net asset value of $1.00, although there is no assurance that it
will be able to do so.
The Money Market Fund will be subject to certain risks as a result of its
ability to invest up to 20% of its assets in foreign securities. These risks
are described under the caption "RISK FACTORS--Foreign Securities" in this
Prospectus.
Use of Hedging and Other Strategic Transactions. The Money Market Fund
is not authorized to use any of the various investment strategies referred to
under "RISK FACTORS--Hedging and Other Strategic Transactions."
The Lifestyle Funds
There Lifestyle Funds have five investment styles - Conservative,
Moderate, Balanced, Growth and Aggressive. The Lifestyle Funds differ from
the portfolios previously described in that each Lifestyle Fund invests in
Class D shares of a number of the other portfolios of the Fund ("Underlying
Portfolios"). Each of the five investment styles has its own investment
objective and policies.
Conservative Lifestyle Fund
---------------------------
The investment objective of the Conservative Lifestyle Fund is to provide
a high level of current income with some consideration also given to growth of
capital. NASL Financial seeks to achieve this objective by investing
approximately 80% of the Lifestyle Fund's assets in Underlying Portfolios
which invest primarily in fixed income securities and approximately 20% of its
assets in Underlying Portfolios which invest primarily in equity
securities.
Moderate Lifestyle Fund
-----------------------
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The investment objective of the Moderate Lifestyle Fund is to provide a
balance between a high level of current income and growth of capital with a
greater emphasis given to high income. NASL Financial seeks to achieve this
objective by investing approximately 60% of the Lifestyle Fund's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest
primarily in equity securities.
Balanced Lifestyle Fund
-----------------------
The investment objective of the Balanced Lifestyle Fund is to provide a
balance between a high level of current income and growth of capital with a
greater emphasis given to capital growth. NASL Financial seeks to achieve this
objective by investing approximately 40% of the Lifestyle Fund's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest
primarily in equity securities.
Growth Lifestyle Fund
---------------------
The investment objective of the Growth Lifestyle Fund is to provide long
term growth of capital with consideration also given to current income. NASL
Financial seeks to achieve this objective by investing approximately 20% of
the Lifestyle Fund's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
Aggressive Lifestyle Fund
-------------------------
The investment objective of the Aggressive Lifestyle Fund is to provide
long term growth of capital. Current income is not a consideration. NASL
Financial seeks to achieve this objective by investing 100% of the Lifestyle
Fund's assets in Underlying Portfolios which invest primarily in equity
securities.
The Lifestyle Funds are designed to provide a simple means of obtaining a
professionally-determined comprehensive investment program designed for
differing investment orientations. Each program is implemented by means of
selected long term investment allocations among the Underlying
Portfolios.
The portfolios eligible for purchase by the Lifestyle Funds consist of
all of the non-Lifestyle Funds. The Underlying Portfolios are grouped
according to whether they invest primarily in fixed income securities or
equity securities. The Underlying Portfolios investing primarily in fixed
income securities are the Strategic Bond, Global Government Bond, Capital
Growth Bond, Investment Quality Bond, U.S. Government Securities and Money
Market Funds. The other Underlying Portfolios invest primarily in equity
securities.
The percentage allocations between the two types of Underlying Portfolios
specified for each Lifestyle Fund are approximate only. Variations in the
percentages are permitted up to 10% in either direction. Thus, for example,
the Conservative Lifestyle Fund may have a fixed income/equity allocation of
10%/90% or 30%/70%. Variations beyond the permissible deviation range of 10%
are not permitted, unless the Adviser determines that in light of market or
economic conditons the normal percentage limitations should be exceeded to
protect the portfolio or to achieve the portfolio's objective.
NASL Financial manages the Lifestyle Funds at no cost, although it
reserves the right to seek compensation for services in the future. Within the
prescribed percentage allocations between the two types of Underlying
Portfolios, NASL Financial may from time to time adjust the percent of assets
invested in any single portfolios held by a Lifestyle Fund. Such adjustments
may be made to increase or decrease the Lifestyle Fund's holdings of
particular assets classes, such as common stocks of foreign issuers, or to
adjust portfolio quality or the duration of fixed income securities.
Adjustments may also be made to increase or reduce the percent of the
Lifestyle Fund's assets subject to the management of a particular Subadviser.
In addition, changes may be made to reflect some fundamental change in the
investment environment.
Although substantially all of the assets of the Lifestyle Funds will be
invested in shares of the Underlying Portfolios, the Lifestyle Funds may
invest up to 100% of their assets in cash or in the money market instruments
of the type in which the Money Market Fund is authorized to invest for the
purpose of meeting redemption requests or making other anticipated cash
payments or to protect the portfolio in the event the Adviser determines that
market or economic conditions warrant a defensive posture. Because
substantially all of the securities in which the Lifestyle Funds may invest
are Underlying Portfolios, each of the Lifestyle Funds is non-diversified for
purposes of the Investment Company Act of 1940.
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The Lifestyle Funds are subject to the risks of the Underlying Portfolios
in which they invest. The Lifestyle Funds are not authorized to use any of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions."
Investors in the Lifestyle Funds, in addition to bearing their
proportionate share of the expenses of a Lifestyle Fund, will indirectly bear
expenses of the Underlying Portfolios. The class of the Underlying Portfolio
in which the Lifestyle Funds will invest, Class D, is sold without any front-
end sales charge or CDSC and does not bear any Rule 12b-1 distribution or
service fees. While Class D shares are not sold directly to the public,
investors may purchase Class A, B and C shares of the Underlying Portfolios.
Therefore, some investors may be able to realize lower aggregate charges and
expenses by investing directly in the Underlying Portfolios rather than
investing indirectly in the Underlying Portfolios by investing in the
Lifestyle Funds. An investor who chose to invest directly in the Underlying
Portfolios rather than purchasing the Lifestyle Funds would, however, forego
the asset allocation services provided by the Adviser in its management of the
Lifestyle Funds.
-------------------
RISK FACTORS
Investment Restrictions Generally
The Fund is subject to a number of restrictions in pursuing its
investment objectives and policies. Such restrictions generally serve to
limit investment practices that may subject the Fund to investment and market
risk. The following is a brief summary of certain restrictions that may be of
interest to investors. Some of these restrictions are subject to exceptions
not stated here. Such exceptions and a complete list of the investment
restrictions applicable to the individual Portfolios and to the Fund are set
forth in the Statement of Additional Information under the caption "INVESTMENT
RESTRICTIONS."
Except for the restrictions specifically identified as fundamental, all
investment restrictions described in this Prospectus and in the Statement of
Additional Information are not fundamental, so that the Trustees of the Fund
may change them without shareholder approval. Fundamental policies may not be
changed without the affirmative vote of a majority of the outstanding voting
securities.
Fundamental policies applicable to all Portfolios include prohibitions on
(i) investing more than 25% of the total assets of any Portfolio, except the
Real Estate Securities Fund and the Lifestyle Funds, in the securities of
issuers having their principal activities in any particular industry (with
exceptions for U.S. Government securities and, with respect to the Money
Market Fund, obligations of domestic branches of U.S. banks, and with respect
to the National Municipal Bond Fund, obligations issued or guaranteed by any
state or territory, and possession of the United States, the District of
Columbia, or any of their authorities, agencies, instrumentalities or
political subdivisions) (for purposes of this restriction, supranational
issuers will be considered to comprise an industry as will each foreign
government that issues securities purchased by a Portfolio); (ii) borrowing
money, except for temporary or emergency purposes (but not for leveraging) and
then not in excess of 33 1/3% of the value of the total assets of the
Portfolio at the time the borrowing is made (as a nonfundamental investment
policy a Portfolio will not purchase additional securities at any time its
borrowings exceed 5% of total assets) and except in connection with reverse
repurchase agreements, mortgage dollar rolls and other similar transactions,
and (iii) purchasing securities of any issuer if the purchase would cause more
than 5% of the value of a Portfolio's total assets to be invested in the
securities of any one issuer (excluding U.S. Government securities and bank
obligations) or cause more than 10% of the voting securities of the issuer to
be held by a Portfolio, except that (i) up to 25% of the value of each
Portfolio's total assets (except the Money Market Fund) may be invested
without regard to this restriction and (ii) the Global Government Bond Fund,
the Emerging Growth Fund and the Lifestyle Funds are not subject to this
restriction.
Restrictions that apply to all Portfolios and that are not fundamental
include prohibitions on (i) knowingly investing more than 10% of the net
assets of any Portfolio in "illiquid" securities (including repurchase
agreements maturing in more than seven days but excluding master demand notes)
(ii) pledging, hypothecating, mortgaging or transferring more than 10% of the
total assets of any Portfolio as security for indebtedness (except that the
applicable percent is 33 1/3% in the case of the Blue Chip Growth, Equity-
Income, International Stock and Science & Technology Funds, 15% in the case of
the International Small Cap, Growth Equity, Balanced and Worldwide Growth
Funds and 50% in the case of the Value Fund) and (iii)
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purchasing securities of other investment companies, other than in connection
with a merger, consolidation or reorganization, if the purchase would cause
more than 10% of the value of a Portfolio's total assets to be invested in
investment company securities, except that the Lifestyle Funds are not subject
to this restriction.
Finally, the Money Market Fund is subject to certain restrictions
required by Rule 2a-7 under the 1940 Act. In order to comply with such
restrictions, the Money Market Fund will, among other things, not purchase the
securities of any issuer if it would cause (i) more than 5% of its total
assets to be invested in the securities of any one issuer (excluding U.S.
Government securities and repurchase agreements fully collateralized by U.S.
Government securities), except as permitted by Rule 2a-7 for certain
securities for a period of up to three business days after purchase, (ii) more
than 5% of its total assets to be invested in "second tier securities," as
defined by Rule 2a-7, or (iii) more than the greater of $1 million or 1% of
its total net assets to be invested in the second tier securities of that
issuer.
High Yield/High Risk Securities
General. The Strategic Income and High Yield Funds may invest without
limitation, the Investment Quality Bond Fund may invest up to 20% of its
assets, the Equity-Income Fund may invest up to 10% of its assets, and the
Balanced, International Small Cap, Growth Equity, Blue Chip Growth and
Worldwide Growth Funds may each invest up to 5% of its assets, in "high yield"
securities (commonly known as "junk bonds"). High yield securities include
debt instruments that have an equity security attached to it. In addition, the
Worldwide Growth, International Small Cap, Strategic Income, Investment
Quality Bond and High Yield Funds expect that a significant portion of their
assets may be invested in Brady Bonds. Securities rated below investment grade
and comparable unrated securities offer yields that fluctuate over time, but
generally are superior to the yields offered by higher rated securities.
However, securities rated below investment grade also involve greater risks
than higher rated securities. Under rating agency guidelines, medium- and
lower-rated securities and comparable unrated securities will likely have some
quality and protective characteristics that are outweighed by large
uncertainties or major risk exposures to adverse conditions. Certain of the
debt securities in which the Portfolios may invest may have, or be considered
comparable to securities having, the lowest ratings for non-subordinated debt
instruments assigned by Moody's or S&P (i.e., rated C by Moody's or CCC or
lower by S&P). These securities are considered to have extremely poor
prospects of ever attaining any real investment standing, to have a current
identifiable vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not current in
the payment of interest or principal. Such securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. Accordingly, it is
possible that these types of factors could, in certain instances, reduce the
value of securities held by the Portfolio with a commensurate effect on the
value of the Portfolio's shares. The Strategic Income and High Yield Funds
may invest without limitation in high yield debt securities, and accordingly,
they should not be considered as a complete investment program for all
investors.
Because the Strategic Income, High Yield, and Investment Quality Bond
Funds will invest primarily in fixed-income securities, the net asset value of
each Portfolio's shares can be expected to change as general levels of
interest rates fluctuate, although the market values of securities rated below
investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Except to the extent that values are affected independently by other factors
such as developments relating to a specific issuer, when interest rates
decline, the value of a fixed-income portfolio can generally be expected to
rise. Conversely, when interest rates rise, the value of a fixed-income
portfolio can generally be expected to decline.
The secondary markets for high yield corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield debt securities are
concentrated in relatively few market makers and participants in the market
are mostly institutional investors, including insurance companies, banks,
other financial institutions and mutual funds. In addition, the trading
volume for high yield debt securities is generally lower than that for higher-
rated securities and the secondary markets could contract under adverse market
or economic conditions independent of any specific adverse changes in the
condition of a particular issuer. These factors may have an adverse effect on
a Fund's ability to dispose of particular portfolio investments and may limit
the ability of those Portfolios to obtain accurate market quotations for
purposes of valuing securities and calculating net asset value. If a
Portfolio is not able to obtain precise or accurate market quotations for a
particular security, it will become more difficult for the Trustees to value
such Portfolio's investment portfolio and the Fund's Trustees may have to use
a greater degree of judgment in making such valuations. Less liquid secondary
markets may also affect a Portfolio's ability to sell securities at their fair
value. In addition, each Portfolio may invest up to 10% of its net assets,
measured at the time of investment, in illiquid securities, which may be more
difficult to
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value and to sell at fair value. If the secondary markets for
high yield debt securities are affected by adverse economic conditions, the
proportion of a Portfolio's assets invested in illiquid securities may
increase.
Corporate Debt Securities. While the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, such securities
generally present a higher degree of credit risk. Issuers of these securities
are often highly leveraged and may not have more traditional methods of
financing available to them, so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater than with investment grade securities because
such securities generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness.
Foreign Sovereign Debt Securities. Investing in foreign sovereign debt
securities will expose a Portfolio to the direct or indirect consequences of
political, social or economic changes in the developing and emerging countries
that issue the securities. The ability and willingness of sovereign obligors
in developing and emerging countries or the governmental authorities that
control repayment of their external debt to pay principal and interest on such
debt when due may depend on general economic and political conditions within
the relevant country. Countries such as those in which the Portfolios may
invest have historically experienced, and may continue to experience, high
rates of inflation, high interest rates, exchange rate trade difficulties and
extreme poverty and unemployment. Many of these countries are also
characterized by political uncertainty or instability. Additional factors
which may influence the ability or willingness to service debt include, but
are not limited to, a country's cash flow situation, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
its debt service burden to the economy as a whole, and its government's policy
towards the International Monetary Fund, the World Bank and other
international agencies.
The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few
commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated
in dollars could be adversely affected. If a foreign sovereign obligor cannot
generate sufficient earnings from foreign trade to service its external debt,
it may need to depend on continuing loans and aid from foreign governments,
commercial banks and multilateral organizations, and inflows of foreign
investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make such disbursements may be
conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts. The cost of servicing
external debt will also generally be adversely affected by rising
international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to
foreign exchange. Currency devaluations may affect the ability of a sovereign
obligor to obtain sufficient foreign exchange to service its external debt.
As a result of the foregoing, a governmental obligor may default on its
obligations. If such an event occurs, the Portfolio may have limited legal
recourse against the issuer and/or guarantor. Remedies must, in some cases,
be pursued in the courts of the defaulting party itself, and the ability of
the holder of foreign sovereign debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of other foreign sovereign debt obligations in
the event of default under their commercial bank loan agreements.
Sovereign obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have
in the past experienced substantial difficulties in servicing their external
debt obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit to finance interest payments. Holders of certain foreign
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sovereign debt securities may be requested to participate in the restructuring
of such obligations and to extend further loans to their issuers. There can be
no assurance that the Brady Bonds and other foreign sovereign debt securities
in which the Portfolios may invest will not be subject to similar
restructuring arrangements or to requests for new credit which may adversely
affect a Portfolio's holdings. Furthermore, certain participants in the
secondary market for such debt may be directly involved in negotiating the
terms of these arrangements and may therefore have access to information not
available to other market participants.
In addition to high yield foreign sovereign debt securities, many of the
Portfolios may also invest in investment grade foreign securities. For a
discussion of such securities and their associated risks, see "Foreign
Securities" below.
Foreign Securities
Each of the portfolios, other than the U.S. Government Securities,
National Municipal Bond and Equity Index Funds, may invest in securities of
foreign issuers. Such foreign securities may be denominated in foreign
currencies, except with respect to the Money Market Fund which may only invest
in U.S. dollar-denominated securities of foreign issuers. The International
Small Cap, Capital Growth Bond, Global Equity, Global Government Bond,
Worldwide Growth, High Yield, International Growth and Income, International
Stock, Strategic Income, Real Estate Securities, Common Stock and Pacific Rim
Emerging Markets Funds may each, without limitation, invest up to 100% of its
assets in securities issued by foreign entities and/or denominated in foreign
currencies. The Balanced, Science & Technology, and Growth Equity Funds may
each invest up to 30% of its assets, the Equity-Income Fund up to 25% of its
assets, the Pilgrim Baxter Growth Fund up to 15% of its assets, the Value
Fund up to 5% of its assets, and each of the other portfolios (other than the
U.S. Government Securities, National Municipal Bond and Equity Index Funds) up
to 20% of its assets in securities issued by foreign entities and/or
denominated in foreign currencies. (In the case of the Small/Mid Cap, Growth
Equity, Balanced and Value Funds, ADRs and U.S. dollar denominated securities
are not included in the percentage limitation.). The types of foreign
securities in which the Money Market Fund may invest are set forth above under
"INVESTMENT PORTFOLIOS - Money Market Fund." The U.S. Government Securities,
Equity Index and National Municipal Bond Funds may not invest in foreign
securities.
Securities of foreign issuers include obligations of foreign branches of
U.S. banks and of foreign banks, common and preferred stocks, debt securities
issued by foreign governments, corporations and supranational organizations,
and American Depository Receipts, European Depository Receipts and Global
Depository Receipts ("ADRs", "EDRs" and "GDRs", respectively). ADRs are U.S.
dollar-denominated securities backed by foreign securities deposited in a U.S.
securities depository. ADRs are created for trading in the U.S. markets. The
value of an ADR will fluctuate with the value of the underlying security,
reflect any changes in exchange rates and otherwise involve risks associated
with investing in foreign securities. ADRs in which the Portfolios may invest
may be sponsored or unsponsored. There may be less information available about
foreign issuers of unsponsored ADRs. EDRs and GDRs are receipts evidencing an
arrangement with a non-U.S. bank similar to that for ADRs and are designed for
use in non-U.S. securities markets. EDRs and GDRs are not necessarily quoted
in the same currency as the underlying security.
Foreign securities may be subject to foreign government taxes which
reduce their attractiveness. See "GENERAL INFORMATION -- Taxes." In
addition, investing in securities denominated in foreign currencies and in the
securities of foreign issuers, particularly non-governmental issuers, involves
risks which are not ordinarily associated with investing in domestic issuers.
These risks include political or economic instability in the country involved
and the possibility of imposition of currency controls. Since certain
Portfolios may invest in securities denominated or quoted in currencies other
than the U.S. dollar, changes in foreign currency exchange rates may affect
the value of investments in the Portfolio and the unrealized appreciation or
depreciation of investments insofar as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. The Portfolios may
incur transaction charges in exchanging foreign currencies.
There may be less publicly available information about a foreign issuer
than about a domestic issuer. Foreign issuers, including foreign branches of
U.S. banks, are subject to different accounting and reporting requirements
which are generally less extensive than the requirements applicable to
domestic issuers. Foreign stock markets (other than Japan) have substantially
less volume than the U.S. exchanges and securities of foreign issuers are
generally less liquid and more volatile than those of comparable domestic
issuers. These risks are heightened in the case of emerging markets. There
is frequently less governmental regulation of exchanges, broker-dealers and
issuers than in the United States, and brokerage costs may be higher. In
addition, investments in foreign companies may be subject to the possibility
of nationalization, withholding of
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dividends at the source, expropriation or confiscatory taxation, currency
blockage, political or economic instability or diplomatic developments that
could adversely affect the value of those investments. Finally, in the event
of a default on any foreign obligation, it may be difficult for the Fund to
obtain or to enforce a judgment against the issuer.
Foreign markets, especially emerging markets, may have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of a Portfolio is uninvested and no return is earned thereon. The
inability of a Portfolio to make intended security purchases due to settlement
could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to a Portfolio due to subsequent declines in values of the
portfolio securities or, if the Portfolio has entered into a contract to sell
the security, possible liability to the purchaser. Certain foreign markets,
especially emerging markets, may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. A Portfolio could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Portfolio of any
restrictions on investments.
In addition to the foreign securities listed above, the International
Small Cap, Strategic Income, High Yield, Investment Quality Bond, Growth
Equity, Balanced and Worldwide Growth Funds may also invest in foreign
sovereign debt securities, which involve certain additional risks. See "RISK
FACTORS -- High Yield/High Risk Securities -- Foreign Sovereign Debt
Securities" above.
Warrants
Subject to certain restrictions, each of the Portfolios except the
National Municipal Bond, Money Market and Lifestyle Funds may purchase
warrants, including warrants traded independently of the underlying
securities. It is a non-fundamental investment restriction of each Portfolio
not to purchase warrants if as a result that Portfolio would then have more
than 10% of its total net assets invested in warrants, or if more than 5% of
the value of the Portfolio's total net assets would be invested in warrants
which are not listed on a recognized United States or foreign stock exchange,
except for warrants included in units or attached to other securities.
Lending Portfolio Securities
To attempt to increase its income, each Portfolio may lend its portfolio
securities in amounts up to 33% of its total non-cash assets to brokers,
dealers and other financial institutions, provided such loans are callable at
any time by the Portfolio and are at all times fully secured by cash, cash
equivalents or securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities, marked to market to the value of loaned
securities on a daily basis. As with any extensions of credit, there may be
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Subadvisers to be creditworthy.
When-Issued Securities ("Forward Commitments")
In order to help ensure the availability of suitable securities, each of
the Portfolios may purchase debt securities on a "when-issued" or on a
"forward delivery" basis, which means that the obligations will be delivered
to the Portfolio at a future date, which may be a month or more after the date
of commitment (referred to as "forward commitments"). It is expected that,
under normal circumstances, a Portfolio purchasing securities on a when-issued
or forward delivery basis will take delivery of the securities, but the
Portfolio may sell the securities before the settlement date, if such action
is deemed advisable. In general, a Portfolio does not pay for the securities
or start earning interest on them until the purchase of the obligation is
scheduled to be settled, but it does, in the meantime, record the transaction
and reflect the value each day of the securities in determining its net asset
value. At the time delivery is made, the value of when-issued or forward
delivery securities may be more or less than the transaction price, and the
yields then available in the market may be higher than those obtained in the
transaction. While awaiting delivery of the obligations purchased on such
bases, a Portfolio will establish a segregated account consisting of cash or
liquid high quality debt securities equal to the amount of the commitments to
purchase when-issued or forward delivery securities. The availability of
liquid assets for this purpose and the effect of asset segregation on a
Portfolio's ability to meet its current obligations, to honor requests for
redemption and to have its investment portfolio managed properly will limit
the extent to which the Portfolio may purchase when-issued or forward delivery
securities. Except as may be imposed by these
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factors, there is no limit on the percentage of a Portfolio's total assets
that may be committed to such transactions.
Hedging and Other Strategic Transactions
Individual Portfolios may be authorized to use a variety of investment
strategies described below for hedging purposes only, including hedging
various market risks (such as interest rates, currency exchange rates and
broad or specific market movements), and managing the effective maturity or
duration of debt instruments held by the Portfolio. The description in this
Prospectus of each Portfolio indicates which, if any, of these types of
transactions may be used by the Portfolio. Limitations on the portion of a
Portfolio's assets that may be used in connection with the investment
strategies described below are set out in the Statement of Additional
Information.
Subject to the constraints described above, an individual Portfolio may
(if and to the extent so authorized) purchase and sell (or write) exchange-
listed and over-the-counter put and call options on securities, index futures
contracts, financial futures contracts and fixed-income indices and other
financial instruments, enter into financial futures contracts, enter into
interest rate transactions, and enter into currency transactions
(collectively, these transactions are referred to in this Prospectus as
"Hedging and Other Strategic Transactions"). Other Strategic Transactions are
also referred to as derivative transactions. A "derivative" is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g. interest rate or currency exchange
rate, security, commodity or other asset). Portfolio's interest rate
transactions may take the form of swaps, caps, floors and collars, and a
Portfolio's currency transactions may take the form of currency forward
contracts, currency futures contracts, currency swaps and options on
currencies or currency futures contracts.
Hedging and Other Strategic Transactions may generally be used to attempt
to protect against possible changes in the market value of securities held or
to be purchased by a Portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect a Portfolio's unrealized gains in the
value of its securities, to facilitate the sale of those securities for
investment purposes, to manage the effective maturity or duration of a
Portfolio's securities or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities. A
Portfolio may use any or all types of Hedging and Other Strategic Transactions
which it is authorized to use at any time; no particular strategy will dictate
the use of one type of transaction rather than another, as use of any
authorized Hedging and Other Strategic Transaction will be a function of
numerous variables, including market conditions. The ability of a Portfolio
to utilize Hedging and Other Strategic Transactions successfully will depend
on, in addition to the factors described above, the Subadviser's ability to
predict pertinent market movements, which cannot be assured. These skills are
different from those needed to select a Portfolio's securities. None of the
Portfolios is a "commodity pool" (i.e., a pooled investment vehicle which
trades in commodity futures contracts and options thereon and the operator of
which is registered with the Commodity Futures Trading Commission (the
"CFTC")). Futures contracts and options on futures contracts will be
purchased, sold or entered into only for bona fide hedging to the extent
permitted by CFTC regulations. The use of certain Hedging and Other Strategic
Transactions will require that a Portfolio segregate cash, liquid high grade
debt obligations or other assets to the extent a Portfolio's obligations are
not otherwise "covered" through ownership of the underlying security,
financial instrument or currency. Risks associated with Hedging and Other
Strategic Transactions are described in "HEDGING AND OTHER STRATEGIC
TRANSACTIONS -- Risk Factors" in the Statement of Additional Information. A
detailed discussion of various Hedging and Other Strategic Transactions,
including applicable regulations of the CFTC and the requirement to segregate
assets with respect to these transactions, also appears in the Statement of
Additional Information.
Illiquid Securities
Each of the portfolios is precluded from investing in excess of 10% of
its net assets in securities that are not readily marketable. Excluded from
the 10% limitation are securities that are restricted as to resale but for
which a ready market is available pursuant to exemption provided by Rule 144A
adopted under the Securities Act of 1933, as amended (the "1933 Act") or other
exemptions from the registration requirements of the 1933 Act. Whether
securities sold pursuant to Rule 144A are readily marketable for purposes of
the Fund's investment restriction is a determination to be made by the
Subadvisers, subject to the Trustees' oversight and for which the Trustees are
ultimately responsible. The Subadvisers will also monitor the liquidity of
Rule 144A securities held by the Portfolios for which they are responsible.
To the extent Rule 144A securities held by a Portfolio should become illiquid
because of a lack of interest on the part of qualified institutional
investors, the overall liquidity of the Portfolio could be adversely affected.
In addition, the Money Market Fund may invest in commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of the
1933 Act. Section 4(2) commercial paper is restricted as to the disposition
under federal securities law, and is generally sold to institutional
investors, such as the Fund, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale
by
57
<PAGE>
the purchaser must be made in an exempt transaction. Section 4(2) commercial
paper is normally resold to other institutional investors like the Money
Market Fund through or with the assistance of the issuer or investment dealers
who make a market in Section 4(2) commercial paper, thus providing liquidity.
The Money Market Fund's subadviser believes that Section 4(2) commercial paper
meets its criteria for liquidity and is quite liquid. The Money Market Fund
intends, therefore, to treat Section 4(2) commercial paper as liquid and not
subject to the investment limitation applicable to illiquid securities. The
Money Market Fund's subadviser will monitor the liquidity of Section 4(2)
commercial paper held by the Money Market Fund, subject to the Trustees'
oversight and for which the Trustees are ultimately responsible.
Repurchase Agreements and Reverse Repurchase Agreements
Each of the Fund's Portfolios may enter into repurchase agreements and
reverse repurchase agreements. Repurchase agreements involve the acquisition
by a Portfolio of debt securities subject to an agreement to resell them at an
agreed-upon price. Under a repurchase agreement, at the time the Portfolio
acquires a security, it agrees to resell it to the original seller (a
financial institution or broker/dealer which meets the guidelines established
by the Trustees) and must deliver the security (and/or securities that may be
added to or substituted for it under the repurchase agreement) to the original
seller on an agreed-upon date in the future. The repurchase price is in excess
of the purchase price. The arrangement is in economic effect a loan
collateralized by securities.
The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a Portfolio's repurchase agreements. The Trustees will
regularly monitor the use of repurchase agreements and the Subadvisers will,
pursuant to procedures adopted by the Trustees, continuously monitor the
amount of collateral held with respect to a repurchase transaction so that it
equals or exceeds the amount of the obligation.
A Portfolio's risk in a repurchase transaction is limited to the ability
of the seller to pay the agreed-upon sum on the delivery date. In the event of
bankruptcy or other default by the seller, there may be possible delays and
expenses in liquidating the instrument purchased, decline in its value and
loss of interest. Securities subject to repurchase agreements will be valued
every business day and additional collateral will be requested if necessary so
that the value of the collateral is at least equal to the value of the
repurchase obligation, including the interest accrued thereon.
Each Portfolio of the Fund may enter into "reverse" repurchase
agreements. Under a reverse repurchase agreement, a Portfolio may sell a debt
security and agree to repurchase it at an agreed upon time and at an agreed
upon price. The Portfolio retains record ownership of the security and the
right to receive interest and principal payments thereon. At an agreed upon
future date, the Portfolio repurchases the security by remitting the proceeds
previously received, plus interest. The difference between the amount the
Portfolio receives for the security and the amount it pays on repurchase is
deemed to be payment of interest. The Portfolio will maintain in a segregated
custodial account cash, Treasury bills or other U.S. Government securities
having an aggregate value equal to the amount of such commitment to repurchase
including accrued interest, until payment is made. In certain types of
agreements, there is no agreed-upon repurchase date and interest payments are
calculated daily, often based on the prevailing overnight repurchase rate.
Mortgage Dollar Rolls
Each Portfolio of the Fund (except the Money Market Fund and the
Lifestyle Funds) may enter into mortgage dollar rolls. Under a mortgage
dollar roll, a Portfolio sells mortgage-backed securities for delivery in the
future (generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Portfolio forgoes
principal and interest paid on the mortgage-backed securities. A Portfolio is
compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale. A
Portfolio may also be compensated by receipt of a commitment fee. A Portfolio
may only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash or cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction. Dollar roll transactions involve the risk that the market
value of the securities sold by the Portfolio may decline below the repurchase
price of those securities.
MANAGEMENT OF THE FUND
Under Massachusetts law and the Fund's Declaration of Trust and By-Laws,
the business and affairs of the Fund are managed under the direction of the
Trustees.
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Advisory Arrangements
NASL Financial Services, Inc., ("NASL Financial" or, in its capacity as
investment adviser to the Fund, the "Adviser"), a Massachusetts corporation
whose principal offices are located at 116 Huntington Avenue, Boston,
Massachusetts 02116, is the investment adviser to the Fund. NASL Financial
is a wholly-owned subsidiary of North American Security Life Insurance Company
("Security Life"), a Delaware stock life insurance company, the controlling
ultimate parent of which is The Manufacturers Life Insurance Company
("Manulife"), a Canadian mutual life insurance company based in Toronto,
Canada. Prior to January 1, 1996, Security Life was a wholly owned subsidiary
of North American Life Assurance Company ("NAL"), a Canadian mutual life
insurance company. On January 1, 1996 NAL and Manulife merged with the
combined company retaining the name Manulife.
Pursuant to its Advisory Agreement with the Fund (the "Advisory
Agreement"), the Adviser oversees the administration of all aspects of the
business and affairs of the Fund; selects, contracts with and compensates
subadvisers to manage the assets of the Fund's Portfolios; and reimburses the
Fund if the total of certain expenses allocated to any Portfolio exceeds
certain limitations. The Adviser serves as investment adviser to one other
investment company, NASL Series Trust. NASL Series Trust is a mutual fund
that serves as the underlying investment medium for variable annuity contracts
issued by Security Life and its wholly-owned subsidiary, First North American
Life Assurance Company. At December 31, 1996, NASL Series Trust had assets of
approximately $____ billion.
Under the terms of the Advisory Agreement, the Adviser selects, contracts
with and compensates subadvisers to manage the investment and reinvestment of
the assets of all Portfolios of the Fund, except the Lifestyle Funds. The
Adviser monitors the compliance of such subadvisers with the investment
objectives and related policies of each Portfolio and reviews the performance
of such subadvisers and reports periodically on such performance to the
Trustees. The Fund has filed an application with the Securities and Exchange
Commission seeking exemptive relief to permit the appointment of a subadviser
pursuant to an agreement that is not approved by shareholders. If granted,
the Fund would be able to change subadvisers from time to time without the
expense and delays associated with obtaining shareholder approval of the new
subadviser. There is no assurance that the requested relief will be
granted.
Portfolio decisions for the Lifestyle Funds are made by the Adviser.
[Information relating to personnel responsible for the management of the
Lifestyle Funds to be provided.]
The Adviser oversees all aspects of the Fund's business and affairs. In
that connection, the Adviser permits its directors, officers and employees to
serve as Trustees or President, Vice President, Treasurer or Secretary of the
Fund, without cost to the Fund. The Adviser also provides certain services,
and the personnel to perform such services, to the Fund for which the Fund
reimburses the Adviser's costs of providing such services and personnel. Such
services include maintaining certain records of the Fund and performing all
administrative, financial, accounting, bookkeeping and recordkeeping functions
of the Fund, except for any of those functions performed by the Fund's
custodian or transfer and shareholder servicing agents. The reimbursement
paid by the Fund to the Adviser for personnel costs include employee
compensation and allocated portions of the Adviser's related personnel
expenses of office space, utilities, office equipment and miscellaneous office
expenses.
The Adviser has agreed to reduce a Portfolio's advisory fee, or if
necessary to reimburse the Fund, in order to prevent the expenses of a
Portfolio from exceeding either the most restrictive expense limitation
imposed by applicable state law or a fixed expense limitation contained in the
Advisory Agreement, whichever results in the lowest expenses to the Fund. The
fixed limitation may be terminated by the Adviser at any time on 30 days'
written notice. The most restrictive state law provision limits a Portfolio's
annual expenses, excluding taxes, portfolio brokerage commissions, interest,
certain litigation and indemnification expenses, extraordinary expenses and a
portion of the Portfolio's distribution fees, to 2.5% of the first $30,000,000
of the average net assets of the Portfolio, 2.0% of the next $70,000,000 and
1.5% of the remaining average net assets of the Portfolio. The fixed
limitation contained in the Advisory Agreement, and as of the date of this
Prospectus the operative limitation on the Fund's expenses, limits a
Portfolio's annual expenses, excluding taxes, portfolio brokerage commissions,
interest, certain litigation and indemnification expenses, extraordinary
expenses and all of the Portfolio's distribution fees as a percentage of
average net assets to the following percents:
<TABLE>
<CAPTION>
Portfolio Percent
<S> <C>
Pacific Rim Emerging Markets Fund 1.30%
Science & Technology Fund 1.40%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Portfolio Percent
<S> <C>
International Small Cap Fund 1.55%
Emerging Growth Fund 1.35%
Pilgrim Baxter Growth Fund 1.40%
Small/Mid Cap Fund 1.325%
International Stock Fund 1.65%
Worldwide Growth Fund 1.50%
Global Equity Fund 1.40%
Growth Equity Fund 1.30%
Common Stock Fund 1.075%
Equity Index Fund .90%
Blue Chip Growth Fund 1.30%
Value Fund 1.20%
International Growth and Income Fund 1.40%
Growth and Income Fund .99%
Equity-Income Fund .99%
Real Estate Securities Fund 1.075%
Balanced Fund .99%
High Yield Fund 1.15%
Strategic Income Fund 1.15%
Global Government Bond Fund 1.275%
Capital Growth Bond Fund 1.00%
Investment Quality Bond .90%
U.S. Government Securities Fund .90%
National Municipal Bond Fund .85%
Money Market Fund. .50%
</TABLE>
As compensation for its services, the Adviser receives a fee from the
Fund computed separately for each Portfolio, except for the Lifestyle Funds
for which the Adviser makes no charge. The fee for each Portfolio is stated
as an annual percentage of the current value of the net assets of the
Portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the fraction of one over the number of calendar
days in the year by the annual percentage prescribed for a Portfolio, and
multiplying this product by the value of the net assets of the Portfolio at
the close of business on the previous business day of the Fund. The following
is a schedule of the management fees each Portfolio currently is obligated to
pay the Adviser under the Advisory Agreement (prior to the application of any
fee waivers):
<TABLE>
<CAPTION>
Between Between
$ 50,000,000 $200,000,000
First and and Excess over
Funds $50,000,000 $200,000,000 $500,000,000 $500,000,000
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets Fund..... .800% .750% .675% .625%
Science & Technology Fund............. 1.000% 1.000% 1.000% 1.000%
International Small Cap Fund.......... 1.050% 1.000% .900% .800%
Emerging Growth Fund.................. .950% .950% .950% .950%
Pilgrim Baxter Growth Fund............ 1.000% 1.000% .900% .900%
Small/Mid Cap Fund.................... .925% .900% .875% .850%
International Stock Fund.............. 1.150%* .900% .900% .850%
Worldwide Growth Fund................. 1.000% .950% .850% .750%
Global Equity Fund.................... .900% .900% .700% .700%
Growth Equity Fund.................... .900% .850% .825% .800%
Common Stock Fund..................... .675% .625% .575% .550%
Equity Index Fund..................... .500% .500% .500% .500%
Blue Chip Growth Fund................. .900% .850% .800% .725%
Value Fund............................ .800% .700% .600% .600%
International Growth and Income Fund.. .900% .850% .800% .750%
Growth and Income Fund................ .725% .675% .625% .550%
Equity-Income Fund.................... .800% .700% .600% .600%
Real Estate Securities Fund........... .675% .625% .575% .550%
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Between Between
$ 50,000,000 $200,000,000
First and and Excess over
Funds $50,000,000 $200,000,000 $500,000,000 $500,000,000
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Fund......................... .775% .725% .675% .625%
High Yield Fund....................... .750% .700% .650% .600%
Strategic Income Fund................. .750% .700% .650% .600%
Global Government Bond Fund........... .775% .750% .700% .650%
Capital Growth Bond................... .600% .600% .525% .475%
Investment Quality Bond Fund.......... .600% .600% .525% .475%
National Municipal Bond Fund.......... .600% .600% .600% .600%
U.S. Government Securities Fund....... .600% .600% .525% .475%
Money Market Fund..................... .200% .200% .200% .145%
</TABLE>
* 1.150% up to $20 million; 1.000% from $20 million up to $50 million.
As of March 16, 1993, August 1, 1994 and November 23, 1992, respectively, the
Equity-Income, Growth and Income and Balanced Funds reached sufficient size to
realize a reduction in the fee as a percent of excess net assets.
A more comprehensive statement of the terms of the Advisory Agreement
appears in the Statement of Additional Information and this agreement is on
file with and is available from the Commission
Subadvisory Arrangements
Wellington Management Company
Wellington Management Company ("Wellington Management"), the Subadviser
to the Growth and Income and Investment Quality Bond Funds, founded in 1933,
is a Massachusetts partnership whose principal business address is 75 State
Street, Boston, Massachusetts 02109. Wellington Management is a professional
investment counseling firm which provides investment services to investment
companies, employee benefit plans, endowments, foundations and other
institutions and individuals. As of ______, 1996, Wellington Management had
investment management authority with respect to approximately $_____ billion
of assets. The managing partners of Wellington Management are Robert W.
Doran, Duncan M. McFarland, and John R. Ryan.
Matthew E. Megargel, Senior Vice President of Wellington Management, has
served as portfolio manager to the Growth and Income Fund since February 1992.
Mr. Megargel also serves as the portfolio manager for NASL Series Trust's
Growth and Income Trust. Mr. Megargel joined Wellington Management in 1983 as
a research analyst and took on additional responsibilities as a portfolio
manager in 1988. In 1991, he became solely a portfolio manager with
Wellington Management.
Thomas L. Pappas, Vice President of Wellington Management, has served as
portfolio manager to the Investment Quality Bond Fund since March 1994. Mr.
Pappas also serves as portfolio manager for NASL Series Trust's Investment
Quality Bond Trust. Mr. Pappas has been a portfolio manager with Wellington
Management since 1987.
J.P. Morgan Investment Management, Inc.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is the Subadviser
to the International Growth and Income Fund. J.P. Morgan, with principal
offices at 522 Fifth Avenue, New York, New York 10036, is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan & Co."), a bank
holding company organized under the laws of Delaware which is located at 60
Wall Street, New York, New York 10260. Through offices in New York City and
abroad, J.P. Morgan & Co., through J.P. Morgan and other subsidiaries, offers
a wide range of services to governmental, institutional, corporate and
individual customers and acts as investment adviser to individual and
institutional clients with combined assets under management of approximately
$____ billion (of which J.P. Morgan advises over $___ billion) as of ________,
1996. J.P. Morgan has managed international securities for institutional
investors since 1974. As of ________, 1996, the non-U.S. securities under J.P.
Morgan's management was approximately $___ billion. J.P. Morgan provides
investment advice and portfolio management services to the Portfolio. Subject
to the supervision of the Fund's Trustees, J.P. Morgan makes the Portfolio's
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Portfolio's investments.
J.P. Morgan uses a sophisticated, disciplined, collaborative process for
managing the Portfolio. The following persons are primarily responsible for
the day-to-day management and implementation of J.P. Morgan's process for the
Portfolio (their business experience for the past 5 years is indicated
parenthetically): Paul A. Quinsee, Vice President
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<PAGE>
(employed by J.P. Morgan since February 1992, previously Vice President,
Citibank), and Gareth A. Fielding, Assistant Vice President (employed by J.P.
Morgan since February 1992, previously he received his MBA from Imperial
College at London University, while he was a self-employed trader on the
London International Financial Futures Exchange).
Mr. Quinsee is primarily responsible for the day-to-day management of
seventeen other institutional and investment company accounts that invest in
international securities constituting approximately $____ billion of assets.
Since July 1994, Mr. Fielding has been responsible for the day-to-day
management (in some cases with another person) of 15 institutional and
investment company portfolios that invest primarily in international fixed
income securities, constituting approximately $____ billion of assets. Mr.
Fielding is a specialist in mortgage and asset-backed securities. Prior to
July 1994, Mr. Fielding traded global fixed income products on J.P. Morgan's
London trading desk.
Salomon Brothers Asset Management Inc.
Salomon Brothers Asset Management Inc ("SBAM"), the Subadviser to the
Strategic Income, U.S. Government Securities and National Municipal Bond
Funds, is an indirect, wholly-owned subsidiary of Salomon Brothers Holding
Company Inc. ("SBHC"), which is in turn wholly owned by Salomon Inc. The
business address of SBAM, SBHC and Salomon Inc. is 7 World Trade Center, New
York, New York 10048. SBAM was incorporated in 1987 and together with its
affiliates in Tokyo, Frankfurt, London and Hong Kong, provides a full range of
fixed income and equity investment advisory services to individuals and
institutional clients throughout the world, and serves as investment adviser
to various investment companies. As of ________, 1996, SBAM and its advisory
affiliates had approximately $____ billion in assets under management. SBAM
has access to Salomon Brothers Inc's more than 400 economists, mortgage, bond,
sovereign, and equity analysts.
In connection with SBAM's service as subadviser to the Strategic Income
Fund, Salomon Brothers Asset Management Limited ("SBAM Limited"), whose
business address is Victoria Plaza, 111 Buckingham Palace Road, London SW1W
OSB, England, provides certain subadvisory services to SBAM relating to
currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Strategic Income Fund. SBAM Limited is
compensated by SBAM at no additional expense to the Fund. Like SBAM, SBAM
Limited is an indirect, wholly-owned subsidiary of Salomon Brothers Holding
Company Inc. SBAM Limited is a member of the Investment Management Regulatory
Organization Limited in the United Kingdom and is registered as an investment
adviser in the United States pursuant to the Investment Advisers Act of 1940,
as amended.
Steven Guterman has been primarily responsible for the day-to-day
management of the mortgage-backed securities and U.S. government securities
portions of the Strategic Income Fund since November 1993 and the U.S.
Government Securities Fund since December 1991. Mr. Guterman is assisted by
Roger Lavan in the management of the two foregoing portfolios. Peter J. Wilby
has been primarily responsible for the day-to-day management of the high yield
and sovereign debt portions of the Strategic Income Fund. David J. Scott is
primarily responsible for the portion of the Strategic Income Fund relating to
currency transactions and investments in non-dollar denominated debt
securities. MaryBeth Whyte is primarily responsible for the day-to-day
management of the National Municipal Bond Fund.
Mr. Guterman joined SBAM in 1990 and is a Managing Director of Salomon
Brothers, Inc. and a Senior Portfolio Manager, responsible for SBAM's
investment company and institutional portfolios which invest primarily
mortgage-backed securities and U.S. government issues. Mr. Guterman also
serves as portfolio manager for two offshore funds that invest in mortgage-
backed securities. In addition, Mr. Guterman serves as portfolio manager for
a number of SBAM's institutional clients. Mr. Guterman joined Salomon
Brothers Inc in 1983. He initially worked in the mortgage research group
where he became a Research Director and later traded derivative mortgage-
backed securities for Salomon Brothers Inc.
Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and Quantitative
Fixed Income Analyst. He is responsible for working with senior portfolio
managers to monitor and analyze market relationships and identify and
implement relative value transactions in SBAM's investment company and
institutional portfolios which invest in mortgage-backed securities and U.S.
Government Securities. Prior to joining SBAM, Mr. Lavan spent four years
analyzing portfolios for Salomon Brothers' Fixed Income Sales Group and
Product Support Divisions.
Mr. Wilby joined SBAM in 1989 and is a Managing Director of Salomon
Brothers, Inc. and a Senior Portfolio Manager responsible for SBAM's
investment company and institutional portfolios which invest in high yield non
U. S. and U.S. corporate debt securities and high yield foreign sovereign debt
securities. Mr. Wilby is the portfolio manager for Global
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<PAGE>
Partners Income Fund Inc., The Emerging Markets Income Fund Inc, The Emerging
Markets Income Fund II Inc., The Emerging Markets Floating Rate Fund Inc.,
Salomon Brothers Worldwide Income Fund Inc, Salomon Brothers High Income Fund
Inc, and the foreign sovereign debt component of Salomon Brothers 2008
Worldwide Dollar Government Term Trust Inc. From 1984 to 1989, Mr. Wilby was
employed by Prudential Capital Management Group ("PCMG"). He served as
director of PCMG's credit research unit and as a corporate and sovereign
credit analyst with PCMG. Mr. Wilby later managed high yield bonds and
leveraged equities in the mutual funds and institutional portfolios of PCMG.
Prior to joining SBAM Limited in April 1994, Mr. Scott worked at J.P.
Morgan Investment Management where he was responsible for global and non-
dollar portfolios. Before joining J.P. Morgan Investment Management, Mr.
Scott worked at Mercury Asset Management where he was responsible for captive
insurance portfolios and products.
Ms. Whyte joined SBAM in July 1994 and is responsible for directing SBAM
investment policy for all municipal portfolios. Prior to joining SBAM, Ms.
Whyte was a Senior Vice President and head of the Municipal Bond Area at
Fiduciary Trust Company International. Her responsibilities included active
managing and advising portfolios with assets of approximately $____ billion.
Ms. Whyte was a member of the Fixed Income Investment Policy Committee at
Fiduciary. Ms. Whyte's previous experience includes managing portfolios for
high net worth individuals, mutual funds and pension funds while employed by
U.S. Trust Company, and Bernstein-Macaulay Inc.
Fred Alger Mangement, Inc.
Investment decisions for the Small/Mid Cap Fund are made by its
Subadviser, Fred Alger Management, Inc. ("Alger"). Alger, located at 75
Maiden Lane, New York, New York 10038, has been in the business of providing
investment advisory services since 1964 and as of December 31, 1995 had
approximately $4.8 billion under management, including $3.0 billion in mutual
fund accounts and $ 1.8 billion in other advisory accounts. Alger is wholly
owned by Fred Alger & Company, Incorporated which in turn is wholly owned by
Alger Associates, Inc., a financial services holding company. Fred M. Alger,
III and his brother, David D. Alger, are the majority shareholders of Alger
Associates, Inc. and may be deemed to control that company and its
subsidiaries.
David D. Alger, President of Alger Management, is primarily responsible
for the day-to-day management of the Small/Mid Cap Fund. He has been employed
by Alger as Executive Vice President and Director of Research since 1971 and
as President since 1995 and he serves as portfolio manager for other mutual
funds and investment accounts managed by Alger Management. Also participating
in the management of the Small/Mid Cap Fund are Ronald Tartaro and Seilai
Khoo. Mr. Tartaro has been employed by Alger Management since 1990 and he
serves as a Senior Vice President. Prior to 1990, he was a member of the
technical staff at AT&T Bell Laboratories. Ms. Khoo has been employed by
Alger Management since 1989 and she serves as a Senior Vice President.
Founders Asset Management, Inc.
Investment decisions for the Growth Equity, International Small Cap,
Balanced and Worldwide Growth Funds are made by its Subadviser, Founders Asset
Management, Inc. ("Founders"), located at 2930 East Third Avenue, Denver,
Colorado 80206, a registered investment adviser first established as an asset
manager in 1938. Bjorn K. Borgen, Chairman, Chief Executive Officer and Chief
Investment Officer of Founders, owns 100% of the voting stock of Founders. As
of _____, 1996, Founders had over $___ billion of assets under management,
including $___ billion in mutual fund accounts and $___ billion in other
advisory accounts.
Founders is a "growth-style" manager of equity portfolios and gives
priority to the selection of individual securities that have the potential to
provide superior results over time, despite short-term volatility. Under
normal circumstances, Founders' approach to investment management gives
greater emphasis to the fundamental financial, marketing and operating
strengths of the companies whose securities it buys, and is less concerned
with the short-term impact of changes in macroeconomic and market conditions.
Founders focuses on purchasing the stocks of companies with strong management
and market positions that have earnings prospects that are significantly above
the average for their market sectors.
To facilitate the day-to-day investment management of the Growth Equity,
International Small Cap, Balanced and Worldwide Growth Funds, Founders employs
a unique team-and-lead-manager system. The management team is composed of
several members of the Investment Department, including Founders' Chief
Investment Officer, lead portfolio managers, assistant portfolio managers,
portfolio traders and research analysts. Team members share responsibility
for providing ideas, information, knowledge and expertise in the management of
the portfolios. Each team member has one or more areas of
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<PAGE>
expertise that is applied to the management of the Portfolio. Daily decisions
on portfolio selection for the portfolio rests with a lead portfolio manager
assigned to the portfolio.
Michael W. Gerding, Vice President of Investments, is the lead portfolio
manager for the International Small Cap and Worldwide Growth Funds. Mr.
Gerding is a chartered financial analyst who has been part of Founders'
investment department for six years. Prior to joining Founders, Mr. Gerding
served as a portfolio manager and research analyst with NCNB Texas for several
years. Mr. Gerding earned a BBA in finance and an MBA from Texas Christian
University.
Edward F. Keely, Vice President of Investments, is the lead portfolio
manager for the Growth Equity Fund. Mr. Keely is a chartered financial
analyst who joined Founders in 1989. A graduate of The Colorado College, Mr.
Keely holds a Bachelor of Arts degree in economics.
Brian F. Kelly, Portfolio Manager, is the lead portfolio manager for the
Balanced Fund. Mr. Kelly joined Founders in 1996. Prior to joining Founders,
Mr. Kelly served as portfolio manager for Invesco Trust Company (1993-1996)
and as a senior investment analyst for Sears Investment Management Company
(1986-1993). A graduate of the University of Notre Dame, Mr. Kelly received
his MBA and JD from the University of Iowa. He is also a Certified Public
Accountant.
T. Rowe Price Associates, Inc.
T. Rowe Price, whose address is at 100 East Pratt Street, Baltimore,
Maryland 21202, is the subadviser for the Blue Chip Growth, Equity-Income and
Science & Technology Funds. Founded in 1937 by the late Thomas Rowe Price,
Jr., T. Rowe Price and its affiliates managed over $85 billion for over four
million individual and institutional investor accounts as of August 31,
1996.
The Blue Chip Growth Fund has an investment advisory committee composed
of the following members: Larry J. Puglia, Chairman, Brian W.H. Berghuis,
Thomas H. Broadus Jr., John D. Gillespie, Thomas J. Huber, and William J.
Stromberg. The committee chairman has day-to-day responsibility for managing
the portfolio and works with the committee in developing and executing the
portfolio's investment program. Mr. Puglia joined T. Rowe Price in 1990 and
has been managing investments since 1993. He became chairman of the Blue Chip
Growth Fund investment advisory committee on October 1, 1996.
The investment advisory committee for the Science & Technology Fund is
composed of the following members: Charles A. Morris, Chairman, Lise J.
Buyer, Jill L. Hauser, Joseph Klein III, and Brian D. Stansky. Mr. Morris
joined T. Rowe Price in 1987, and has been managing investments since 1991. He
has been chairman of the investment advisory committee of T. Rowe Price
Science & Technology Fund, Inc. since 1991. The investment advisory committee
for the Equity-Income Fund is comprised of the following members: Brian C.
Rogers, Chairman, Stephen W. Boese, Richard P. Howard, and William J.
Stromberg. Mr. Rogers joined T. Rowe Price in 1982 and has been managing
investments since 1983. He has been chairman of the Equity Income Fund
investment advisory committee since October 1, 1996.
Rowe Price-Fleming International, Inc.
Price-Fleming is subadviser to the International Stock Fund. Price
Fleming's U.S. office is located at 100 East Pratt Street, Baltimore, Maryland
21202. Price-Fleming has offices in Baltimore, London, Tokyo, and Hong Kong.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture between
T. Rowe Price and Robert Fleming Holdings Limited (Flemings).
T. Rowe Price, Flemings, and Jardine Fleming are owners of Price-Fleming.
The common stock of Price-Fleming is 50% owned by a wholly owned subsidiary of
T. Rowe Price, 25% by a subsidiary of Flemings, and 25% by Jardine Fleming
Group Limited (Jardine Fleming). (Half of Jardine Fleming is owned by
Flemings and half by Jardine Matheson Holdings Limited) T. Rowe Price has the
right to elect a majority of the Board of Directors of Price Fleming, and
Flemings has the right to elect the remaining directors, one of whom will be
nominated by Jardine Fleming.
An investment advisory group has day to day responsibility for managing
the portfolio and developing and executing its investment program. The
members of the advisory group are as follows: Martin G. Wade, Christopher D.
Alderson, Peter B. Askew, Richard J. Bruce, Mark J.T. Edwards, John R. Ford,
Robert C. Howe, James B.M. Seddon, Benedict R.F. Thomas, and David J.L.
Warren..
Martin Wade joined Price-Fleming in 1979 and has 26 years of experience
with the Fleming Group in research, client service, and investment management.
(Fleming Group included Robert Fleming and/or Jardine Fleming.) Christopher
Alderson joined Price-Fleming in 1988 and has nine years of experience with
the Fleming Group in research and portfolio management. Peter Askew joined
Price-Fleming in 1988 and has 20 years of experience managing multi-
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<PAGE>
currency fixed income portfolios. Richard Bruce joined Price-Fleming in 1991
and has seven years of experience in investment management with the Fleming
Group in Tokyo. Mark Edwards joined Price-Fleming in 1986 and has 14 years of
experience in financial analysis. John Ford joined Price-Fleming in 1982 and
has 15 years of experience with the Fleming Group in research and portfolio
management. Robert Howe joined Price-Fleming in 1986 and has 14 years of
experience in economic research, company research, and portfolio management.
James Seddon joined Price-Fleming in 1987 and has 10 year of experience in
portfolio management. Benedict Thomas joined Price-Fleming in 1988 and has six
years of portfolio management experience. David Warren joined Price-Fleming in
1984 and has 15 years of experience in equity research, fixed income research,
and portfolio management.
Morgan Stanley Asset Management, Inc.
Morgan Stanley, with principal offices at 1221 Avenue of the Americas,
New York, New York 10020, has been the subadviser to the Global Equity Fund
since October 1, 1996. Morgan Stanley, a wholly-owned subsidiary of Morgan
Stanley Group, Inc., conducts a worldwide portfolio management business,
providing a broad range of portfolio management services to customers in the
United States and abroad. At June 30, 1996, Morgan Stanley, together with its
affiliated asset management companies, managed investments totaling
approximately $103.5 billion, including approximately $87 billion under active
management and $16.5 billion as named fiduciary or fiduciary adviser.
Frances Campion is primarily responsible for the portfolio management of
the Global Equity Fund. Ms. Campion joined Morgan Stanley in January 1990 as
a global equity fund manager and is now a Principal of Morgan Stanley & Co.
Incorporated. Her responsibilities include day to day management of the
Global Equity Portfolio of Morgan Stanley Institutional Fund, Inc. Prior to
joining Morgan Stanley, Ms. Campion was a U.S. equity analyst with Lombard
Odler Limited where she had responsibility for the management of global
portfolios. Ms. Campion has ten years global investment experience. She is a
graduate of University of College, Dublin.
Miller Anderson & Sherrerd, LLP
MAS, the subadviser to the Value and High Yield Funds, is a Pennsylvania
limited liability partnership founded in 1969 and is located at One Tower
Bridge, West Conshohocken, PA 19428. MAS provides investment services to
employee benefit plans, endowment funds, foundations and other institutional
investors and as of June 30, 1996 had in excess of $36 billion in assets under
management. On January 3, 1996, Morgan Stanley Group Inc. acquired MAS in a
transaction in which Morgan Stanley Asset Management Holdings, Inc., an
indirect wholly owned subsidiary of Morgan Stanley Group Inc., became the sole
general partner of MAS. Morgan Stanley Asset Management Holdings Inc. and two
other wholly owned subsidiaries of Morgan Stanley Group Inc. became the
limited partners of MAS.
The investment professionals of MAS who are primarily responsible for the
day to day management of the Value Fund are Robert J. Marcin and A. Morris
Williams, Jr. Robert J. Marcin, Portfolio Manager, joined MAS in 1988, and A.
Morris William's, Jr., Portfolio Manager, joined MAS in 1973. Messrs. Marcin
and Williams are also primarily responsible for the management of the Value
Portfolio of MAS Funds. The investment professionals primarily responsible for
the High Yield Fund are Thomas L. Bennett and Stephen F. Esser. Thomas L.
Bennett, Portfolio Manager, joined MAS in 1994, and Stephen F. Esser,
Portfolio Manager, joined MAS in 1988. Messrs. Bennett and Esser are also
primarily responsible for the management of the High Yield Portfolio of MAS
Funds.
Manufacturers Adviser Corporation
MAC, a Colorado corporation, is the subadviser of the Money Market,
Pacific Rim Emerging Markets, Capital Growth Bond, Common Stock, Real Estate
Securities and Equity Index Funds. Its principal business at the present time
is to provide investment management services to these portfolios and
comparable portfolios of NASL Series Trust. MAC is an indirect wholly-owned
subsidiary of Manulife. At December 31, 1996, Manulife and its affiliates
managed over $__ billion in assets. The address of MAC is 200 Bloor Street
East, Toronto, Ontario, Canada M4W 1E5.
Management of the above portfolios is provided by a team of investment
professionals each of whom plays an important role in the management process
of each portfolio. Team members work together to develope investment
strategies and select securities for a portfolio. They are supported by
research analysts, traders and other investment specialists who work alongside
the investment professionals in an effort to utilize all available resources
to benefit the shareholders.
The persons with primary responsibility for the day to day management of
the Real Estate Securities Fund are Mark Schmeer and Leslie Grober. Mr.
Schmeer joined MAC in 1995. He is an investment manager of U.S. Equities at
Manulife. Prior to 1995 he was a Vice President of Sun Life Investment
Management, where he served from 1993 to 1995. Mr. Schmeer was a manager of
U.S. Investments for Ontario Hydro Corporation from 1986 to 1993. Mr. Grober
also joined MAC in 1995. He has been an investment manager of U.S. Equities at
Manulife since 1994. Mr. Grober was an
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investment representative of Toronto-Dominion Bank from 1991 to 1993. Prior to
that he was employed by the Bank of Montreal.
The persons with primary responsibility for the day to day management of
the Common Stock Fund are Mark Schmeer and Rhonda Chang. Ms. Chang joined MAC
in 1995. She has been an investment manager at Manulife since 1994. From 1990
to 1994, Ms. Chang was an investment analyst with American International
Group.
Catherine Addison has primary responsibility for the day to day
management of the Capital Growth Bond Fund. She has had such responsibility
for a similar portfolio of Manulife Series Fund, Inc., now a part of NASL
Series Trust, since 1988. She has been an investment manager of U.S. Fixed
Income at Manulife since 1985.
The persons with primary responsibility for the day to day management of
the Pacific Rim Emerging Markets Fund are Steven Hill, Richard James Crook and
Emilia Panadero Perez. Mr. Hill joined MAC in 1995. He is also an investment
manager at Manulife. Prior to 1995, Mr. Hill was a director of INVESCO Asset
Management, where he served in 1993 and 1994. Mr. Hill was a director of
Yasuda Trust Europe from 1989 to 1992. Richard James Crook joined MAC in
1994. He has been an investment manager of Manulife since 1975. Amelia
Panadero Perez joined MAC in 1995. She has been an investment manager at
Manulife since 1989.
Oechsle International Advisors. L.P.
Oechsle International Advisors, L.P. ("Oechsle International"), the
subadviser to the Global Government Bond Fund, founded in 1986, is a Delaware
limited partnership whose principal offices are located at One International
Place, Boston, Massachusetts 02110. Oechsle International, which also has
offices in London, England, Frankfurt, Germany and Tokyo, Japan, as of _____,
1996 managed approximately $___ billion for institutional and private
investors. Oechsle International is a money manager providing management and
advisory services with respect to all primary international securities
markets. Each year Oechsle International's investment professionals
concentrate on up to 30 different countries, averaging 700 visits to companies
annually.
Astrid Vogler has been primarily responsible for the day-to-day
management of the Global Government Bond Fund. Ms. Vogler has been a Fixed
Income Portfolio Manager at Oechsle International in Frankfurt, West Germany
since 1988.
Warburg Pincus Counsellors, Inc.,
Warburg, the subadviser of the Emerging Growth Fund, is a professional
investment counselling firm which provides investment services to investment
companies, employee benefit plans, endowment funds, foundations and other
institutions and individuals. As of_______________, 1996, Warburg managed
approximately $_____ billion of assets, including approximately $____ billion
of assets of ______________ investment companies or portfolios. Incorporated
in 1970, Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors
G.P. ("Warburg G.P."), a New York general partnership. E.M. Warburg, Pincus &
Co., Inc. ("EMW") controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
The co-portfolio managers of the Emerging Growth Fund are Elizabeth B.
Dater and Stephen J. Lurito. Ms. Dater has been portfolio manager of the
Warburg Pincus Emerging Growth Fund since its inception on January 21, 1988.
She is a managing director of EMW and has been a portfolio manager of Warburg
since 1978. Mr. Lurito has been a portfolio manager of the that fund since
1990. He is a managing director of EMW and has been with Warburg since 1987,
before which time he was a research
Pilgrim Baxter & Associates, Ltd.
Pilgrim Baxter & Associates, the subadviser to the Pilgrim Baxter Growth
Fund, is a professional investment management firm that has been in business
since its founding in 1982. The controlling shareholder of Pilgrim Baxter &
Associates is United Asset Management Corporation ("UAM"), a New York Stock
Exchange listed holding company principally engaged, through affiliated firms,
in providing institutional investment management services. UAM's corporate
headquarters are located at One International Place, Boston, Massachusetts
02110. Pilgrim Baxter & Associates currently has discretionary management
authority with respect to approximately $13 billion in assets. In addition to
advising certain portfolios of the Fund and NASL Series Trust, Pilgrim Baxter
& Associates provides advisory services to the PBHG Funds, Inc., and to
pension and profit-sharing plans, charitable institutions, corporations,
individuals, trusts and estates, and other investment companies. The
principal business address of the Pilgrim Baxter & Associates is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19087.
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Mr. Bruce J. Muzina and Mr. Gary L. Pilgrim, CFA, serve as co-portfolio
managers of the Pilgrim Baxter Growth Fund. Mr. Pilgrim has served as the
Chief Investment Officer of Pilgrim Baxter & Associates for the past six years
and the President since 1993. Mr. Pilgrim is also the portfolio manager of the
PBHG Growth Fund, a mutual fund available to the general public. Mr. Muzina
serves as the lead Mid-Cap portfolio manager for institutional accounts at
Pilgrim Baxter & Associates. Mr. Muzina has been with the firm since 1985.
* * *
Under the terms of each of the subadvisory agreements between the Adviser
and a Subadviser (the "Subadvisory Agreements"), the Subadviser assigned to a
Portfolio manages the investment and reinvestment of the assets of such
Portfolio, subject to the supervision of the Trustees. The Subadviser
formulates a continuous investment program for such Portfolio consistent with
its investment objectives and policies outlined in this Prospectus. The
Subadviser implements such programs by purchases and sales of securities and
regularly reports to the Adviser and the Trustees with respect to their
implementation. The factors considered by the Subadvisers in allocating
brokerage among broker/dealers are described in the Statement of Additional
Information under the caption "PORTFOLIO BROKERAGE." Among the factors that
may be considered is the willingness of broker/dealers to sell shares of the
Fund.
As compensation for their services, the Subadvisers receive fees from the
Adviser computed separately for each Portfolio. The fee for each Portfolio is
stated as an annual percentage of the current value of the net assets of the
Portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the fraction of one over the number of calendar
days in the year by the annual percentage prescribed for a Portfolio, and
multiplying this product by the value of the net assets of the Portfolio at
the close of business on the previous business day of the Fund. Once the
average net assets of a Portfolio exceed specified amounts, the fee is reduced
with respect to the excess. Absent any applicable fee waivers, the following
is a schedule of the management fees the Adviser is obligated to pay the
Subadvisers for each Portfolio under the Subadvisory Agreements. These fees
are paid out of the advisory fees described above and are not additional
charges to the Portfolios or their shareholders.
<TABLE>
<CAPTION>
Between Between
$50,000,000 $200,000,000
First and and Excess over
Funds $50,000,000 $200,000,000 $500,000,000 $500,000,000
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets Fund..... .400% .350% .275% .225%
Science & Technology Fund............. .600% .600% .600% .600%
International Small Cap............... .650% .600% .500% .400%
Emerging Growth Fund.................. .550% .550% .550% .550%
Pilgrim Baxter Growth Fund............ .600% .600% .500% .500%
Small/Mid Cap Fund.................... .525% .500% .475% .450%
International Stock Fund.............. .750%* .500% .500% .450%
Worldwide Growth Fund................. .600% .550% .450% .350%
Global Equity Fund.................... .500% .450% .375% .325%
Growth Equity Fund.................... .500% .450% .425% .400%
Common Stock Fund..................... .275% .225% .175% .150%
Equity Index Fund..................... .100% .100% .100% .100%
Blue Chip Growth Fund................. .500% .450% .400% .325%
Value Fund............................ .400% .300% .200% .200%
International Growth and Income Fund.. .500% .450% .400% .350%
Growth and Income Fund................ .325% .275% .225% .150%
Equity-Income Fund.................... .400% .300% .200% .200%
Real Estate Securities Fund........... .275% .225% .175% .150%
Balanced Fund......................... .375% .325% .275% .225%
High Yield Fund....................... .350% .300% .250% .200%
Strategic Income Fund**............... .350% .300% .250% .200%
Global Government Bond Fund........... .375% .350% .300% .250%
Capital Growth Bond................... .225% .225% .150% .100%
Investment Quality Bond Fund.......... .225% .225% .150% .100%
National Municipal Bond Fund.......... .250% .250% .250% .250%
U.S. Government Securities Fund....... .225% .225% .150% .100%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Between Between
$50,000,000 $200,000,000
First and and Excess over
Funds $50,000,000 $200,000,000 $500,000,000 $500,000,000
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund..................... .075% .075% .075% .020%
</TABLE>
* .750% up to $20 million; .600% from $20 million up to $50 million;
.500% from $50 million up to $200 million of the current value of the net
assets of the Portfolio. When the current value of the net assets of the
Portfolio equals or exceeds $200 million, the subadviser fee is .500% of the
current value of the net assets of the Portfolio. When the current value of
the net assets of the Portfolio equals or exeeds $500 million, the subadviser
fee is .450% of the net assets of the Portfolio.
**In connection with the subadvisory consulting agreement between SBAM
and SBAM Limited, SBAM will pay SBAM Limited, as full compensation for all
services provided under the subadvisory consulting agreement, a portion of its
subadvisory fee, such amount being an amount equal to the fee payable under
SBAM's subadvisory agreement multiplied by portion of the assets of the
Strategic Income Fund that SBAM Limited has been delegated to manage divided
by the current value of the net assets of the Portfolio.
As of March 16, 1993, August 1, 1994 and November 23, 1992, respectively,
the Equity-Income, Growth and Income and Balanced Funds reached sufficient
size to realize a reduction in the fee as a percent of excess net assets.
A more comprehensive statement of the terms of the Subadvisory Agreements
appears in the Statement of Additional Information and these agreements are on
file with and are available from the Commission.
All or a portion of Fund brokerage commissions may be paid to affiliates
of Salomon, J.P. Morgan, Alger, Morgan Stanley and Oechsle. Information on
the amount of these commissions is set forth in the Statement of Additional
Information under "PORTFOLIO BROKERAGE."
Fund Expenses
Subject to the expense limitations discussed above, the Fund is
responsible for the payment of all expenses of its organization, operations
and business, except for those expenses the Adviser has agreed to bear
pursuant to the Advisory Agreement or its Distribution Agreement with the Fund
or the Subadvisers have agreed to pay pursuant to the Subadvisory Agreements.
Among the expenses to be borne by the Fund, in addition to certain expenses
incurred by the Adviser as described above, are the expense of the advisory
and distribution fees; all charges and expenses relating to the transfer,
safekeeping, servicing and accounting for the Fund's property, including
charges of depositories, custodians and other agents; all expenses of
maintaining and servicing shareholder accounts, including charges of the
Fund's transfer, dividend disbursing, shareholder recordkeeping, redemption
and other agents; costs of shareholder reports and other communications to
current shareholders; the expenses of meetings of the Fund's shareholders and
the solicitation of management proxies in connection therewith; all expenses
of preparing Fund Prospectuses and Statements of Additional Information; the
expenses of determining the Portfolios' net asset value per share; the
compensation of Trustees who are not directors, officers or employees of the
Adviser and all expenses of meetings of the Trustees; all charges for services
and expenses of the Fund's legal counsel and independent auditors; all fees
and expenses of registering and qualifying, and maintaining the registration
and qualification of, the Fund and its shares under all federal and state laws
applicable to the Fund and its business activities; all expenses associated
with the issue, transfer and redemption of Fund shares; brokers' and other
charges incident to the purchase, sale or lending of the Fund's securities;
taxes and other governmental fees payable by the Fund; and any nonrecurring
expenses including litigation expenses and any expenses the Fund may incur as
a result of its obligation to indemnify its Trustees, officers and agents. All
expenses are accrued daily and deducted from total income before dividends are
paid.
Each Fund's portfolio turnover rate is set forth under the "Financial
Highlights" section of the Prospectus. A high rate of portfolio turnover (in
excess of 100%) generally involves correspondingly greater commission
expenses, which must be borne directly by the Fund. The portfolio turnover
rate of each of the Fund's portfolios may vary from year to year, as well as
within a year. See "PORTFOLIO BROKERAGE" in the Statement of Additional
Information.
GENERAL INFORMATION
Net Asset Value
The net asset value of the shares of each class of each Portfolio is
calculated separately and, except as described below, is determined once daily
as of the close of regularly scheduled trading on the New York Stock Exchange
(the
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<PAGE>
"Exchange"), Monday through Friday. Net asset value per share of each
class of each Portfolio (other than the Money Market Fund, as described below)
is calculated by dividing the value of the portion of the Portfolio's
securities and other assets attributable to that class, less the liabilities
attributable to that class, by the number of shares of that class outstanding.
No determination is required on (i) days on which changes in the value of such
Portfolio's securities holdings will not materially affect the current net
asset value of the shares of the Portfolio, (ii) days during which no shares
of such Portfolio are tendered for redemption and no order to purchase or sell
such shares is received by the Fund, or (iii) the following business holidays
or the days on which such holidays are observed by the Exchange: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Generally, trading in non-U.S.
securities, as well as U.S. Government securities and money market
instruments, is substantially completed each day at various times prior to the
close of regularly scheduled trading on the Exchange. The values of such
securities used in computing the net asset value of the shares of a class of a
Portfolio are generally determined as of such times. Occasionally, events
which affect the values of such securities may occur between the times at
which they are generally determined and the close of regularly scheduled
trading on the Exchange and would therefore not be reflected in the
computation of a class's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by the Subadvisers
under procedures established and regularly reviewed by the Trustees.
Securities held by each of the Portfolios other than the Money Market
Fund, except for money market instruments with remaining maturities of 60 days
or less and Underlying Portfolio shares held by the Lifestyle Funds, are
valued as follows: securities which are traded on stock exchanges are valued
at the last sales price as of the close of the Exchange, or lacking any sales,
at the closing bid prices. Securities traded only in the "over-the-counter"
market are valued at the last bid prices quoted by brokers that make markets
in the securities at the close of trading on the Exchange. Securities and
assets for which market quotations are not readily available or not obtained
from a pricing service are valued at fair value as determined in good faith by
the Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Trustees. If approved by the Trustees, the
Fund may make use of a pricing service or services in determining the net
asset value of the classes of the Portfolios.
The Trustees have authorized the Portfolios to value certain debt
securities by reference to valuations obtained from pricing services which
take into account appropriate factors such as institution-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data in determining valuations
of such securities, without extensive reliance upon quoted prices, since such
valuations are believed by the Trustees to more accurately reflect the fair
value of such securities.
All instruments held by the Money Market Fund and money market
instruments with a remaining maturity of 60 days or less held by the other
Portfolios are valued on an amortized cost basis. With respect to each class
of shares of the Money Market Fund, this method of calculation facilitates
maintaining a constant net asset value of $1.00 per share. However, there can
be no assurance that the $1.00 net asset value will be maintained at all
times. The Trustees have determined that the amortized cost method of
valuation fairly reflects a market based net asset value.
Dividends and Distributions
Except for the National Municipal Bond Fund, each Portfolio's dividends
from net investment income (i.e., its net investment company taxable income as
----
that term is defined in the Internal Revenue Code of 1986 (the "Code"),
determined without regard to the deduction for dividends paid) which includes
short-term capital gains (collectively "ordinary income dividends") are
taxable as ordinary income to shareholders whether paid in additional shares
or in cash. Any net capital gain (i.e., the excess of a Portfolio's net
realized long-term capital gain over its net realized short-term capital loss)
distributed to shareholders as "capital gain dividends" is treated as long-
term capital gain by the shareholders, whether paid in cash or additional
shares, regardless of the length of time a shareholder has owned his or her
shares. Shareholders are provided annually with full information on dividends
and capital gains distributions for tax purposes. Shareholders may not have to
pay state or local taxes on dividends derived from interest on U.S. Government
obligations. Shareholders should consult their tax advisers regarding the
applicability of state and local taxes to dividends and distributions. Each
Portfolio will send shareholders a statement after the end of every calendar
year stating the amount of dividends derived from interest on U.S. Government
obligations.
The International Small Cap, Small/Mid Cap, Emerging Growth, Pilgrim
Baxter Growth, Pacific Rim Emerging Markets, International Stock, Global
Equity, Worldwide Growth, Science & Technology, Growth Equity, Common Stock,
Real Estate Securities, Blue Chip Growth, Equity-Income, Value, Balanced and
Lifestyle Funds declare and pay any income dividends annually; the Growth and
Income, International Growth and Income and Equity Index Funds declare and pay
any income dividends semiannually; and the High Yield, Strategic Income,
Global Government Bond, Capital Growth Bond, Investment Quality Bond, U.S.
Government Securities, National Municipal Bond, and Money Market Funds declare
income
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<PAGE>
dividends daily and pay them monthly. See "PURCHASE OF SHARES --
General Methods of Purchasing Shares." Each of the Portfolios, other than the
Money Market Fund, declares and pays any capital gains dividends annually.
Generally, income dividends of Portfolios other than the High Yield, Strategic
Income, Global Government Bond, Capital Growth Bond, Investment Quality Bond,
U.S. Government Securities, National Municipal Bond and Money Market Funds and
capital gains dividends of Portfolios other than the Money Market Fund paid
shortly after a purchase of shares prior to the record date, although in
effect a return of capital, will be subject to income tax.
The maximum distribution and service fees payable by the Class B shares
and Class C shares of each Portfolio (other than the Money Market Fund, which
bears no such fees) are more than the maximum fees payable by each such
Portfolio's Class A shares. In addition, certain incremental expenses which
are specifically allocable to a particular class of shares in a Portfolio are
separately allocated to that class of shares. As a result, the per share
dividend on Class B and Class C shares will generally be lower than the per
share dividend on Class A shares of a Portfolio.
For the convenience of shareholders, all income dividends and capital
gains distributions are paid in full and fractional shares of the same class
of a Portfolio on the payment date unless a shareholder has requested payment
in cash. Shareholders may elect to have dividends and distributions from a
class of a Portfolio invested in shares of the same class of another Portfolio
at the respective net asset value. See SHAREHOLDER SERVICES -- Automatic
Dividend Diversification."
Taxes
It is expected that each Portfolio of the Fund will qualify as a
"regulated investment company" under the Code. If it so qualifies, a Portfolio
will not be subject to United States federal income taxes on its net
investment income and net capital gain, if any, that it distributes to its
shareholders in each taxable year, provided that it distributes to its
shareholders (i) at least 90% of its net investment income for such taxable
year, and (ii) with respect to the National Municipal Bond Fund at least 90%
of its net tax-exempt interest income for such taxable year. If in any year a
Portfolio fails to qualify as a regulated investment company, such Portfolio
would incur regular corporate federal income tax on its taxable income for
that year and be subject to certain additional distribution requirments upon
requalification. Each Portfolio will be subject to a 4% nondeductible excise
tax on its taxable income to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Portfolio intends to make
sufficient distributions to avoid application of the corporate income and
excise taxes.
Funds investing in foreign securities or currencies may be required to
pay withholding or other taxes to foreign governments on dividends and
interest. The investment yield of the Portfolios investing in foreign
securities or currencies will be reduced by these foreign taxes. Shareholders
will bear the cost of any foreign taxes, but may not be able to claim a
foreign tax credit or deduction for these foreign taxes. If a Portfolio is
eligible for and makes an election to allow the shareholders of that Portfolio
to claim a foreign tax credit or deduction for these taxes for any taxable
year, the shareholders will be notified. In addition, Portfolios investing in
securities of passive foreign investment companies may be subject to U.S.
federal income taxes (and interest on such taxes) as a result of such
investments. The investment yield of the Portfolios making such investments
will be reduced by these taxes and interest. Shareholders will bear the cost
of these taxes and interest, but will not be able to claim a deduction for
these amounts.
The redemption, sale or exchange of Fund shares (including the exchange
of shares of one Portfolio for shares of another) is a taxable event and may
result in a gain or loss. Gain or loss, if any, recognized on the sale or
other disposition of shares of the Fund will be taxed as capital gain or loss
if the shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Fund before holding it for more than six months, any loss on
the sale or other disposition of such share shall be (i) treated as a long-
term capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share or (ii) in the case of the National
Municipal Bond Fund, disallowed to the extent of any exempt-interest dividend
received by the shareholder with respect to such shares. A loss realized on a
sale or exchange of shares may be disallowed if other shares are acquired
within a 61-day period beginning 30 days before and ending 30 days after the
date that the shares are disposed of.
Unless a shareholder of any Portfolio includes his or her taxpayer
identification number (social security number for individuals) in the
Shareholder Application and certifies that he or she is not subject to backup
withholding, the Fund is required to withhold and remit to the U.S. Treasury
31% from dividends other than exempt-interest dividends and other reportable
payments to the shareholder.
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or witholding
taxes. Most states provide that a regulated investment company may pass
through (without restriction) to its shareholders state and local income tax
exemptions available to direct owners of certain types of U.S. government
securities. Thus, for residents of these states, distributions derived from a
Portfolio's investment in certain types of U.S. government securities should
be free from state and local income taxes to the extent that the interest
income from such investments would have been exempt from state and local
income taxes if such securities had been held directly by the respective
shareholders themselves.
National Municipal Bond Fund - Taxation
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<PAGE>
The National Municipal Bond Fund also intends to satisfy conditions under
the Code that will enable interest from municipal obligations, which is exempt
from regular federal income taxes in the hands of each Portfolio, to qualify
as "exempt-interest dividends" when distributed to such Portfolio's
shareholders. Except as discussed below, such dividends are exempt from
regular federal income taxes.
Although exempt-interest dividends paid by the National Municipal Bond
Fund will be excluded by shareholders of the Portfolios from their gross
income for regular federal income tax purposes, under the Code all or a
portion of such dividends may be (i) a preference item for purposes of the
alternative minimum tax, (ii) a component of the "ACE" adjustment for purposes
of determining the amount of corporate alternative minimum tax or (iii) a
factor in determining the extent to which a shareholder's Social Security
benefits are taxable. Moreover, the receipt of exempt-interest dividends from
each of the Portfolios affect the federal tax liability of certain foreign
corporations, S Corporations and insurance companies. Furthermore, under the
Code, interest on indebtedness incurred or continued to purchase or carry
portfolio shares, which interest is deemed to relate to exempt-interest
dividends, will not be deductible by shareholders of the Portfolio for federal
income tax purposes.
The exemption of exempt-interest dividend income from regular federal
income taxation does not necessarily result in similar exemptions for such
income under tax laws of state or local taxing authorities. In general, states
exempt from state income tax only that portion of any exempt-interest dividend
that is derived from interest received by a regulated investment company on
its holdings of obligations issued by that state or its political subdivisions
and instrumentalities.
A notice detailing the tax status of dividends and distributions paid by
the National Municipal Bond Fund will be mailed annually to its shareholders.
As part of this notice, the Portfolio will report to its shareholders the
percentage of interest income earned by the Portfolio during the preceding
year on tax-exempt obligations indicating, on a state-by-state basis, the
source of such income.
_______________________
Descriptions of tax consequences set forth in this Prospectus and in the
Statement of Additional Information are intended to be a general guide.
Investors should consult their tax advisers concerning a prospective
investment in the Fund.
Performance Information
From time to time the Fund may advertise certain information about the
performance of all classes of one or more of the Portfolios. Such performance
information may include time periods prior to the establishment of the multi-
class distribution system, as described more fully in the Statement of
Information under the caption "PERFORMANCE INFORMATION." Information about
performance of a class of shares of a Portfolio is not intended to indicate
future performance. The Fund's annual report to shareholders, which is
available without charge upon request, contains further discussions of Fund
performance.
The Fund may advertise the yield and/or total return performance for all
classes of one or more of the Portfolios in accordance with the rules of the
Commission. The National Municipal Bond Fund may also present from time to
time yield, tax-equivalent yield and standardized and nonstandardized total
return in advertisements. When yield is used in sales literature, the total
return figures will also be included. The Commission has issued rules setting
forth the uniform calculation of both yield and total return, but
shareholders' actual experience may be more or less than the figures produced
by these formulas.
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<PAGE>
Each Portfolio may include the total return for all classes of shares in
advertisements or other written material. Each such piece will include at
least the average annual total return quotations for one year, five years, ten
years (if available) and/or from the commencement of operations. Total return
is measured by comparing the value of an investment at the beginning of the
relevant period to the redemption value of the investment at the end of the
period; the calculation assumes the initial investment is made at the current
maximum net offering price, assumes immediate reinvestment of any dividends or
capital gains distributions and adjusts for the current maximum sales charge
of 4.75% for Class A shares and the applicable CDSC imposed on a redemption of
Class B shares or Class C shares held for the period indicated. Yield and
total return are calculated separately for each class of a Portfolio.
Each of the Portfolios may advertise yield for all classes, accompanied
by total return. The yield will be computed by dividing the net investment
income per share earned during a recent one month period (after deducting
expenses net of reimbursements applicable to each class) by the maximum
offering price (including the maximum front end sales charge or applicable
CDSC) on the last day of the period, and annualizing the result (assuming
compounding of interest) in order to arrive at annual percentage rate. The
National Municipal Bond Fund may also present from time to time the tax-
equivalent yield of all classes. The tax-equivalent yield is calculated by
determining the portion of yield which is tax-exempt and calculating the
equivalent taxable yield and adding to such amount any fully taxable yield.
The Money Market Fund may advertise yield and effective yield for all
classes. The yield is based upon the income earned by the Portfolio over a
seven-day period and is then annualized, i.e., the income earned in the period
is assumed to be earned every seven days over a 365 day period and is stated
as a percentage of the investment. Effective yield is calculated similarly,
but when annualized the income earned by the investment is assumed to be
reinvested weekly in shares of the same class and thus compounded in the
course of a 365 day period. The effective yield will be higher than the yield
because of the compounding effect of this assumed reinvestment.
All performance information may be compared with data published by Lipper
Analytical Services, Inc. or to unmanaged indices of performance, including,
but not limited to, the Dow Jones Industrial Average, Standard & Poor's 500,
Value Line Composite, Lehman Brothers Bond, Government Corporate, Corporate
and Aggregate Indices, Merrill Lynch Government & Agency and Intermediate
Agency Indices, the EAFE Index or the Morgan Stanley Capital International
World Index. In addition, during certain time periods the yield and total
return of a class and/or a Portfolio may be affected by expense waivers and/or
expense reimbursements. When so affected, the yield and total return figures
will be accompanied by a statement regarding such waiver and/or reimbursement.
While performance information may be helpful in evaluating whether a Portfolio
may be fulfilling its objective, past performance should not be regarded as
representative of future results. Yields and net asset values will fluctuate
with market conditions and the value of shares redeemed may be more or less
than their cost. The Money Market Fund operates under procedures designed to
stabilize the net asset value of all classes at $1.00 per share. The Fund
will include performance data for each class of a Portfolio in any
advertisement or information including performance data of such Portfolio.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form.
Organization of the Fund
The Fund was organized as a Massachusetts business trust on September 28,
1988. The Equity-Income, U.S. Government Securities and Money Market Funds
commenced operations on August 28, 1989 with the acquisition of substantially
all the assets of the corresponding portfolios of Hidden Strength Funds. The
Global Equity Fund became available to investors on November 7, 1990, and the
Growth and Income and Investment Quality Bond Funds became available to
investors on May 1, 1991. The Balanced Fund (formerly the Asset Allocation
Fund) became available July 13, 1992, following the combination of the former
Conservative, Moderate and Aggressive Asset Allocation Trusts into the
Balanced Fund. The former asset allocation trusts commenced operations August
28, 1989 with the acquisition of substantially all the assets of the
corresponding portfolios of Hidden Strength Funds. The National Municipal
Bond Fund became available to investors on June 30, 1993. The Strategic
Income Fund became available to investors on November 30, 1993. The
International Growth and Income Fund became available to investors on January
9, 1995. The Small/Mid Cap, International Small Cap and Growth Equity Funds
became available to investors on March 4, 1996, and the Emerging Growth,
Pilgrim Baxter Growth, Pacific Rim Emerging Markets, International Stock,
Worldwide Growth, Science & Technology, Common Stock, Real Estate Securities,
Blue Chip Growth, Value, Equity Index, High Yield, Global Government Bond,
Capital Growth Bond and Lifestyle Funds became available to investors on
December 31, 1996.
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<PAGE>
All shares of beneficial interest, $.001 par value per share, of each
Portfolio have equal voting rights (except as described below with respect to
matters specifically affecting a class of shares) and have no pre-emptive or
conversion rights. At a meeting of the Board of Trustees held on December 16,
1993, the Trustees, including each Trustee who is not an "interested person,"
as such term is defined under the 1940 Act, unanimously approved amendments to
the Fund's Declaration of Trust to permit implementation of the Multiple
Pricing System. Shareholders of the Fund approved these amendments at a
special meeting held on February 18, 1994. The Multiple Pricing System was
implemented on April 1, 1994. An order dated February 28, 1994 was issued to
the Fund and NASL Financial by the Commission permitting the issuance and sale
of multiple classes of shares representing interests in the Fund's existing
Portfolios. Shares of each class of a Portfolio represent interests in that
Portfolio in proportion to each share's net asset value. The per share net
asset value of each class of shares in a Portfolio is calculated separately
and may differ as between classes as a result of the differences in
distribution and service fees payable by the classes and the allocation of
certain incremental class-specific expenses to the appropriate class to which
such expenses apply.
All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by series (Portfolio) or class, except where voting by
series or class is required by law or where the matter involved affects only
one series or class (for example, matters pertaining to the plan of
distribution relating to Class A shares will only be voted on by Class A
shares). Matters required by the 1940 Act to be voted upon by each affected
series include changes to (i) the Advisory Agreement, (ii) a Subadvisory
Agreement and (iii) fundamental investment objectives and policies. (The Fund
has filed an application with the Securities and Exchange Commission seeking
exemptive relief to permit the appointment of a subadviser pursuant to an
agreement that is not approved by shareholders. If granted, the Fund would be
able to change subadvisers from time to time without the expense and delays
associated with obtaining shareholder approval of the new subadviser. There is
no assurance that the requested relief will be granted.)
The Fund is not generally required to hold annual meetings of
shareholders. However, the Trustees may call special meetings of shareholders
for action by shareholder vote as may be requested in writing by the holders
of 25% or more of the outstanding shares of the Fund (10% in the case of a
meeting requested for the purpose of removing a Trustee) or as may be required
by applicable laws. Shareholders seeking to call a meeting for the purpose of
removing a Trustee will be assisted by the Fund in communicating with other
shareholders, provided the shareholders seeking to call a meeting are at least
ten in number, have been shareholders for at least six months and hold in the
aggregate at least one percent of the outstanding shares or shares having a
value of at least $25,000, whichever is less. Also, Trustees may be removed
by action of the holders of two-thirds or more of the outstanding shares of
the Fund. The Trustees are authorized to create additional series and classes
of shares at any time without approval by shareholders.
Under Massachusetts law, shareholders of a business trust may, in certain
circumstances, be held personally liable as partners for the obligations of
the Fund. However, the Declaration of Trust pursuant to which the Fund was
organized contains an express disclaimer of shareholder liability for acts or
obligations of each Portfolio of the Fund and requires that notice of such
disclaimer be given in each instrument entered into or executed by the Fund.
The Declaration of Trust also provides for indemnification out of a
Portfolio's property for any shareholder of such Portfolio held personally
liable for any of the Portfolio's obligations. Thus, the risk of a
shareholder being personally liable as a partner for obligations of a
Portfolio is limited to the unlikely circumstance in which the Portfolio
itself would be unable to meet its obligations.
Custodian and Transfer and Dividend Disbursing Agents
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, currently acts as Custodian of all the
Portfolios' assets, as well as the bookkeeping, transfer and dividend
disbursing agent for all of the Portfolios of the Fund. State Street has
selected various banks and trust companies in foreign countries to maintain
custody of certain foreign securities. State Street is authorized to use the
facilities of the Depository Trust Company, the Participants Trust Company and
the book-entry system of the Federal Reserve Banks.
Independent Accountants
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109 serves as the Fund's independent accountant. The audited financial
statements of the Fund at October 31, 1996, included in the Statement of
Additional Information and the Financial Highlights for the period from the
commencement of operations through October 31, 1996, included in this
Prospectus have been audited by Coopers & Lybrand L.L.P. as indicated in their
reports in the Statement of
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<PAGE>
Additional Information and are included therein in reliance upon such reports
and upon the authority of such firm as experts in accounting and
auditing.
PURCHASE OF SHARES
Introduction
The Fund offers three classes of shares in each Portfolio to the general
public. Purchases of Class A shares of less than $1 million are sold with a
front end sales charge. Purchases of Class A shares of $1 million or more
made on or after May 1, 1995 are offered for sale at net asset value without a
front end sales charge but may be subject to a CDSC upon redemption. Class B
shares are sold without a front end sales charge but may be subject to a CDSC
upon redemption. Class C shares are sold without a front end sales charge,
but may be subject to a CDSC upon redemption. Shares of all classes of the
Money Market Fund are sold at net asset value (without the imposition of a
front end sales charge or CDSC). The Fund also has a Class D class which is
available for sale only to the Lifestyle Funds. See "MULTIPLE PRICING SYSTEM"
for a discussion of factors to consider in selecting which class of shares to
purchase.
Shares are offered continuously for sale through securities dealers and
banks which have executed an agreement (a "Dealer Agreement") with NASL
Financial, the distributor of the Fund's shares (in such capacity, the
"Distributor"). Certain States require that purchases of shares of the Fund
be made only through a broker-dealer registered in the State.
The initial purchase of any class of shares in any Portfolio must be at
least $1,000, with the exception that the initial purchase to a retirement
plan account may be made with a minimum of $50. In addition, an account can
be established with a minimum of $50 if the account will be receiving
periodic, regular investments through programs such as Automatic Investment
Plans, Automatic Dividend Diversification, and Systematic Investing (see
"SHAREHOLDER SERVICES -- Additional Shareholder Privileges" for a description
of these programs). The minimum for subsequent investments is $50.
When purchasing shares of any Portfolio of the Fund, investors must
specify whether the purchase is for Class A, Class B or Class C shares.
General Methods of Purchasing Shares
1. By Mail. To make an initial account purchase, mail a check made
payable in U.S. dollars to "North American Funds" with a completed New Account
Application (copy enclosed with this Prospectus) to:
North American Funds
P.O. Box 8505
Boston, MA 02266-8505
Third party checks which are payable to an existing shareholder of the Fund
who is a natural person (as opposed to a corporation or partnership) and
endorsed over to the Fund will be accepted.
To make a purchase of shares to an existing North American Funds account,
please note your account number on the check and forward it with an account
investment slip to the above address.
Note: To establish certain tax deferred retirement plan accounts, such as
IRAs, you will be required to complete a separate application which may be
obtained from the Distributor or a securities dealer who has a Dealer
Agreement with the Distributor.
2. By Federal Funds Wire. Shares may be purchased in any Portfolio by
wire transfer. To obtain instructions for Federal Funds Wire purchases,
please contact the Customer Service Department at (800) 872-8037.
3. Through a Securities Dealer. You may purchase shares by contacting
a securities dealer who has a Dealer Agreement with the Distributor.
Orders for shares of all Portfolios except the Money Market Fund will be
assigned the next closing price after receipt of the order. Orders for the
Money Market Fund will be assigned the next closing price after the payment
has been converted
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to Federal Funds and dividends will begin to accrue on the business day after
such conversion. While orders for shares of the High Yield, Strategic Income,
Global Government Bond, Capital Growth Bond, Investment Quality Bond, U.S.
Government Securities and National Municipal Bond Funds are assigned the next
closing price after receipt of the order, dividends will begin to accrue on
the business day after the purchase has been converted into Federal
Funds.
Share Price
The public offering price of the Class A shares of each Portfolio is the
net asset value per share (next determined following receipt of an order)
plus, in the case of all Portfolios except the Money Market Fund, a front end
sales charge, if applicable. The share price for Class B shares and Class C
shares is the net asset value per share (next determined following receipt of
an order).
Class A Shares
The public offering price for purchases of Class A shares of less than $1
million is the net asset value per share plus a front end sales charge,
expressed as a percentage of the offering price as set forth in the table
below. No front end sales charge is imposed on the purchase of Class A shares
of the Money Market Fund. However, when Class A shares of the Money Market
Fund on which no sales charge has been paid or waived are exchanged for Class
A shares of another Portfolio, the sales charge applicable to purchases of
Class A shares will be assessed at that time. Purchases of Class A shares of
$1 million or more are offered for sale at net asset value subject to a CDSC
of 1% of the dollar amount subject thereto if redeemed within one year of
purchase. See "PURCHASES OF SHARES --Contingent Deferred Sales Charge" below.
The CDSC may be waived on certain redemptions of shares. See "PURCHASES OF
SHARES - Waiver of CDSC."
Class A Sales Charge Table
<TABLE>
<CAPTION>
Concession to
Percentage of Broker Dealer as
Amount of Percentage of the Net Amount a Percentage of
Purchase Payment the Offering Price Invested Offering Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000........ 4.75% 4.99% 4.00%
$100,000 but less than
$250,000.................. 4.00% 4.17% 3.25%
$250,000 but less than
$500,000.................. 3.00% 3.09% 2.50%
$500,000 but less than
1 million................. 2.25% 2.30% 1.75%
$1 million or more........ none* none* See below**
</TABLE>
*A contingent deferred sales charge may apply. See "PURCHASES OF SHARES -
Contingent Deferred Sales Charge."
**For purchases of Class A shares of $1 million or more the Distributor will
pay a commission to dealers as follows: 1.00% on sales up to $5 million
(0.50% for sales of the National Municipal Bond Fund), plus 0.50% of the
amount in excess of $5 million; provided, however, that the Distributor may
pay a commission on sales in excess of $5 million of up to 1.00% to certain
dealers which, at the Distributor's invitation, enter into an agreement with
the Distributor in which the dealer agrees to return any commission paid to it
on the sale (or a pro rata portion thereof) if the shareholder redeems his
shares within a period of time after purchase as specified by the Distributor.
Purchases of $1 million or more for each shareholder account will be
aggregated over a 12 month period (commencing from the date of the first such
purchase) for purposes of determining the level of commission to be paid
during that period with respect to such account.
The Distributor may reallow concessions to securities dealers with whom
it has agreements and retain the balance over such concessions, and at times
the Distributor may reallow the entire front end sales charge to such dealers.
In such
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<PAGE>
circumstances, dealers may be deemed to be underwriters under the 1933 Act.
Also, during an initial offering period following the introduction of a new
portfolio, and from time to time thereafter, additional amounts may be paid by
the Distributor or its promotional agent that would result in total dealer
concessions exceeding the offering price.
The Distributor may also pay banks and other financial service firms
("Service Organizations") that provide services for their clients to
facilitate transactions in Class A shares of a Portfolio, a transaction fee up
to an amount equal to the greater of the full applicable front end sales
charge or the "Concession to a Broker Dealer as a Percentage of Offering
Price" as shown in the above table. Banks are currently prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution
services. If banking firms are prohibited from acting in any capacity or
providing any of the described services, management will consider what action,
if any, is appropriate. It is not anticipated that termination of a
relationship with a bank would result in any material adverse consequences to
a Portfolio. In addition, State securities laws may differ from federal laws
regarding Service Organizations which may be required to register under State
securities laws as brokers and/or dealers.
Reduced Sales Charges
Investors purchasing Class A shares may be able to benefit from a
reduction or elimination of the front end sales charge through several
purchase plans.
Right of Accumulation. For the purposes of determining which sales
charge level in the table above is applicable to a purchase of Class A shares,
investors may combine the total of the value of the shares being purchased
with the amount equal to the current net asset value of the investor's
holdings of shares in all Portfolios of the Fund, including holdings in Class
B and Class C shares, but excluding shares purchased or held in the Money
Market Fund. Also, for purposes of the foregoing calculation, shares
(including holdings in Class B and Class C shares, but excluding shares
purchased or held in the Money Market Fund) beneficially owned by the
investor's spouse and the investor's children under the age of 21 may, upon
written notice to the transfer agent, also be included in the investor's
beneficial holdings at the current net asset value to reach a level specified
in the above table. The investor must notify the transfer agent in writing of
all share accounts to be considered in exercising the right of accumulation
described above.
Statement of Intention. For the purposes of determining which sales
charge level in the table above is applicable to a purchase of Class A shares,
investors may also establish a total investment goal in shares of the Fund to
be achieved over a thirteen-month period and may purchase Class A shares
during such period at the applicable reduced front end sales charge. All
shares, including Class B shares and Class C shares (but excluding shares
purchased or held in the Money Market Fund), previously purchased and still
beneficially owned by the investor and his or her spouse and children under
the age of 21 may, upon written notice to the transfer agent, also be included
at the current net asset value to reach a level specified in the table above.
Shares totaling 5% of the dollar amount of the Statement of Intention
will be held in escrow by the Transfer Agent in the name of the purchaser.
The effective date of a Statement of Intention may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the purchaser's cost, can be applied to the fulfillment of the Statement of
Intention goal.
The Statement of Intention does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. In the event the investment goal
is not achieved within the thirteen-month period, the purchaser is required to
pay the front end sales charge that would otherwise have applied to the
purchases of Class A shares made during this period. If a payment is due
under the preceding sentence, it must be made directly to the Distributor
within twenty days of notification or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. Certain
transitional rules apply to shareholders who had a statement of intention in
effect prior to April 1, 1994. For additional information, shareholders
should contact the Fund, Wood Logan or eligible securities dealers.
Group Purchases. Subject to applicable regulations, reduced front end
sales charges as set forth in the "Class A Sales Charge Schedule" are
available on the purchase of Class A shares when sales are made to a group of
individuals in such a manner as results in a savings of sales expenses.
Approval of group purchase reduced front end sales charge plans is subject to
the discretion of the Distributor.
Certain Qualified Purchasers. No front end sales charge or CDSC is
applicable to any sale of Class A shares to a Trustee or officer of the Fund,
or to the immediate families (i.e., the spouse, children, mother or father) of
such persons, or any
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<PAGE>
full-time employee or registered representative of broker/dealers having
Dealer Agreements with the Distributor ("Selling Broker") and their immediate
families (or any trust, pension, profit sharing or other benefit plan for the
benefit of such persons), or any full-time employee of a bank, savings and
loan, credit union or other financial institution that utilizes a Selling
Broker to clear purchases of Fund shares, and their immediate families. In
addition, no front end sales charge or CDSC is applicable on any sale to the
Lifestyle Funds or to North American Security Life Insurance Company or any of
its affiliates, the Subadvisers or Wood Logan, or to a director, officer,
fulltime employee or sales representative of North American Security Life
Insurance Company or any of its affiliates, the Subadvisers or any of their
affiliates or of Wood Logan, or to the immediate families of such persons, or
any trust, pension, profit-sharing or other benefit plan for the benefit of
such persons.
No front end sales charge or CDSC on Class A shares is applicable to
continuing purchase payments made in connection with Code Section 401
qualified plans that were invested in the Fund prior to April 1, 1994.
A qualified retirement plan that is currently a shareholder of the Fund
may make additional purchases of Class A shares at net asset value (i.e.,
without the imposition of a front end sales load or CDSC). A commission or
transaction fee of 1.00% will be paid by the Distributor to broker-dealers,
banks and other financial service firms subject to a chargeback to the firm
for redemptions made within one year from the date of purchase.
Class A shares may be purchased at net asset value by certain broker-
dealers and other financial institutions which have entered into an agreement
with the Distributor, which includes a requirement that such shares be sold
for the benefit of clients participating in a "wrap account" or a similar
account program under which such clients pay a fee to such broker-dealer or
other financial institution. Class A shares may also be purchased at net
asset value by registered investment advisers for the benefit of client
accounts if the adviser charges a fee (other than brokerage commissions) for
his services.
Class B Shares Class B shares are offered for sale at net asset value, and
are offered for purchases of $250,000 or less. Class B shares which are
redeemed within six years of purchase are subject to a CDSC at the rates set
forth in the table below, charged as a percentage of the dollar amount subject
thereto. See "PURCHASES OF SHARES - Contingent Deferred Sales Charge."
<TABLE>
<CAPTION>
Class B CDSC Table
CDSC
as a Percentage of
Year(s) Since Purchase Order Dollar Amount Subject to Charge
-----------------------------------------------------------------------------
<S> <C>
Up to 2 years 5%
2 years or more but less than 3 years 4%
3 years or more but less than 4 years 3%
4 years or more but less than 5 years 2%
5 years or more but less than 6 years 1%
6 or more years 0%
</TABLE>
The CDSC may be waived on certain redemption of shares. See "PURCHASES
OF SHARES - Waiver of CDSC"
Class C Shares
Class C shares are offered for sale at net asset value and are offered
for purchases of less than $1 million. Class C shares are sold without a
front end sales charge. Class C shares purchased on or after May 1, 1995 are
subject to a CDSC of 1% of the dollar amount subject thereto during the first
year after purchase. Shares purchased prior to May 1, 1995 are not subject to
a CDSC. See "PURCHASES OF SHARES - Contingent Deferred Sales Charge"
The CDSC may be waived on certain redemptions of shares. See "PURCHASES
OF SHARES - Waiver of CDSC."
Class D Shares
Class D shares are only offered for sale to the Lifestyle Funds and are
offered for sale at net asset value without a front end sales charge or CDSC.
Class D shares are not subject to a distribution fee or service fee.
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<PAGE>
Contingent Deferred Sales Charge
Class A shares (purchases of $1 million or more) and Class C shares
purchased on or after May 1, 1995 which are redeemed within one year of
purchase are subject to a CDSC at the rate of 1% of the dollar amount subject
thereto. Class B shares which are redeemed within six years of purchase are
subject to a CDSC at the rates set forth above under "PURCHASES OF SHARES -
Class B Shares." The CDSC generally is not applicable with respect to
redemption of shares of the Money Market Fund. However, in the case of shares
of the Money Market Fund which were obtained through an exchange of the same
class of shares of another Portfolio, such shares will be subject to any
applicable CDSC due at redemption. Similarly, shares initially purchased as
shares of the Money Market Fund which are subsequently exchanged for the same
class of shares of other Portfolios will be subject to any applicable CDSC due
at redemption. See "SHAREHOLDER SERVICES - Exchange Privilege." The CDSC is
assessed on an amount equal to the lesser of the net asset value at redemption
or the initial purchase price of the shares being redeemed. Solely for
purposes of determining the amount of time from the purchase of shares until
redemption, all orders accepted during a month are aggregated and deemed to
have been made on the last business day of that month.
In determining the amount of the CDSC that may be applicable to a
redemption, any shares in the redeeming shareholder's account that may be
redeemed without charge will be assumed to be redeemed prior to those subject
to a charge. In addition, if the CDSC is determined to be applicable to
redeemed shares, it will be assumed that shares held for the longest duration
are redeemed first. No CDSC is imposed on (i) amounts representing increases
in the net asset value per share; or (ii) shares acquired through reinvestment
of income dividends or capital gains distributions. Because shares of the
Money Market Fund are not subject to any distribution or service fees, the
CDSC period is tolled for any period of time in which shares are held in that
Portfolio. For example, if Class C shares of a Portfolio other than the Money
Market Fund are exchanged for the same class of shares of the Money Market
Fund six months after purchase and are subsequently redeemed one year later,
these shares are subject to a CDSC since the CDSC period is tolled during the
period of time the shares are in the Money Market Fund. Furthermore, when
Money Market Fund shares are exchanged for the same class of shares of any
other Portfolio, the CDSC becomes (or, in the case of Money Market Fund shares
which were subject to a CDSC prior to a previous exchange for Money Market
Fund shares, again becomes) applicable to those shares commencing at the time
of exchange. If such shares are subsequently redeemed, only time of ownership
spent in Portfolios other than the Money Market Fund counts toward determining
the applicable CDSC.
Waiver of CDSC
Systematic Withdrawal Plan. The CDSC on Class A, Class B and Class C
shares may be waived in connection with a Systematic Withdrawal Plan. See
"SHAREHOLDER SERVICES - Systematic Withdrawal Plan." For account opened after
May 1, 1995, up to 12% of the value of an account (i.e., up to 1% per month of
the value of the account at the time the systematic withdrawal is taken) may
be withdrawn without the imposition of CDSC. If distributions (dividends and
capital gains) are reinvested into an account and systematic withdrawals are
also taken from the account, the distributions (which are never assessed a
CDSC) will be included in the calculation of the 1% per month that may be
withdrawn without the imposition of a CDSC.
Qualified Retirement Plans. The CDSC on Class A, Class B and Class C
shares may be waived in connection with redemptions from qualified retirement
plans (other than Individual Retirement Accounts ("IRAs")) in the case of (i)
death or disability (as defined in section 72(m)(7) of the Code, as amended
from time to time) of the participant in the retirement plan, (ii) required
minimum distributions from the retirement plan due to attainment of age 70
1/2, (iii) tax-free return of an excess contribution to the retirement plan,
(iv) retirement of the participant in the retirement plan, (v) a loan from the
retirement plan (repayment of a loan, however, will constitute a new sale for
purposes of assessing the CDSC), (vi) "financial hardship" of the participant
in the retirement plan, as that term is defined in Treasury Regulation
1.401(k)-1(d)(2), as amended from time to time, (vii) termination of
employment of the participant in the plan (excluding, however, a partial or
other termination of the retirement plan), and (viii) the plan participant
obtaining age 59 1/2.
Other Waivers. The CDSC on Class A, Class B and Class C shares may be
waived in connection with (i) redemptions made following the death of a
shareholder, (ii) redemptions effected pursuant to the Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than the applicable minimum account size
and (iii) a tax-free return of an excess contribution to any retirement
plan.
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Other Dealer Compensation
The Distributor may, either directly or through Wood Logan, from time to
time assist dealers by, among other things, providing sales literature to, and
holding educational programs for the benefit of, dealers' registered
representatives. Participation of registered representatives in such
informational programs may require the sale of minimum dollar amounts of
shares of the Portfolios of the Fund. The Distributor and/or Wood Logan will
also provide additional promotional incentives to dealers in connection with
sales of shares of all classes of the Portfolios of the Fund. These
incentives shall include payment for travel expenses, including lodging (which
may be at a luxury resort), incurred in connection with trips taken by
qualifying registered representatives and members of their families within or
outside the United States. Incentive payments will be provided for out of the
front end sales charges and CDSCs retained by the Distributor, any applicable
Distribution Plan payments or the Distributor's other resources. Other than
Distribution Plan payments, the Fund does not bear distribution expenses. The
staff of the SEC has indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.
Distribution Expenses
In addition to the front-end sales charge which may be deducted at the
time of purchase of Class A shares of less than $1 million and the CDSC which
may apply on redemptions of Class A shares (purchases of $1 million or more),
Class B shares, and Class C shares, each class of shares of each Portfolio is
authorized under the Distribution Plan applicable to that class of shares (the
"Class A Plan," the "Class B Plan" and the "Class C Plan," collectively, the
"Plans") adopted pursuant to Rule 12b-1 under the 1940 Act to use the assets
attributable to such class of shares of the Portfolio to finance certain
activities relating to the distribution of shares to investors. The Plans are
"compensation" plans providing for the payment of a fixed percentage of
average net assets to finance distribution expenses. The Plans provide for
the payment by each class of shares of each Portfolio of the Fund, other than
the Money Market Fund, of a monthly distribution and service fee to the
Distributor, as principal underwriter for the Fund. Portions of the fees
prescribed below are used to provide payments to the Distributor, to
promotional agents, to brokers, dealers or financial institutions
(collectively, "Selling Agents") and to Service Organizations for ongoing
account services to shareholders and are deemed to be "service fees" as
defined in paragraph (b)(9) of Section 26 of the Rules of Fair Practice of the
NASD.
Under the Class A Plan, Class A shares of each Portfolio (except as
described in the next sentence) are subject to a fee of up to .35% of their
respective average annual net assets, five-sevenths of which (.25%)
constitutes a "service fee." Class A shares of the Money Market Fund bear no
such fees and Class A shares of the National Municipal Bond Fund are subject
to a fee of up to .15% of Class A average annual net assets, the entire amount
of which constitutes a "service fee." Under the Class B Plan, Class B shares
of each Portfolio (with the exception of the Money Market Fund) are subject to
a fee of up to 1.00% of their respective average annual net assets, one-fourth
(.25%) of which constitutes a "service fee." Under the Class C Plan, Class C
shares of each Portfolio (with the exception of the Money Market Fund) are
subject to a fee of up to 1.00% of their respective average annual net assets,
one-fourth (.25%) of which constitutes a "service fee."
Payments under the Plans are used primarily to compensate the Distributor
for distribution services provided by it in connection with the offering and
sale of the applicable class of shares, and related expenses incurred,
including payments by the Distributor to compensate or reimburse Selling
Agents for sales support services provided and related expenses incurred by
such Selling Agents. Such services and expenses may include the development,
formulation and implementation of marketing and promotional activities, the
preparation, printing and distribution of prospectuses and reports to
recipients other than existing shareholders, the preparation, printing and
distribution of sales literature, expenditures for support services such as
telephone facilities and expenses and shareholder services as the Fund may
reasonably request, provision to the Fund of such information, analyses and
opinions with respect to marketing and promotional activities as the Fund may,
from time to time, reasonably request, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees
of the Distributor or Selling Agents, attributable to distribution or sales
support activities, respectively, overhead and other office expenses of the
Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively, and any other costs and expenses relating to
distribution or sales support activities. The Distributor may pay directly
Selling Agents and may provide directly the distribution services described
above, or it may arrange for such payment or the performance of some or all of
such services by Wood Logan, the Fund's exclusive promotional agent, at such
level of compensation as may be agreed to by the Distributor and Wood
Logan.
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The Distributor currently pays a trail commission to securities dealers,
with respect to accounts that such dealers continue to service for shares sold
after April 1, 1994 as follows: Class A shares - .25% annually, commencing
from the date the purchase order is accepted, for all Portfolios (except the
National Municipal Bond Fund, for which the trail commission is .15%, and the
Money Market Fund, for which no trail commission is paid); Class B shares -
.25% annually, for all Portfolios (except the National Municipal Bond Fund,
for which the trail commission is .15%, and the Money Market Fund, for which
no trail commission is paid); and Class C shares - 1.0% annually, for all
Portfolios other than the Investment Quality Bond, U.S. Government Securities,
National Municipal Bond and Money Market Funds and .90% annually, for the
Investment Quality Bond, U.S. Government Securities and National Municipal
Bond Fund (no trail commission is paid on the Money Market Fund). The trail
commission payable following conversion of Class B and Class C shares to Class
A shares will be in accordance with the amounts paid for Class A shares. For
Class B and Class C shares sold on or after May 1, 1995, trail commissions
commence 13 months after purchase. For Class B and Class C shares sold prior
to May 1, 1995, trail commissions commence the date the purchase order is
accepted. Trail commissions for shares sold prior to April 1, 1994 will be
paid as noted below.
In the case of Class B shares and Class C shares sold on or after May 1,
1995, the Distributor will advance to securities dealers the first year
service fee at a rate equal to 0.25% of the purchase price of such shares and,
as compensation therefor, the Distributor may retain the service fee paid by
the Fund with respect to such shares for the first year after purchase. In
the case of sales of Class B shares, the Distributor will pay each dealer a
fee of 4% of the amount of Class B shares purchased (0.25% is the advancement
of the first year service fee and the remainder is a commission or transaction
fee). No commission or transaction fee is paid for sales of shares of Class B
of the Money Market Fund. In the case of sales of Class C shares, the
Distributor will pay each securities dealer a fee of 1% (0.90% in the case of
the Investment Quality Bond, U.S. Government Securities and National Municipal
Bond Fund of the purchase price of Class C shares purchased through such
securities dealer (0.25% is the advancement of the first year service fee and
the remainder is a commission or transaction fee). No commission or
transaction fee is paid for sales of shares of Class C of the Money Market
Fund.
The Distributor will also pay a trail commission to securities dealers,
with respect to accounts that such dealers continue to service for shares sold
prior to April 1, 1994, as follows: (i) for the Equity-Income, Growth and
Income, Global Equity and Balanced Funds, 0.90%, (ii) for the U.S. Government
Securities, Investment Quality Bond and Strategic Income Funds, 0.35% and for
the National Municipal Bond Fund, 0.15%. No trail commission will be paid on
shares of the Money Market Fund. The trail commission above will be paid on
shares purchased prior to April 1, 1994 provided the shares remain in the same
Portfolio. If the shares are exchanged or transferred from the Portfolio at
any time on or after April 1, 1994, then the trail commission for shares sold
after April 1, 1994 as stated above will be paid.
The distribution and service fees attributable to the Class B shares and
the Class C shares are designed to permit an investor to purchase shares
without the assessment of a front end sales charge, and, with respect to the
Class C shares, without the assessment of a CDSC as well, and at the same time
permit the Distributor to compensate securities dealers with respect to sales
of such shares.
The Distributor is authorized by each Plan to retain any excess of the
fees it receives thereunder over its payments to selected dealers or Wood
Logan and its expenses incurred in connection with providing distribution
services. Thus, payments under a Plan may result in a profit to the
Distributor. Each Plan also provides that to the extent that any payments by
any class of any Portfolio of the Fund to the Distributor in its capacity as
investment adviser to the Fund, such as for investment management fees, may be
deemed to be an indirect payment of distribution expenses, those indirect
payments are deemed to be authorized by the Plans. Payments made under the
Plans are subject to quarterly review by the Trustees and the Plans are
subject to annual review and approval by the Trustees.
In adopting the Plans, the Trustees determined that the adoption of the
Plans is in the best interests of the Fund and its shareholders, that there is
a reasonable likelihood that the Plans will benefit the Fund and its
shareholders, and that the Plans are essential to, and an integral part of,
the Fund's program for financing the sale of shares of the various Portfolios
of the Fund to the public.
The Distributor, a wholly-owned subsidiary of North American Security
Life Insurance Company, is a broker/dealer registered under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and is a member of the NASD.
The Distributor's address is the same as that of the Fund and the Distributor
also serves as the investment adviser to the Fund as described above under
"MANAGEMENT OF THE FUND." The Distributor has entered into an exclusive
promotional agent agreement with Wood Logan pursuant to which Wood Logan will
solicit securities dealers to sell Fund shares, offer sales
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training to registered representatives of such dealers, prepare and distribute
certain sales and promotional materials and otherwise assist in the
distribution of Fund shares. For providing such services, the Distributor will
pay Wood Logan such amounts as are agreed to from time to time pursuant to the
promotional agent agreement. Wood Logan, a broker/dealer registered under the
1934 Act and a member of the NASD, is a subsidiary of Wood Logan Associates,
Inc., a corporation which is a wholly owned subsidiary of a holding company
that is 85% owned by Manulife and approximately 15% owned by principals of
Wood Logan Associates. The address of Wood Logan is 1455 East Putnam Avenue,
Old Greenwich, Connecticut 06870.
SHAREHOLDER SERVICES
Further information on any of the programs described in the following
sections may be obtained from the Fund, Wood Logan and eligible securities
dealers. For additional information, shareholders should contact the Fund,
Wood Logan or eligible securities dealers.
Automatic Investment Plan
Shareholders who open an account who wish to make subsequent monthly
investments in a Portfolio may establish an Automatic Investment Plan as part
of the initial Application or subsequently by submitting an Application.
Under this plan, on or about the tenth day of each month the Transfer Agent
will debit the shareholder's bank account in the amount specified by the
shareholder (which monthly amount may not be less than $50). The proceeds
will be invested in shares of the specified class of a Portfolio of the Fund
at the applicable offering price determined on the date of the debit. In the
event of a full exchange, this plan will follow into the new Portfolio unless
otherwise specified. Participation in the Automatic Investment Plan may be
discontinued upon 30 days' written notice to the Transfer Agent, or if a debit
is not honored.
Exchange Privilege
Shares of any Portfolio may be exchanged for shares of the same class of
any other Portfolio with the same account registration at the relative net
asset value per share without the imposition of any front end sales charge or
CDSC, except as described below. Shares of one class may not be exchanged for
shares of any other class of any Portfolio.
Class A Shares - Class A shares of any Portfolio may be exchanged for
Class A shares of any other Portfolio at the relative net asset value per
share without the imposition of a front end sales charge or CDSC which would
be due upon redemption with respect to the shares being exchanged. However, a
front end sales charge will be imposed with respect to Class A shares
(purchases of less than $1 million) which are issued upon an exchange from
Class A Money Market Fund shares and as to which no front end sales charge had
been previously paid or waived. See "SHAREHOLDER SERVICES - Money Market Fund
- Assessment of CDSC."
Class B Shares - Class B shares of any Portfolio may be exchanged for
Class B shares of any other Portfolio, including the Money Market Fund, at the
relative net asset value per share without the imposition at that time of any
CDSC which would be due upon redemption with respect to the shares being
exchanged. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of
CDSC."
Class C Shares - Class C shares of any Portfolio may be exchanged for
Class C shares of any other Portfolio, including the Money Market Fund, at the
relative net asset value per share without the imposition at that time of any
CDSC which would be due upon redemption with respect to the shares being
exchanged. See "SHAREHOLDER SERVICES - Money Market Fund - Assessment of
CDSC."
Money Market Fund - Assessment of CDSC - The CDSC period for Class A
shares (purchases of $1 million or more), Class B shares and Class C shares is
tolled for any period of time in which they are held in the Money Market Fund.
For example, if Class C shares of a Portfolio, other than the Money Market
Fund, are exchanged for Class C shares of the Money Market Fund six months
after purchase and are subsequently redeemed one year later, these Class C
shares are subject to a CDSC since the CDSC period is tolled during the period
of time the shares are in the Money Market Fund. Furthermore, when Money
Market Fund shares are exchanged for shares of any other Portfolio, the CDSC
becomes (or, in the case of Money
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market Fund shares which were subject to a CDSC prior to a previous exchange
for Money Market Fund shares, again becomes) applicable to those shares
commencing at the time of exchange. If such shares are subsequently redeemed,
only time of ownership spent in Portfolios other than the Money Market Fund
counts toward determining the applicable CDSC.
General Information - Exchanges are regarded as sales for federal and
state income tax purposes and could result in a gain or loss, depending on the
original cost of shares exchanged. If the exchanged shares were acquired
within the previous 90 days, the gain or loss may have to be computed without
regard to any sales charges incurred on the exchanged shares (except to the
extent those sales charges exceed the sales charges waived in connection with
the exchange). See "GENERAL INFORMATION -- Taxes." Exchanges are free and
unlimited in number and will usually occur on the same day as requested. The
terms of the foregoing exchange privilege are subject to change and the
privilege may be terminated at any time. The exchange privilege is only
available where the exchange may legally be made.
By mail - an exchange will be honored by a written letter of request to
the Fund if signed by all registered owners of the account.
By telephone - All accounts are eligible for the telephone exchange
privilege. See "-- ADDITIONAL SHAREHOLDER PRIVILEGES -- Telephone Exchanges."
Transfer of Shares
Shareholders may transfer fund shares to family members and others at any
time without incurring a front end sales charge (Class A shares purchases of
less than $1 million) and without a CDSC being imposed at that time (Class A
shares purchases of $1 million or more, Class B shares and Class C shares).
Shareholders should consult their tax adviser concerning such transfers.
Redemption of Shares
You may redeem shares of your account in any amount and at any time at
the applicable net asset value next determined after the request for
redemption is received in proper order by the Fund. As described under
"PURCHASE OF SHARES," redemptions of Class A shares purchases of $1 million or
more, Class B shares and Class C shares and may subject to a CDSC. The Fund
will normally send the proceeds from a redemption (less any applicable CDSC)
on the next business day, but if making immediate payment could adversely
affect the Fund, it may take up to seven days for payment to be made. Payment
may also be delayed if the shares to be redeemed were purchased by check and
that check has not cleared.
General Methods of Redeeming Shares
1. By Mail. You may redeem shares by mail by sending a written request
for the redemption to the Fund. The request will be processed after receipt
of all required documents in proper order: certificates of beneficial interest
(if issued); a stock power signed by all account owners exactly as the account
is registered specifying the number of shares or dollars to be redeemed; and
in the case of a redemption to be paid to a person or address other than the
person or address of record and/or in an amount greater than $50,000, a
guarantee of the stock power signatures(s) without restriction, condition or
qualification by an officer of a commercial bank, Trust Company, Federal
savings and loan institution, member firm of a national securities exchange or
NASD member. If shares are held in the name of a corporation, trust, estate,
custodianship, partnership or pension or profit sharing plan, additional
documentation may be necessary.
2. Through a Securities Dealer. You may sell your shares by contacting a
securities dealer who has a Dealer Agreement with the Distributor. (See
"GENERAL -- Repurchase of Shares" in the Statement of Additional Information
for more details.) The dealer may assess a nominal fee for this service.
Reinstatement Privilege
With regard to Class A shares (purchases of less than $1 million), you
may reinstate at net asset value any portion of shares which have been
previously redeemed if the redemption occurred within 90 days of the request.
With regard to Class A shares (purchases of $1 million or more), Class B
shares and Class C shares and, if an investor redeems these shares and pays a
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CDSC upon redemption, and then uses those proceeds to purchase the same class
of shares of any Portfolio within 90 days, the shares purchased will be
credited with any CDSC paid in connection with the prior redemption.
Any gain recognized on a redemption or repurchase is taxable despite the
reinstatement in the Portfolio. Any loss realized as a result of the
redemption or repurchase may not be allowed as a deduction for federal income
tax purposes but may be applied, depending on the amount reinstated, to adjust
the cost basis of the shares acquired upon reinstatement. In addition, if the
shares redeemed or repurchased had been acquired within the 90 days preceding
the redemption or repurchase, the amount of any gain or loss on the redemption
or repurchase may have to be computed without regard to any sales charges
incurred on the redeemed or repurchased shares (except to the extent those
sales charges exceed the sales charges waived in connection with the
reinstatement). See "GENERAL INFORMATION -- Taxes."
Minimum Account Balance
The Fund reserves the right to involuntarily redeem your account any time
the value of your account falls below $500 as a result of redemption, with the
exception of a retirement plan account and with respect to an account
established with a minimum of $50 pursuant to programs such as Automatic
Investment Plans, Automatic Dividend Diversification, and Systematic
Investing. You will be notified in writing prior to the redemption and be
allowed 30 days to make additional investments before the redemption is
processed.
Redemption In Kind
The Trustees of the Fund reserve the right to redeem proceeds in whole or
in part by a distribution in kind of marketable securities held by a Portfolio
of the Fund. See "GENERAL -- Redemption in Kind" in the Statement of
Additional Information for more details.
Additional Shareholder Privileges
Certain privileges listed in this section may not be offered by the Fund if
you hold shares with the Fund in the "street name" of a financial institution,
or if the account is networked through National Securities Clearing
Corporation (NSCC).
Automatic Investment Plan
If you open an account and wish to make subsequent, periodic investments
in a Portfolio by electronic funds transfer from a bank account, you may
establish an Automatic Investment Plan on your account. The bank at which
your account is maintained must be a member of the Automated Clearing House
(ACH). The frequency with which the investments occur is specified by you
(monthly, every alternate month, quarterly, etc.) with the exception that no
more than one investment will be processed each month. On or about the tenth
of the month, the Fund will debit your bank account in the specified amount
(minimum of $50 per draft) and the proceeds will be invested at the applicable
offering price determined on the date of the debit. In the event of a full
exchange, this plan will follow into the new Portfolio unless otherwise
specified.
Automatic Dividend Diversification (ADD)
The ADD program allows you to have all dividends and any other
distributions from a Portfolio automatically used to purchase shares of the
same class of any other Portfolio of the Fund. The receiving account must be
in the same name as your existing account. The purchase of shares to the
Portfolio receiving the cross-investment of the dividends will be using the
net asset value at the close of business of the dividend payable date.
Systematic Investing
You may request that your shares of any class of the Money Market, U.S.
Government Securities or National Municipal Bond Fund be exchanged monthly for
shares of the same class of up to three other Portfolios. A predetermined
dollar amount of at least $50 per exchange will then occur on or about the
15th of each month in accordance with the instructions you provided on the
initial account application or on the Systematic Investing application. This
Systematic Investing program is also referred to as "Dollar Cost Averaging."
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Systematic Withdrawal Plan
You may establish a plan for redemptions to be made automatically at
monthly, quarterly, semiannual or annual intervals with payments sent directly
to you or to persons designated by you as recipients of the withdrawals. Up
to 12% of the value of an account (i.e., up to 1% per month of the value of
the account at the time the Systematic Withdrawal is taken) may be withdrawn
without the imposition of CDSC. See "PURCHASES OF SHARES - Waiver of CDSC."
Requests for this service not made on the initial application require
signature guarantees unless the payments are to be made to you and mailed to
the address of record on your account. You are required to have a minimum
account value of $10,000 per Portfolio in order to establish this plan.
Maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares may be disadvantageous to you because of the sales charges
on certain purchases and redemptions.
The redemptions will occur on or about the 25th day of the month and the
checks will generally be mailed within two days after the redemption occurs.
No redemption will occur if the account balance falls below the amount
required to meet the requested withdrawal amount. This service may be
terminated at any time, and, while no fee is currently charged (although a
CDSC may be applicable), the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal upon 30 days' written notice to the shareholder.
Checkwriting
Checkwriting is available only to Class A and Class C shareholders of the
U.S. Government Securities, National Municipal Bond and Money Market Funds.
You will be issued a book of blank checks if the request is indicated on the
account application and is accompanied by a correctly completed and endorsed
signature card. The checks may be made payable to the order of anyone in any
amount not less than $250. You should not attempt to close your account by
check.
Checks which exceed the value of the account at the time of receipt by
the Fund will not be honored. In addition, the privilege will be invalid when
your account is closed.
When a check is presented for payment, a sufficient number of shares will
be redeemed to cover the amount of the check and any applicable CDSC. If the
amount of the check plus any applicable CDSC is greater than the value of the
shares held in the shareholder's account, the check will be returned unpaid.
This privilege cannot be used for the redemption of shares held in
certificate form.
Telephone Transactions
Shareholders are permitted to request exchanges and/or redemptions by
telephone. The Fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may only be liable for any losses due to
unauthorized or fraudulent instructions where it fails to employ its
procedures properly. Such procedures include the following. Upon telephoning
a request, shareholders will be asked to provide their account number, and if
not available, their social security number. For the shareholder's and Fund's
protection, all conversations with shareholders will be tape recorded. All
telephone transactions will be followed by a confirmation statement of the
transaction.
Telephone Exchanges. You are automatically authorized to effect
telephone exchanges by calling the Fund, unless you elect not to authorize
telephone exchanges in the Application (if you initially elect not to allow
telephone exchanges in the Application, you may request authorization by
executing an appropriate authorization form provided by the Fund upon
request.) Exchanges will only be made if proper account identification is
given by the dealer or shareholder of record. Requests will be processed on
the same day as receipt of the telephone call if the request is made before
the close of the regularly scheduled trading on the Exchange (normally 4:00
p.m. New York time).
This privilege cannot be used for the exchange of shares held in
certificate form.
Telephone Redemptions. You may request the option to redeem shares of
any Portfolio by telephone by completing the "Expedited Telephone Redemptions"
portion of the account application. In order to obtain that day's closing net
asset value
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on the redemption, the telephone call must be received by the Fund
prior to the close of the regularly scheduled trading on the Exchange
(normally 4:00 p.m. New York time).
Payment for shares will be made by federal wire or by mail as specified
by you in the Application. Payment will normally be sent on the business day
following the date of receipt of the request. Payment by wire to your bank
account must be in amounts of $1000 or more. Although the Fund does not
assess a charge for wire transfers, your bank may assess a charge for the
transaction. Payments by mail may only be sent to your account address of
record and may only be payable to the registered owner(s).
This privilege cannot be used for the redemption of shares held in
certificate form.
Certificates
Although the Fund does not recommend the issuance of certificates, shares
will be issued in certificate form if specifically requested by the
shareholder.
How to Obtain Information on Your Investment
1. Confirmation of Share Transactions and Dividend Payments. Share
transactions in all Portfolios, other than trans-actions pursuant to a
Systematic Withdrawal Plan, Automatic Investment Plan, and Systematic
Investing Plan, will be confirmed immediately in the form of an account
confirmation statement which will be mailed to the account address of record.
The Fund will confirm all account activity occurring within a calendar
quarter, including the payment of dividend and capital gain distributions and
transactions made as a result of a Systematic Withdrawal Plan, Automatic
Investment Plan, and Systematic Investing Plan, shortly after the end of each
calendar quarter.
The Fund also reserves the right to confirm, with respect to certain tax
qualified plans and certain group plans, purchases and sales of Fund shares on
a quarterly basis. Transactions in shares of the Money Market Fund, other
than those confirmed quarterly as set forth above, will be confirmed monthly.
A copy of all confirmation statements will be sent to the securities
dealer firm listed on your account.
2. Shareholder Inquiries. Please direct any questions or requests that
you may have concerning the Fund or your account by writing to North American
Funds, P.O. Box 8505, Boston, Massachusetts 02266-8505, or by calling the
Mutual Fund Customer Service Department at 1-800-872-8037.
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<PAGE>
APPENDIX I
DEBT SECURITY RATINGS
Standard & Poor's Ratings Group ("S&P")
- -------------------------------
Commercial Paper:
A-1 The rating A-1 is the highest rating assigned by S&P to commercial paper.
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus
(+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high for issuers
designated "A-1".
Bonds:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB-B-
CCC-CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D Bonds rated D are in default. The D category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired. The D rating is also used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Moody's Investors Service, Inc. ("Moody's")
- -------------------------------
Commercial Paper:
P-1 The rating P-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated P-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following
characteristics: (1) leading market positions in established industries;
(2) high rates of return on funds employed; (3) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established
access to a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated P-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree.
A-1
<PAGE>
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.
Bonds:
Aaa Bonds which are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa by Moody's are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long term
risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A by Moody's possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa by Moody's are considered as medium grade
obligations, that is, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty
of position characterizes bond in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance and other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a mid-
range ranking; and the modifier "3" indicates that the issue ranks in the lower
end of its generic rating category.
Fitch Investors Service, Inc. ("Fitch")
- -----------------------------
Commercial Paper:
F-1+ Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-1+".
F-2 Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues
assigned "F-1+" or "F-1".
A-2
<PAGE>
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 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 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 Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD-DD- Bonds are in default on interest and/or principal payments. Such bonds
are extremely speculative and should be valued on
and D the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents the lowest
potential for recovery.
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
Additional Moody's and S&P Municipal Bond Ratings
Moody's Ratings of State and Municipal Notes
MIG-1/VMIG-1 Notes rated MIG-1/VMIG-1 are of the best quality. There is
present strong protection by established cash flows, superior
liquidity support or broad-based access to the market for
refinancing.
MIG-2/VMIG-2 Notes which are rated MIG-2/VMIG-2 are of high quality.
Margins of protection are ample though not so large as in the
preceding group.
S&P Ratings of State and Municipal Notes
SP-1 Notes which are rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Notes which are rated SP-2 have a satisfactory capacity to pay
principal and interest.
A-3
<PAGE>
APPENDIX II
STRATEGIC INCOME FUND DEBT RATINGS
The average distribution of investments in corporate and government bonds by
ratings for the fiscal year ended October 31, 1996, calculated monthly on a
dollar-weighted basis, for the Strategic Income Fund, was as follows:
<TABLE>
<CAPTION>
Unrated but
of Comparable
Moody's Standard & Poor's Quality Percentage
- --------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA % %
Aa AA % %
A A % %
Baa BBB % %
Ba BB % %
B B % %
Caa CCC % %
Ca CC % %
C C % %
D % %
Unrated as a Group: %
U.S. Government Securities* %
Total 100%
</TABLE>
The actual distribution of the Strategic Income Fund's corporate and
government bond investments by ratings on any given date will vary. In
addition, the distribution of the Portfolio's investments by ratings as set
forth above should not be considered as representative of the Portfolio's future
portfolio composition.
*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
A-4
<PAGE>
INVESTMENT QUALITY BOND FUND DEBT RATINGS
The average distribution of investments in corporate and government bonds by
ratings for the fiscal year ended October 31, 1996, calculated monthly on a
dollar-weighted basis, for the Investment Quality Bond Fund, was as follows:
<TABLE>
<CAPTION>
Unrated but
of Comparable
Moody's Standard & Poor's Quality Percentage
- --------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 0% %
Aa AA 0% %
A A 0% %
Baa BBB 0% %
Ba BB 0% %
B B 0% %
Caa CCC 0% %
Ca CC 0% %
C C 0% %
D 0% %
Unrated as a Group: %
U.S. Government Securities* %
Total 100%
</TABLE>
The actual distribution of the Investment Quality Bond Fund's corporate and
government bond investments by ratings on any given date will vary. In
addition, the distribution of the Portfolio's investments by ratings as set
forth above should not be considered as representative of the Portfolio's future
portfolio composition.
*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
A-5
<PAGE>
APPENDIX III
STANDARD AND POOR'S DISCLAIMERS
The Equity Index Fund is not sponsored, endorsed, sold or promoted by Standard
& Poor's ("S&P"). S&P makes no representation or warranty, express or implied,
to the shareholders of the Equity Index Fund or any member of the public
regarding the advisability of investing in securities generally or in the Equity
Index Fund particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Fund is the licensing
of certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund or the
Equity Index Fund. S&P has no obligation to take the needs of the Fund or the
shareholders of the Equity Index Fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of shares of the
Equity Index Fund or the timing of the issuance or sale of the shares of the
Equity Index Fund or in the determination or calculation of the equation by
which shares of the Equity Index Fund are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Equity Index Portfolio.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Fund, shareholders of the Equity
Index Fund, or any other person or entity from the use of the S&P 500 Index or
any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data included
therein. Without limiting any of the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such
damages.
A-6
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NORTH AMERICAN FUNDS
North American Funds (the "Fund") is a professionally managed open-end
investment company that currently has thirty-two investment portfolios: the
Pacific Rim Emerging Markets Fund, the Science & Technology Fund, the
International Small Cap Fund, the Emerging Growth Fund, the Pilgrim Baxter
Growth Fund, the Small/Mid Cap Fund, the International Stock Fund, the Worldwide
Growth Fund, the Global Equity Fund (formerly the Global Growth Fund), the
Growth Equity Fund, the Common Stock Fund, the Equity Index Fund, the Blue Chip
Growth Fund, the Value Fund, the International Growth and Income Fund, the
Growth and Income Fund, the Equity-Income Fund (formerly, the Value Equity Fund
and prior thereto the Growth Fund), the Real Estate Securities Fund, the
Balanced Fund (formerly the Asset Allocation Fund), the High Yield Fund, the
Strategic Income Fund, the Global Government Bond Fund, the Capital Growth Bond
Fund, the Investment Quality Bond Fund, the National Municipal Bond Fund, the
U.S. Government Securities Fund, the Money Market Fund, the Conservative
Lifestyle Fund, the Moderate Lifestyle Fund, the Balanced Lifestyle Fund, the
Growth Lifestyle Fund and the Aggressive Lifestyle Fund (the "Portfolios"). The
investment objective of each Portfolio is described in the Fund's Prospectus
dated December 31, 1996 (the "Prospectus") under the caption "Investment
Portfolios." Each Portfolio currently offers three classes of shares: "Class A"
shares, "Class B" shares and "Class C" shares, all as described in the
Prospectus under the caption "Multiple Pricing System."
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Prospectus, which may be obtained from North
American Funds, 116 Huntington Avenue, Boston, Massachusetts, 02116.
The date of this Statement of Additional Information is
December 31, 1996.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT POLICIES ...................................................... 3
MONEY MARKET INSTRUMENTS ................................................. 3
OTHER INSTRUMENTS ........................................................ 5
Mortgage Securities ...................................................... 5
Asset-Backed Securities .................................................. 7
Zero Coupon Securities and Pay-in-Kind Bonds ............................. 8
High Yield/High Risk Domestic Corporate Debt Securities .................. 9
High Yield/High Risk Foreign Sovereign Debt Securities ................... 9
Municipal Lease Obligations .............................................. 10
Hybrid Instruments ....................................................... 10
HEDGING AND OTHER STRATEGIC TRANSACTIONS ................................. 11
General Characteristics of Options ....................................... 11
General Characteristics of Futures Contracts and Options on Futures
Contracts ............................................................... 13
Options on Securities Indices and Other Financial Indices ................ 13
Currency Transactions .................................................... 14
Combined Transactions .................................................... 14
Swaps, Caps, Floors and Collars .......................................... 14
Eurodollar Instruments ................................................... 15
Municipal Bond Index Futures Contracts ................................... 15
Risk Factors ............................................................. 16
Risks of Hedging and Other Strategic Transactions Outside the
United States ........................................................... 16
Use of Segregated and Other Special Accounts ............................. 16
Other Limitations ........................................................ 17
Warrant Transactions and Risks ........................................... 17
INVESTMENT RESTRICTIONS .................................................. 18
PORTFOLIO TURNOVER ....................................................... 20
MANAGEMENT OF THE FUND ................................................... 21
Compensation of Trustees ................................................. 23
Principal Holders of Securities .......................................... 23
INVESTMENT MANAGEMENT ARRANGEMENTS ....................................... 24
Advisory and Subadvisory Agreements ...................................... 24
DISTRIBUTION PLANS ....................................................... 27
Underwriters ............................................................. 31
PORTFOLIO BROKERAGE ...................................................... 32
DETERMINATION OF NET ASSET VALUE ......................................... 36
PERFORMANCE INFORMATION .................................................. 37
TAXES .................................................................... 43
National Municipal Bond Fund - Taxation Issues ........................... 45
SHAREHOLDER SERVICES ..................................................... 46
GENERAL .................................................................. 46
Adviser's Rationale for Multi-Manager Fund ............................... 46
Fund Shares .............................................................. 49
Redemption in Kind ....................................................... 50
Repurchase of Shares ..................................................... 50
Payment for the Shares Presented ......................................... 50
Transfer Agent ........................................................... 50
Independent Accountants .................................................. 50
FINANCIAL STATEMENTS ..................................................... 44
</TABLE>
3
<PAGE>
INVESTMENT POLICIES
The following discussion supplements the description of the Fund's
Portfolios set forth in the Prospectus under the caption "INVESTMENT
PORTFOLIOS."
MONEY MARKET INSTRUMENTS
The Money Market Fund will be invested in the types of money market
instruments described below. Certain of the instruments listed below may also be
purchased by the other Portfolios in accordance with their investment policies
and all Portfolios may purchase such instruments to invest otherwise idle cash
or for defensive purposes, except that the U.S. Government Securities Fund and
Equity Index Fund may not invest in the instruments described in 2 and 7
below.
1. U.S. Government and Government Agency Obligations. U.S. Government
obligations are debt securities issued or guaranteed as to principal or interest
by the U.S. Treasury. These securities include treasury bills, notes and bonds.
U.S. Government agency obligations are debt securities issued or guaranteed as
to principal or interest by an agency or instrumentality of the U.S. Government
pursuant to authority granted by Congress. U.S. Government agency obligations
include, but are not limited to, the Student Loan Marketing Association, Federal
Home Loan Banks, Federal Intermediate Credit Banks and the Federal National
Mortgage Association. U.S. instrumentality obligations include, but are not
limited to, the Export-Import Bank and Farmers Home Administration. Some
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities are supported by the right of the issuer to borrow from the
U.S. Treasury or the Federal Reserve Banks, such as those issued by Federal
Intermediate Credit Banks; others, such as those issued by the Federal National
Mortgage Association, are supported by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, are
supported only by the credit of the agency or instrumentality. There are also
separately traded interest components of securities issued or guaranteed by the
U.S. Treasury. No assurance can be given that the U.S. Government will provide
financial support to such U.S. Government sponsored agencies or
instrumentalities in the future, since it is not obligated to do so by law. The
foregoing types of instruments are hereafter collectively referred to as "U.S.
Government securities."
2. Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are certificates issued against funds deposited in a bank or a savings
and loan association. They are for a definite period of time and earn a
specified rate of return. Bankers' acceptances are short-term credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. They are
primarily used to finance the import, export, transfer or storage of goods. They
are termed "accepted" when a bank guarantees their payment at maturity.
Fund Portfolios may acquire obligations of foreign banks and foreign
branches of U.S. banks. These obligations are not insured by the Federal Deposit
Insurance Corporation.
3. Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations to finance short-term credit needs. Commercial
paper is issued in bearer form with maturities generally not exceeding nine
months. Commercial paper obligations may include variable amount master demand
notes. Variable amount master demand notes are obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements between a Portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. A Portfolio has the right to
increase the amount under the note at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower may prepay up to
the full amount of the note without penalty. Because variable amount master
demand notes are direct lending arrangements between the lender and borrower, it
is not generally contemplated that such instruments will be traded, and there is
no secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. A Portfolio will only invest in variable amount master demand notes
issued by companies which at the date of investment have an outstanding debt
issue rated "Aaa" or "Aa" by Moody's or "AAA" or "AA" by S&P and which the
applicable Subadviser has determined present minimal risk of loss to the
Portfolio. A Subadviser will look generally at the financial strength of the
issuing company as "backing" for the note and not to any security interest or
supplemental source such as a bank letter of credit. A variable amount master
demand note will be valued each day as a Portfolio's net asset value is
determined, which value will generally be equal to the face value of the note
plus accrued interest unless the financial position of the issuer is such that
its ability to repay the note when due is in question.
4. Corporate Obligations. Corporate obligations include bonds and notes
issued by corporations to finance longer-term credit needs than those supported
by commercial paper. While such obligations generally have maturities of ten
years or more, the Money Market Fund will only purchase obligations which have
remaining maturities of thirteen months or less from the date of purchase and
which are rated "AA" or higher by Standard & Poor's or "Aa" or higher by
Moody's.
4
<PAGE>
5. Repurchase Agreements. Repurchase agreements are arrangements
involving the purchase of obligations by a Portfolio and the simultaneous
agreement to resell the same obligations on demand or at a specified future date
and at an agreed upon price. The majority of repurchase transactions run from
day to day and delivery pursuant to the resale provision typically will occur
within one to five business days of the purchase. A repurchase agreement can be
viewed as a loan made by a Portfolio to the seller of the obligation with such
obligation serving as collateral for the seller's agreement to repay the amount
borrowed with interest. Such transactions afford an opportunity for a Portfolio
to earn a return on cash which is only temporarily available. Repurchase
agreements entered into by the Portfolio will be with banks, brokers or dealers.
However, a Portfolio will enter into a repurchase agreement with a broker or
dealer only if the broker or dealer agrees to deposit additional collateral
should the value of the obligation purchased by the Portfolio decrease below the
resale price.
The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a Portfolio's repurchase agreements. These procedures limit
the counterparties to repurchase transactions to those financial institutions
which are members of the Federal Reserve System and/or a primary government
securities dealer reporting to the Federal Reserve Bank of New York's Market
Reports Division or a broker/dealer which meet certain creditworthiness criteria
or which report U.S. Government securities positions to the Federal Reserve
Board. However, the Trustees reserve the right to change the criteria used to
select such financial institutions and broker/dealers. The Trustees will
regularly monitor the use of repurchase agreements and the Subadvisers will,
pursuant to procedures adopted by the Trustees, continuously monitor the amount
of collateral held with respect to a repurchase transaction so that it equals or
exceeds the amount of the obligations.
Should an issuer of a repurchase agreement fail to repurchase the
underlying obligation, the losses to the Portfolio, if any, would be the
difference between the repurchase price and the underlying obligation's market
value. A Portfolio might also incur certain costs in liquidating the underlying
obligation. Moreover, if bankruptcy or other insolvency proceedings should be
commenced with respect to the seller, realization upon the underlying obligation
by the Portfolio might be delayed or limited. Generally, repurchase agreements
are of a short duration, often less than one week but on occasion for longer
periods.
6. Warrants, Rights, Preferred Stock and Convertible Securities. Certain
of the portfolios may invest in warrants, rights, preferred stock and
convertible securities to the extent noted in the Prospectus. A warrant is a
security, usually issued together with a bond or preferred stock, that entitles
the holder to buy a proportionate amount of common stock at a specified price,
usually higher than the market price at the time of issuance, for a period of
years or to perpetuity. (For additional information on warrants see "Hedging and
Other Strategic Transactions - Warrant Transactions and Risks.") In contrast,
rights, which also represent the right to buy common shares, normally have a
subscription price lower than the current market value of the common stock and a
life of two to four weeks. A warrant is usually issued as a sweetener, to
enhance the marketability of the accompanying fixed income securities. Preferred
stock is a class of capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
Convertible securities are securities (usually preferred shares or bonds) that
are exchangeable for a set number of another form of securities (usually common
stock) at a prestated price. The convertible feature is usually designed as a
sweetener to enhance the marketability of the security.
7. Canadian and Provincial Government and Crown Agency Obligations.
Canadian Government obligations are debt securities issued or guaranteed as to
principal or interest by the Government of Canada pursuant to authority granted
by the Parliament of Canada and approved by the Governor in Council, where
necessary. These securities include treasury bills, notes, bonds, debentures and
marketable Government of Canada loans. Canadian Crown agency obligations are
debt securities issued or guaranteed by a Crown corporation, company or agency
("Crown agencies") pursuant to authority granted by the Parliament of Canada and
approved by the Governor in Council, where necessary. Certain Crown agencies are
by statute agents of Her Majesty in right of Canada, and their obligations, when
properly authorized, constitute direct obligations of the Government of Canada.
Such obligations include, but are not limited to, those issued or guaranteed by
the Export Development Corporation, Farm Credit Corporation, Federal Business
Development Bank and Canada Post Corporation. In addition, certain Crown
agencies which are not by law agents of Her Majesty may issue obligations which
by statute the Governor in Council may authorize the Minister of Finance to
guarantee on behalf of the Government of Canada. Other Crown agencies which are
not by law agents of Her Majesty may issue or guarantee obligations not entitled
to be guaranteed by the Government of Canada. No assurance can be given that the
Government of Canada will support the obligations of Crown agencies which are
not agents of Her Majesty, which it has not guaranteed, since it is not
obligated to do so by law.
Provincial Government obligations are debt securities issued or
guaranteed as to principal or interest by the government of any province of
Canada pursuant to authority granted by the Legislature of any such province and
approved by the Lieutenant Governor in Council of any such province, where
necessary. These securities include treasury bills, notes, bonds and debentures.
Provincial Crown agency obligations are debt securities issued or guaranteed by
a provincial Crown corporation, company or agency ("provincial Crown agencies")
pursuant to authority granted by a provincial Legislature and approved by the
Lieutenant Governor in Council of such province, where necessary. Certain
provincial Crown agencies are by statute agents of Her Majesty in right of a
particular province of Canada, and their obligations, when properly authorized,
constitute direct obligations of such province. Other provincial Crown agencies
which are not by law agents of Her Majesty in right of a particular province of
Canada may issue obligations which by statute the
5
<PAGE>
Lieutenant Governor in Council of such province may guarantee, or may authorize
the Treasurer thereof to guarantee, on behalf of the government of such
province. Finally, other provincial Crown agencies which are not by law agencies
of Her Majesty may issue or guarantee obligations not entitled to be guaranteed
by a provincial government. No assurance can be given that the government of any
province of Canada will support the obligations of provincial Crown agencies
which are not agents of Her Majesty, which it has not guaranteed, as it is not
obligated to do so by law. Provincial Crown agency obligations described above
include, but are not limited to, those issued or guaranteed by a provincial
railway corporation, a provincial hydroelectric or power commission or
authority, a provincial municipal financing corporation or agency and a
provincial telephone commission or authority.
Any Canadian obligation acquired by the Money Market Fund will be
denominated in U.S. dollars.
OTHER INSTRUMENTS
The following provides a more detailed explanation of some of the other
instruments that certain Portfolios may invest in.
1. Mortgage Securities
Mortgage securities differ from conventional bonds in that principal is
paid over the life of the securities rather than at maturity. As a result, a
Portfolio receives monthly scheduled payments of principal and interest, and may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. When a Portfolio reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest which is higher or lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of debt securities as a means of locking in long-term interest
rates.
In addition, because the underlying mortgage loans and assets may be
prepaid at any time, if a Portfolio purchases mortgage securities at a premium,
a prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if a Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected payments will reduce, yield to maturity.
Adjustable rate mortgage securities are similar to the mortgage
securities discussed above, except that unlike fixed rate mortgage securities,
adjustable rate mortgage securities are collateralized by or represent interests
in mortgage loans with variable rates of interest. These variable rates of
interest reset periodically to align themselves with market rates. Most
adjustable rate mortgage securities provide for an initial mortgage rate that is
in effect for a fixed period, typically ranging from three to twelve months.
Thereafter, the mortgage interest rate will reset periodically in accordance
with movements in a specified published interest rate index. The amount of
interest due to an adjustable rate mortgage holder is determined in accordance
with movements in a specified published interest rate index by adding a
pre-determined increment or "margin" to the specified interest rate index. Many
adjustable rate mortgage securities reset their interest rates based on changes
in the one-year, three-year and five-year constant maturity Treasury rates, the
three-month or six-month Treasury Bill rate, the 11th District Federal Home Loan
Bank Cost of Funds, the National Median Cost of Funds, the one-month,
three-month, six-month or one-year London Interbank Offered Rate ("LIBOR") and
other market rates.
A Portfolio will not benefit from increases in interest rates to the
extent that interest rates rise to the point where they cause the current coupon
of adjustable rate mortgages held as investments to exceed any maximum allowable
annual or lifetime reset limits (or "cap rates") for a particular mortgage. In
this event, the value of the mortgage securities in a Portfolio would likely
decrease. Also, the Portfolio's net asset value could vary to the extent that
current yields on adjustable rate mortgage securities are different than market
yields during interim periods between coupon reset dates. During periods of
declining interest rates, income to a Portfolio derived from adjustable rate
mortgages which remain in a mortgage pool will decrease in contrast to the
income on fixed rate mortgages, which will remain constant. Adjustable rate
mortgages also have less potential for appreciation in value as interest rates
decline than do fixed rate investments.
Privately-Issued Mortgage Securities. Privately-issued pass through
securities provide for the monthly principal and interest payments made by
individual borrowers to pass through to investors on a corporate basis, and in
privately-issued collateralized mortgage obligations, as further described
below. Privately-issued mortgage securities are issued by private originators
of, or investors in, mortgage loans, including mortgage bankers, commercial
banks, investment banks, savings and loan associations and special purpose
subsidiaries of the foregoing. Since privately-issued mortgage certificates are
not guaranteed by an entity having the credit status of GNMA or FHLMC, such
securities generally are structured with one or more types of credit
enhancement. For a description of the types of credit enhancements that may
accompany privately-issued mortgage securities, see "Asset-Backed
Securities--Types of Credit Support" below. A Portfolio will not limit its
investments to asset-backed securities with credit enhancements.
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Collateralized Mortgage Obligations ("CMOs"). CMOs generally are bonds
or certificates issued in multiple classes that are collateralized by or
represent an interest in mortgages. CMOs may be issued by single-purpose,
stand-alone finance subsidiaries or trusts of financial institutions, government
agencies, investment banks or other similar institutions. Each class of CMOs,
often referred to as a "tranche", may be issued with a specific fixed coupon
rate (which may be zero) or a floating coupon rate, and has a stated maturity or
final distribution date. Principal prepayments on the underlying mortgages may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrued on CMOs on a monthly,
quarterly or semiannual basis. The principal of and interest on the underlying
mortgages may be allocated among the several classes of a series of a CMO in
many ways. The general goal sought to be achieved in allocating cash flows on
the underlying mortgages to the various classes of a series of CMOs is to create
tranches on which the expected cash flows have a higher degree of predictability
than the underlying mortgages. As a general matter, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgages. The yields on these tranches are
relatively higher than on tranches with more predictable cash flows. Because of
the uncertainty of the cash flows on these tranches, and the sensitivity thereof
to changes in prepayment rates on the underlying mortgages, the market prices of
and yield on these tranches tend to be highly volatile.
CMOs purchased may be:
(1) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. Government;
(2) collateralized by pools of mortgages in which payment of principal
and interest is guaranteed by the issuer and the guarantee is
collateralized by U.S. Government securities; or
(3) securities for which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest is
supported by the credit of an agency or instrumentality of the U.S.
Government.
STRIPS. In addition to the U.S. Government securities discussed above,
certain Portfolios may invest in separately traded interest components of
securities issued or guaranteed by the U.S. Treasury. The interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the interest components are individually numbered and separately
issued by the U.S. Treasury at the request of depository financial institutions,
which then trade the component parts independently.
Stripped Mortgage Securities. Stripped mortgage securities are
derivative multiclass mortgage securities. Stripped mortgage securities may be
issued by agencies or instrumentalities of the U.S. Government, or by private
issuers, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped mortgage securities have greater volatility than other types of
mortgage securities in which a Portfolio invests. Although stripped mortgage
securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, stripped mortgage
securities are generally illiquid and to such extent, together with any other
illiquid investments, will not exceed 10% of a Portfolio's net assets.
Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a Portfolio's yield to maturity.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Portfolio may fail to fully recoup its initial
investment in these securities even if the securities have received the highest
rating by a nationally recognized statistical rating organization.
As interest rates rise and fall, the value of IOs tends to move in the
same direction as interest rates. The value of the other mortgage securities
described in this Statement of Additional Information, like other debt
instruments, will tend to move in the opposite direction of interest rates.
Accordingly, the Fund believes that investing in IOs, in conjunction with the
other mortgage securities described herein, will contribute to a Portfolio's
relatively stable net asset value.
In addition to the stripped mortgage securities described above, the
Strategic Income, High Yield and Value Funds may invest in similar securities
such as Super POs and Levered IOs which are more volatile than POs, IOs and
IOettes. Risks associated with instruments such as Super POs are similar in
nature to those risks related to investments in POs. Risks connected with
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Levered IOs and IOettes are similar in nature to those associated with IOs. The
Strategic Income Fund may also invest in other similar instruments developed in
the future that are deemed consistent with the investment objective, policies
and restrictions of the Portfolio.
Under the Internal Revenue Code of 1986, as amended (the "Code"), POs
may generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to a Portfolio. See "Taxes --
Pay-in-kind Bonds, Zero Coupon Bonds and Discount Obligations."
Inverse Floaters. The Strategic Income, High Yield, Value and National
Municipal Bond Funds may invest in inverse floaters, which are also derivative
mortgage securities. Inverse floaters may be issued by agencies or
instrumentalities of the U.S. Government, or by private issuers, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Inverse floaters have
greater volatility than other types of mortgage securities in which a Portfolio
invests (with the exception of stripped mortgage securities). Although inverse
floaters are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, inverse floaters are
generally illiquid and to such extent, together with any other illiquid
investments, will not exceed 10% of a Portfolio's net assets.
Inverse floaters are structured as a class of security that receives
distributions on a pool of mortgage assets and whose yields move in the opposite
direction of short-term interest rates and at an accelerated rate. Such
securities have the effect of providing a degree of investment leverage since
they will generally increase or decrease in value in response to changes in
market interest rates at a rate which is a multiple (typically two) of the rate
at which fixed-rate long-term debt obligations increase or decrease in response
to such changes. As a result, the market values of such securities will
generally be more volatile than the market value of fixed-rate obligations.
2. Asset-Backed Securities
The securitization techniques used to develop mortgage securities are
also being applied to a broad range of other assets. Through the use of trusts
and special purpose corporations, automobile and credit card receivables are
being securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure. Generally
the issuers of asset-backed bonds, notes or pass-through certificates are
special purpose entities and do not have any significant assets other than the
receivables securing such obligations. In general, the collateral supporting
asset-backed securities is of a shorter maturity than mortgage loans. As a
result, investment in these securities should result in greater price stability
for a Portfolio's shares. Instruments backed by pools of receivables are similar
to mortgage-backed securities in that they are subject to unscheduled
prepayments of principal prior to maturity. When the obligations are prepaid, a
Portfolio must reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. Therefore, a Portfolio's ability
to maintain a portfolio which includes high-yielding asset-backed securities
will be adversely affected to the extent that prepayments of principal must be
reinvested in securities which have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss. A Portfolio will only invest in asset-backed securities rated, at
the time of purchase, "AA" or better by S&P or "Aa" or better by Moody's or
which, in the opinion of the applicable Subadviser, are of comparable quality.
As with mortgage securities, asset-backed securities are often backed by
a pool of assets representing the obligations of a number of different parties
and use similar credit enhancement techniques. For a description of the types of
credit enhancement that may accompany privately-issued mortgage securities, see
"Types of Credit Support" below. A Portfolio will not limit its investments to
asset-backed securities with credit enhancements. Although asset-backed
securities are not generally traded on a national securities exchange, such
securities are widely traded by brokers and dealers, and to such extent will not
be considered illiquid securities for the purposes of the investment restriction
under "Investment Restrictions" below.
Types of Credit Support. Mortgage securities and asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties. To lessen the effect of failure by obligors on underlying
assets to make payments, such securities may contain elements of credit support.
Such credit support falls into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Fund will not pay any additional fees for
such credit support, although the existence of credit support may increase the
price of a security.
The ratings of mortgage securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the
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credit enhancement. The ratings of such securities could be subject to reduction
in the event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments sometimes funded from a
portion of the payments on the underlying assets are held in reserve against
future losses) and "over-collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceed those required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information with respect to the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such security.
3. Zero Coupon Securities and Pay-in-Kind Bonds
Zero coupon securities and pay-in-kind bonds involve special risk
considerations. Zero coupon securities are debt securities that do not provide
for the payment of cash income but are sold at substantial discounts from their
value at maturity. When a zero coupon security is held to maturity, its entire
return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference is
known at the time of purchase, so that investors holding zero coupon securities
until maturity know at the time of their investment what the return on their
investment will be. Certain zero coupon securities also are sold at substantial
discounts from their maturity value and provide for the commencement of regular
interest payments at a deferred date. The Portfolios also may purchase
pay-in-kind bonds. Pay-in-kind bonds are bonds that pay all or a portion of
their interest in the form of additional debt or equity securities. The U.S.
Government Securities Fund will not invest in zero coupon securities having
maturities of greater than ten years.
Zero coupon securities and pay-in-kind bonds tend to be subject to
greater price fluctuations in response to changes in interest rates than are
ordinary interest-paying debt securities with similar maturities. The value of
zero coupon securities appreciates more during periods of declining interest
rates and depreciates more during periods of rising interest rates.
Zero coupon securities and pay-in-kind bonds may be issued by a wide
variety of corporate and governmental issuers. Although zero coupon securities
and pay-in-kind bonds are generally not traded on a national securities
exchange, such securities are widely traded by brokers and dealers and, to such
extent, will not be considered illiquid for the purposes of the investment
restriction under "Investment Restrictions" below.
Current federal income tax law requires the holder of a zero coupon
security or certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its qualification
as a regulated investment company and avoid liability for federal income and
excise taxes, a Portfolio may be required to distribute income accrued with
respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements. See "TAXES -- Pay-in-kind Bonds, Zero Coupon Bonds
and Discount Obligations" below.
4. High Yield/High Risk Domestic Corporate Debt Securities
The market for high yield U.S. corporate debt securities (commonly known
as "junk bonds") has undergone significant changes in the past decade. Issuers
in the U.S. high yield market originally consisted primarily of growing small
capitalization companies and larger capitalization companies whose credit
quality had declined from investment grade. During the mid-1980s, participants
in the U.S. high yield market issued high yield securities principally in
connection with leveraged buyouts and other leveraged recapitalizations. In late
1989 and 1990, the volume of new issues of high yield U.S. corporate debt
declined significantly and liquidity in the market decreased. Since early 1991,
the volume of new issues of high yield U.S. corporate debt securities has
increased substantially and secondary market liquidity has improved. During the
same periods, the U.S. high yield debt market exhibited strong returns, as it
continues to be an attractive market in terms of yield and yield spread over
U.S. Treasury securities. Currently, most new offerings of U.S. high yield
securities are being issued to refinance higher coupon debt and to raise funds
for general corporate purposes.
High yield U.S. corporate debt securities include bonds, debentures,
notes and commercial paper and will generally be unsecured. Most of these debt
securities will bear interest at fixed rates. However, a Portfolio may also
invest in debt securities with variable rates of interest or which involve
equity features, such as contingent interest or participations based on
revenues, sales or profits (i.e., interest or other payments, often in addition
to a fixed rate of return, that are based on the borrower's attainment of
specified levels of revenues, sales or profits and thus enable the holder of the
security to share in the potential success of the venture).
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5. High Yield/High Risk Foreign Sovereign Debt Securities
The Strategic Income, High Yield and Investment Quality Bond Funds
expect that a significant portion of their emerging market governmental debt
obligations will consist of "Brady Bonds." In addition, the Worldwide Growth,
International Small Cap, and Balanced Funds may also invest in Brady Bonds.
Brady Bonds are debt securities, generally denominated in U.S. dollars, issued
under the framework of the "Brady Plan," an initiative announced by former U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
to restructure their outstanding external commercial bank indebtedness. The
Brady Plan framework, as it has developed, contemplates the exchange of external
commercial bank debt for newly issued bonds (Brady Bonds). Brady Bonds may also
be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. Investors should recognize that Brady
Bonds have been issued only recently, and accordingly do not have a long payment
history. Brady Bonds issued to date generally have maturities of between 15 and
30 years from the date of issuance and have traded at a deep discount from their
face value. The Portfolios may invest in Brady Bonds of emerging market
countries that have been issued to date, as well as those which may be issued in
the future. In addition to Brady Bonds, the Portfolios may invest in emerging
market governmental obligations issued as a result of debt restructuring
agreements outside of the scope of the Brady Plan. A substantial portion of the
Brady Bonds and other sovereign debt securities in which the Portfolios invest
are likely to be acquired at a discount, which involves certain considerations
discussed below under "TAXES -- Pay-in-kind Bonds, Zero Coupon Bonds and
Discount Obligations."
Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by a
debtor nation with its creditors. As a result, the financial packages offered by
each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt which carry a below-market stated rate of interest (generally known as par
bonds), bonds issued at a discount from the face value of such debt (generally
known as discount bonds), bonds bearing an interest rate which increases over
time and bonds issued in exchange for the advancement of new money by existing
lenders. Discount bonds issued to date under the framework of the Brady Plan
have generally borne interest computed semiannually at a rate equal to 13/16 of
one percent above the then current six month LIBOR rate. Regardless of the
stated face amount and stated interest rate of the various types of Brady Bonds,
the Portfolios will purchase Brady Bonds in secondary markets, as described
below, in which the price and yield to the investor reflect market conditions at
the time of purchase. Brady Bonds issued to date have traded at a deep discount
from their face value. Certain sovereign bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Certain Brady Bonds have
been collateralized as to principal due at maturity (typically 15 to 30 years
from the date of issuance) by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds. Collateral
purchases are financed by the International Monetary Fund (the "IMF"), the World
Bank and the debtor nations' reserves. In addition, interest payments on certain
types of Brady Bonds may be collateralized by cash or high-grade securities in
amounts that typically represent between 12 and 18 months of interest accruals
on these instruments with the balance of the interest accruals being
uncollateralized. The Portfolios may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with the terms of the Brady Bonds. Brady Bonds issued to date are purchased and
sold in secondary markets through U.S. securities dealers and other financial
institutions and are generally maintained through European transnational
securities depositories.
6. Municipal Lease Obligations
The National Municipal Bond Fund may invest in municipal lease
obligations. Municipal lease obligations are secured by revenues derived from
the lease of property to state and local government units. The underlying leases
typically are renewable annually by the governmental user, although the lease
may have a term longer than one year. If the governmental user does not
appropriate sufficient funds for the following year's lease payments, the lease
will terminate, with the possibility of default on the lease obligations and
significant loss to the Portfolio. In the event of a termination, assignment or
sublease by the governmental user, the interest paid on the municipal lease
obligation could become taxable, depending upon the identity of the succeeding
user.
7. Hybrid Instruments
Hybrid instruments (a type of potentially high-risk derivative) have
been developed and combine the elements of futures contracts or options with
those of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred
stock, depository share, trust certificate, certificate of deposit or other
evidence of indebtedness on which a portion of or all interest payments, and/or
the principal or stated amount payable at maturity, redemption or retirement, is
determined by reference to prices, changes in prices, or differences between
prices, of securities, currencies, intangibles, goods, articles or commodities
(collectively "Underlying Assets") or by another objective index, economic
factor or other measure, such as interest rates, currency exchange rates,
commodity indices, and securities indices (collectively "Benchmarks"). Thus,
Hybrid Instruments may take a variety of
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forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in time, preferred
stock with dividend rates determined by reference to the value of a currency, or
convertible securities with the conversion terms related to a particular
commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the Portfolio could limit the downside risk of the security
by establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest rates were
to rise significantly. The purpose of this arrangement, known as a structured
security with an embedded put option, would be to give the Portfolio the desired
European bond exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no guarantee that the
strategy will be successful and the Portfolio could lose money if, for example,
interest rates do not move as anticipated or credit problems develop with the
issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of
the risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future. Reference is also made to the
discussion below of futures, options, and forward contracts for a description of
certain risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the structure of
the particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may
bear interest at above market rates but bear an increased risk of principal loss
(or gain). The latter scenario may result if "leverage" is used to structure the
Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied to
produce a greater value change in the Hybrid Instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party or issuer of the Hybrid Instrument would be an additional risk
factor which the portfolio would have to consider and monitor. Hybrid
Instruments also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the trading of commodity
futures by U.S. persons, the SEC, which regulates the offer and sale of
securities by and to U.S. persons, or any other governmental regulatory
authority. The various risks discussed above, particularly the market risk of
such instruments, may in turn cause significant fluctuations in the net asset
value of the Portfolio.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
As described in the Prospectus under "Hedging and Other Strategic
Transactions", an individual Portfolio may be authorized to use a variety of
investment strategies. These strategies will be used for hedging purposes only,
including hedging various market risks (such as interest rates, currency
exchange rates and broad or specific market movements), and managing the
effective maturity or
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duration of debt instruments held by the Portfolio, (such investment strategies
and transactions are referred to herein as "Hedging and Other Strategic
Transactions"). The description in the Prospectus of each Portfolio indicates
which, if any, of these types of transactions may be used by the Portfolio.
A detailed discussion of Hedging and Other Strategic Transactions
follows below. No Portfolio which is authorized to use any of these investment
strategies will be obligated, however, to pursue any of such strategies and no
Portfolio makes any representation as to the availability of these techniques at
this time or at any time in the future. In addition, a Portfolio's ability to
pursue certain of these strategies may be limited by the Commodity Exchange Act,
as amended, applicable rules and regulations of the Commodity Futures Trading
Commission ("CFTC") thereunder and the federal income tax requirements
applicable to regulated investment companies which are not operated as commodity
pools.
General Characteristics of Options
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging and Other Strategic Transactions
involving options require segregation of Portfolio assets in special accounts,
as described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
A Portfolio's purchase of a put option on a security, for example, might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
of such instrument by giving the Portfolio the right to sell the instrument at
the option exercise price. A call option, upon payment of a premium, gives the
purchaser of the option the right to buy, and the seller the obligation to sell,
the underlying instrument at the exercise price. A Portfolio's purchase of a
call option on a security, financial futures contract, index, currency or other
instrument might be intended to protect the Portfolio against an increase in the
price of the underlying instrument that it intends to purchase in the future by
fixing the price at which it may purchase the instrument. An "American" style
put or call option may be exercised at any time during the option period,
whereas a "European" style put or call option may be exercised only upon
expiration or during a fixed period prior to expiration. Exchange-listed options
are issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties to
the options. The discussion below uses the OCC as an example, but is also
applicable to other similar financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions,
generally settle by physical delivery of the underlying security or currency,
although in the future, cash settlement may become available. Index options and
Eurodollar instruments (which are described below under "Eurodollar
Instruments") are cash settled for the net amount, if any, by which the option
is "in-the-money" (that is, the amount by which the value of the underlying
instrument exceeds, in the case of a call option, or is less than, in the case
of a put option, the exercise price of the option) at the time the option is
exercised. Frequently, rather than taking or making delivery of the underlying
instrument through the process of exercising the option, listed options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option.
A Portfolio's ability to close out its position as a purchaser or seller
of an OCC-issued or exchange-listed put or call option is dependent, in part,
upon the liquidity of the particular option market. Among the possible reasons
for the absence of a liquid option market on an exchange are: (1) insufficient
trading interest in certain options, (2) restrictions on transactions imposed by
an exchange, (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
including reaching daily price limits, (4) interruption of the normal operations
of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the relevant market for that option on that exchange
would cease to exist, although any such outstanding options on that exchange
would continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
Over-the-counter ("OTC") options are purchased from or sold to
securities dealers, financial institutions or other parties (collectively
referred to as "Counterparties" and individually referred to as a
"Counterparty") through a direct bilateral agreement with the Counterparty. In
contrast to exchange-listed options, which generally have standardized terms and
performance mechanics, all of the terms of an OTC option, including such terms
as method of settlement, term, exercise price, premium, guaranties and security,
are determined by negotiation of the parties. It is anticipated that any
Portfolio authorized to use OTC options will generally only enter into OTC
options that have cash settlement provisions, although it will not be required
to do so.
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Unless the parties provide for it, no central clearing or guaranty
function is involved in an OTC option. As a result, if a Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the
Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Thus, the Subadviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be met. A Portfolio will enter into OTC option
transactions only with U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers," or broker-dealers,
domestic or foreign banks, or other financial institutions that are deemed
creditworthy by the Subadviser. In the absence of a change in the current
position of the staff of the Securities and Exchange Commission (the
"Commission"), OTC options purchased by a Portfolio and the amount of the
Portfolio's obligation pursuant to an OTC option sold by the Portfolio (the cost
of the sell-back plus the in-the-money amount, if any) or the value of the
assets held to cover such options will be deemed illiquid.
If a Portfolio sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments held by the
Portfolio or will increase the Portfolio's income. Similarly, the sale of put
options can also provide Portfolio gains.
If and to the extent authorized to do so, a Portfolio may purchase and
sell call options on securities and on Eurodollar instruments that are traded on
U.S. and foreign securities exchanges and in the OTC markets, and on securities
indices, currencies and futures contracts. All calls sold by a Portfolio must be
"covered," that is, the Portfolio must own the securities subject to the call,
must own an offsetting option on a futures position, or must otherwise meet the
asset segregation requirements described below for so long as the call is
outstanding. Even though a Portfolio will receive the option premium to help
protect it against loss, a call sold by the Portfolio will expose the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Portfolio to hold a security or instrument that it might
otherwise have sold.
Each Portfolio reserves the right to purchase or sell options on
instruments and indices which may be developed in the future to the extent
consistent with applicable law, the Portfolio's investment objective and the
restrictions set forth herein.
If and to the extent authorized to do so, a Portfolio may purchase and
sell put options on securities (whether or not it holds the securities in its
portfolio) and on securities indices, currencies and futures contracts. A
Portfolio will not sell put options if, as a result, more than 50% of the
Portfolio's assets would be required to be segregated to cover its potential
obligations under put options other than those with respect to futures
contracts. In selling put options, a Portfolio faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures Contracts and Options on Futures Contracts
If and to the extent authorized to do so, a Portfolio may trade
financial futures contracts or purchase or sell put and call options on those
contracts as a hedge against anticipated interest rate, currency or market
changes, for duration management and for permissible non-hedging purposes.
Futures contracts are generally bought and sold on the commodities exchanges on
which they are listed with payment of initial and variation margin as described
below. The sale of a futures contract creates a firm obligation by a Portfolio,
as seller, to deliver to the buyer the specific type of financial instrument
called for in the contract at a specific future time for a specified price (or,
with respect to certain instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract and obligates the seller to deliver
that position.
A Portfolio's use of financial futures contracts and options thereon
will in all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the CFTC and generally will be entered
into only for bona fide hedging, risk management (including duration
management). Maintaining a futures contract or selling an option on a futures
contract will typically require a Portfolio to deposit with a financial
intermediary, as security for its obligations, an amount of cash or other
specified assets ("initial margin") that initially is from 1% to 10% of the face
amount of the contract (but may be higher in some circumstances). Additional
cash or assets ("variation margin") may be required to be deposited thereafter
daily as the mark-to-market value of the futures contract fluctuates. The
purchase of an option on a financial futures contract involves payment of a
premium for the option without any further obligation on the part of a
Portfolio. If a Portfolio exercises an option on a futures contract it will be
obligated to post initial margin (and potentially variation margin) for the
resulting futures position just as it would for any futures position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position can be
offset prior to settlement or that delivery will occur.
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The value of all futures contracts sold by a Portfolio (adjusted for the
historical volatility relationship between such Portfolio and the contracts)
will not exceed the total market value of the Portfolio's securities. The
segregation requirements with respect to futures contracts and options thereon
are described below under "Use of Segregated and Other Special Accounts."
Options on Securities Indices and Other Financial Indices
If and to the extent authorized to do so, a Portfolio may purchase and
sell call and put options on securities indices and other financial indices. In
so doing, the Portfolio can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, options on indices
settle by cash settlement; that is, an option on an index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the index upon which the option is based exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
(except if, in the case of an OTC option, physical delivery is specified). This
amount of cash is equal to the excess of the closing price of the index over the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount. The gain or loss on an option on an index depends
on price movements in the instruments comprising the market, market segment,
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities.
Currency Transactions
If and to the extent authorized to do so, a Portfolio may engage in
currency transactions with Counterparties to hedge the value of portfolio
securities denominated in particular currencies against fluctuations in relative
value. Currency transactions include currency forward contracts, exchange-listed
currency futures contracts and options thereon, exchange-listed and OTC options
on currencies, and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below under "Swaps, Caps,
Floors and Collars". A Portfolio may enter into currency transactions only with
Counterparties that are deemed creditworthy by the Subadviser.
A Portfolio's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging and other non-speculative purposes,
including transaction hedging and position hedging. Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of the Portfolio's portfolio securities or the receipt of
income from them. Position hedging is entering into a currency transaction with
respect to portfolio securities positions denominated or generally quoted in
that currency. A Portfolio will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held by the Portfolio
that are denominated or generally quoted in or currently convertible into the
currency, other than with respect to proxy hedging as described below.
A Portfolio may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or decline
in value relative to other currencies to which the Portfolio has or in which the
Portfolio expects to have exposure. To reduce the effect of currency
fluctuations on the value of existing or anticipated holdings of its securities,
a Portfolio may also engage in proxy hedging. Proxy hedging is often used when
the currency to which a Portfolio's holdings is exposed is difficult to hedge
generally or difficult to hedge against the dollar. Proxy hedging entails
entering into a forward contract to sell a currency, the changes in the value of
which are generally considered to be linked to a currency or currencies in which
some or all of a Portfolio's securities are or are expected to be denominated,
and to buy dollars. The amount of the contract would not exceed the market value
of the Portfolio's securities denominated in linked currencies.
Currency transactions are subject to risks different from other
portfolio transactions, as discussed below under "Risk Factors." If a Portfolio
enters into a currency hedging transaction, the Portfolio will comply with the
asset segregation requirements described below under "Use of Segregated and
Other Special Accounts."
Combined Transactions
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If and to the extent authorized to do so, a Portfolio may enter into
multiple transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts), multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions, instead of a single Hedging
and Other Strategic Transaction, as part of a single or combined strategy when,
in the judgment of the Subadviser, it is in the best interests of the Portfolio
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
will normally be entered into by a Portfolio based on the Subadviser's judgment
that the combined strategies will reduce risk or otherwise more effectively
achieve the desired portfolio management goal, it is possible that the
combination will instead increase the risks or hinder achievement of the
portfolio management objective.
Swaps, Caps, Floors and Collars
A Portfolio may be authorized to enter into interest rate, currency and
index swaps, the purchase or sale of related caps, floors and collars and other
derivatives. A Portfolio will enter into these transactions primarily to seek to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities a
Portfolio anticipates purchasing at a later date. A Portfolio will use these
transactions for non-speculative purposes and will not sell interest rate caps
or floors if it does not own securities or other instruments providing the
income the Portfolio may be obligated to pay. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). A currency
swap is an agreement to exchange cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap entitles
the purchaser to receive payments on a notional principal amount from the party
selling the cap to the extent that a specified index exceeds a predetermined
interest rate. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor to the extent that a specified index falls below
a predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specific index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return with a predetermined range of interest
rates or values.
A Portfolio will usually enter into interest rate swaps on a net basis,
that is, the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments. Inasmuch
as these swaps, caps, floors, collars and other similar derivatives are entered
into for good faith hedging or other non-speculative purposes, they do not
constitute senior securities under the Investment Company Act of 1940, as
amended (the "1940 Act"), and, thus, will not be treated as being subject to the
Portfolio's borrowing restrictions. A Portfolio will not enter into any swap,
cap, floor, collar or other derivative transaction unless the Counterparty is
deemed creditworthy by the Subadviser. If a Counterparty defaults, a Portfolio
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by a Subadviser
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a Portfolio's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed to be within the 10% restriction on investments in securities that are
not readily marketable.
Each Portfolio will maintain cash and appropriate liquid assets (i.e.,
high grade debt securities) in a segregated custodial account to cover its
current obligations under swap agreements. If a Portfolio enters into a swap
agreement on a net basis, it will segregate assets with a daily value at least
equal to the excess, if any, of the Portfolio's accrued obligations under the
swap agreement over the accrued amount the Portfolio is entitled to receive
under the agreement. If a Portfolio enters into a swap agreement on other than a
net basis, it will segregate assets with a value equal to the full amount of the
Portfolio's accrued obligations under the agreement. See "Use of Segregated and
Other Special Accounts."
Eurodollar Instruments
If and to the extent authorized to do so, a Portfolio may make
investments in Eurodollar instruments, which are typically dollar-denominated
futures contracts or options on those contracts that are linked to the London
Interbank Offered Rate ("LIBOR"), although foreign currency denominated
instruments are available from time to time. Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. A Portfolio might use Eurodollar futures contracts
and options thereon to hedge against changes in LIBOR, to which many interest
rate swaps and fixed income instruments are linked.
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Municipal Bond Index Futures Contracts
The National Municipal Bond Fund may enter into municipal bond index
futures contracts. A municipal bond index futures contract is an agreement to
take or make delivery of an amount of cash equal to the difference between the
value of the index at the beginning and at the end of the contract period. The
National Municipal Bond Fund may enter into short municipal bond index futures
contracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its respective portfolio that might
otherwise result. When the Portfolio is not fully invested in securities and
anticipates a significant market advance, it may enter into long municipal bond
index futures contracts in order to gain rapid market exposure that may wholly
or partially offset increases in the costs of securities that it intends to
purchase. In a substantial majority of these transactions, the Portfolio will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of securities.
Risk Factors
Hedging and Other Strategic Transactions have special risks associated
with them, including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Subadviser's view as to certain market
movements is incorrect, the risk that the use of the Hedging and Other Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options could result in losses to a Portfolio, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, or cause a Portfolio to hold a security it might otherwise sell.
The use of futures and options transactions entails certain special
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related securities position of a
Portfolio could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Portfolio's position. In addition,
futures and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
a Portfolio might not be able to close out a transaction without incurring
substantial losses. Although a Portfolio's use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time it will tend to
limit any potential gain to a Portfolio that might result from an increase in
value of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is limited to the cost of the
initial premium.
Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to a Portfolio if the currency being hedged fluctuates in value to a
degree or in a direction that is not anticipated. Further, the risk exists that
the perceived linkage between various currencies may not be present or may not
be present during the particular time that a Portfolio is engaging in proxy
hedging. Currency transactions are also subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to a Portfolio if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures contracts are subject to the same risks that apply
to the use of futures contracts generally. Further, settlement of a currency
futures contract for the purchase of most currencies must occur at a bank based
in the issuing nation. Trading options on currency futures contracts is
relatively new, and the ability to establish and close out positions on these
options is subject to the maintenance of a liquid market that may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Losses resulting from the use of Hedging and Other Strategic
Transactions will reduce a Portfolio's net asset value, and possibly income, and
the losses can be greater than if Hedging and Other Strategic Transactions had
not been used.
Risks of Hedging and Other Strategic Transactions Outside the United States
When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may not
involve a clearing mechanism and related guarantees, and will be subject to the
risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Hedging and Other Strategic Transactions also could be
adversely affected by: (1) other complex foreign political, legal and economic
factors, (2) lesser availability of data on which to make trading decisions than
in the United States, (3) delays in a Portfolio's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (5) lower
trading volume and liquidity.
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Use of Segregated and Other Special Accounts
Use of many Hedging and Other Strategic Transactions by a Portfolio will
require, among other things, that the Portfolio segregate cash, liquid high
grade debt obligations or other assets with its custodian, or a designated
sub-custodian, to the extent the Portfolio's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a Portfolio to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade debt obligations
at least equal to the current amount of the obligation must be segregated with
the custodian or sub-custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. A call option on securities written by a
Portfolio, for example, will require the Portfolio to hold the securities
subject to the call (or securities convertible into the needed securities
without additional consideration) or to segregate liquid high grade debt
obligations sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Portfolio on an index will require the
Portfolio to own portfolio securities that correlate with the index or to
segregate liquid high grade debt obligations equal to the excess of the index
value over the exercise price on a current basis. A put option on securities
written by a Portfolio will require the Portfolio to segregate liquid high grade
debt obligations equal to the exercise price. Except when a Portfolio enters
into a forward contract in connection with the purchase or sale of a security
denominated in a foreign currency or for other non-speculative purposes, which
requires no segregation, a currency contract that obligates the Portfolio to buy
or sell a foreign currency will generally require the Portfolio to hold an
amount of that currency, liquid securities denominated in that currency equal to
a Portfolio's obligations or to segregate liquid high grade debt obligations
equal to the amount of the Portfolio's obligations.
OTC options entered into by a Portfolio, including those on securities,
currency, financial instruments or indices, and OCC-issued and exchange-listed
index options will generally provide for cash settlement, although a Portfolio
will not be required to do so. As a result, when a Portfolio sells these
instruments it will segregate an amount of assets equal to its obligations under
the options. OCC-issued and exchange-listed options sold by a Portfolio other
than those described above generally settle with physical delivery, and the
Portfolio will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.
In the case of a futures contract or an option on a futures contract, a
Portfolio must deposit initial margin and, in some instances, daily variation
margin in addition to segregating assets sufficient to meet its obligations to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may consist of cash,
cash equivalents, liquid high grade debt or equity securities or other
acceptable assets. A Portfolio will accrue the net amount of the excess, if any,
of its obligations relating to swaps over its entitlements with respect to each
swap on a daily basis and will segregate with its custodian, or designated
sub-custodian, an amount of cash or liquid high grade debt obligations having an
aggregate value equal to at least the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to a Portfolio's net
obligation, if any.
Hedging and Other Strategic Transactions may be covered by means other
than those described above when consistent with applicable regulatory policies.
A Portfolio may also enter into offsetting transactions so that its combined
position, coupled with any segregated assets, equals its net outstanding
obligation in related options and Hedging and Other Strategic Transactions. A
Portfolio could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Portfolio. Moreover, instead of segregating assets if it holds a futures
contracts or forward contract, a Portfolio could purchase a put option on the
same futures contract or forward contract with a strike price as high or higher
than the price of the contract held. Other Hedging and Other Strategic
Transactions may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction, no segregation is
required, but if it terminates prior to that time, assets equal to any remaining
obligation would need to be segregated.
Other Limitations
No Portfolio will maintain open short positions in futures contracts,
call options written on futures contracts, and call options written on
securities indices if, in the aggregate, the current market value of the open
positions exceeds the current market value of that portion of its securities
portfolio being hedged by those futures and options plus or minus the unrealized
gain or loss on those open positions, adjusted for the historical volatility
relationship between that portion of the Portfolio and the contracts (e.g., the
Beta volatility factor). For purposes of the limitation stated in the
immediately preceding sentence, to the extent the Portfolio has written call
options on specific securities in that portion of its portfolio, the value of
those securities will be deducted from the current market value of that portion
of the securities portfolio. If this limitation should be exceeded at any time,
the Portfolio will take prompt action to close out the appropriate number of
open short positions to bring its open futures and options positions within this
limitation.
Warrant Transactions and Risks
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Subject to certain restrictions described under "INVESTMENT
RESTRICTIONS" below, each of the Portfolios (other than the Money Market Fund)
may purchase warrants, including warrants traded independently of the underlying
securities. Such transactions entail certain risks. Warrants may be considered
more speculative than certain other types of investments in that prior to their
exercise they do not entitle a holder to dividends and voting rights with
respect to the securities which may be purchased by the exercise thereof, nor do
they represent any rights in the assets of the issuing company. Also, the value
of the warrant does not necessarily change with the value of the underlying
security. If a warrant expires unexercised, the Portfolio will lose the amount
paid for the warrant and any transaction costs.
The degree to which a Portfolio may utilize Hedging and Other Strategic
Transactions may also be affected by certain provisions of the Code.
INVESTMENT RESTRICTIONS
There are two classes of investment restrictions to which the Fund is
subject in implementing the investment policies of the Portfolios: fundamental
and nonfundamental. Nonfundamental restrictions are subject to change by the
Trustees of the Fund without shareholder approval. Fundamental restrictions may
only be changed by a vote of the lesser of (i) 67% or more of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares.
With respect to the submission of a change in an investment restriction
to the holders of the Fund's outstanding voting securities, the matter shall be
deemed to have been effectively acted upon with respect to a particular
Portfolio if a majority of the outstanding voting securities of the Portfolio
vote for the approval of the matter, notwithstanding (1) that the matter has not
been approved by the holders of a majority of the outstanding voting securities
of any other Portfolio affected by the matter, and (2) that the matter has not
been approved by the vote of a majority of the outstanding voting securities of
the Fund.
All of the restrictions through restriction (8) are fundamental.
Restrictions (9) through (20) are nonfundamental.
Fundamental
The Fund may not issue senior securities, except to the extent that the
borrowing of money in accordance with restriction (3) may constitute the
issuance of a senior security. (For purposes of this restriction, purchasing
securities on a when-issued or delayed delivery basis and engaging in Hedging
and Other Strategic Transactions will not be deemed to constitute the issuance
of a senior security.) In addition, unless a Portfolio is specifically excepted
by the terms of a restriction, each Portfolio will not:
(1) Invest more than 25% of the value of its total assets in securities
of issuers having their principal activities in any particular industry,
excluding U.S. Government securities and, with respect to the Money Market Fund,
obligations of domestic branches of U.S. banks and with respect to the National
Municipal Bond Fund, obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or by any state, territory or any possession
of the United States, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions, or with respect to
repurchase agreements collateralized by any of such obligations. The Real Estate
Securities Fund is not subject to this restriction. For purposes of this
restriction, supranational issuers will be considered to comprise an industry as
will each foreign government that issues securities purchased by a Portfolio.
(2) Purchase the securities of any issuer if the purchase would cause
more than 5% of the value of the Portfolio's total assets to be invested in the
securities of any one issuer (excluding U.S. Government securities) or cause
more than 10% of the voting securities of the issuer to be held by the
Portfolio, except that up to 25% of the value of each Portfolio's total assets
may be invested without regard to these restrictions. The Global Government Bond
Fund, the Emerging Growth Fund and the Lifestyle Funds are not subject to this
restriction.
(3) Borrow money except that each Portfolio may borrow (i) for temporary
or emergency purposes (not for leveraging) up to 33 1/3% of the value of the
Portfolio's total assets (including amounts borrowed) less liabilities (other
than borrowings) and (ii) in connection with reverse repurchase agreements,
mortgage dollar rolls and other similar transactions.
(4) Underwrite securities of other issuers except insofar as the Fund
may be considered an underwriter under the Securities Act of 1933 in selling
portfolio securities.
18
<PAGE>
(5) Purchase or sell real estate, except that each Portfolio may invest
in securities issued by companies which invest in real estate or interests
therein and each of the Portfolios other than the Money Market Fund may invest
in mortgages and mortgage-backed securities.
(6) Purchase or sell commodities or commodity contracts except that each
Portfolio other than the Investment Quality Bond and Money Market Funds may
purchase and sell futures contracts on financial instruments and indices and
options on such futures contracts, and the Emerging Growth, Pacific Rim Emerging
Markets, International Stock, Worldwide Growth, Science & Technology, Blue Chip
Growth, Value, Equity Income, Small/Mid Cap, International Small Cap, Growth
Equity, Global Equity, Strategic Income and International Growth and Income
Funds may purchase and sell futures contracts on foreign currencies and options
on such futures contracts. The U.S. Government Securities Fund has elected for
the present to not engage in the purchase or sale of commodities or commodity
contracts to the extent permitted by this restriction, but it reserves the right
to engage in such transactions at a future time.
(7) Lend money to other persons except by the purchase of obligations in
which the Portfolio is authorized to invest and by entering into repurchase
agreements. For purposes of this restriction, collateral arrangements with
respect to options, forward currency and futures transactions will not be deemed
to involve the lending of money.
(8) Lend securities in excess of 33% of the value of its total non-cash
assets. For purposes of this restriction, collateral arrangements with respect
to options, forward currency and futures transactions will not be deemed to
involve loans of securities.
Nonfundamental
(9) Knowingly invest more than 10% of the value of its net assets in
securities or other investments not readily marketable, including repurchase
agreements maturing in more than seven days but excluding variable amount master
demand notes.
(10) Purchase any security if as a result the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old.
(11) Sell securities short or purchase securities on margin except that
it may obtain such short-term credits as may be required to clear transactions.
For purposes of this restriction, collateral arrangements with respect to
Hedging and Other Strategic Transactions will not be deemed to involve the use
of margin.
(12) Write or purchase options on securities, financial indices or
currencies except to the extent a Portfolio is specifically authorized to engage
in Hedging and Other Strategic Transactions.
(13) Purchase securities for the purpose of exercising control or
management.
(14) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the Portfolio's total assets to be
invested in investment company securities, provided that (i) no investment will
be made in the securities of any one investment company if immediately after
such investment more than 3% of the outstanding voting securities of such
company would be owned by the Portfolio or more than 5% of the value of the
Portfolio's total assets would be invested in such company and (ii) no
restrictions shall apply to a purchase of investment company securities in
connection with a merger, consolidation or reorganization or in connection with
the investment of collateral received in connection with the lending of
securities in the Navigator Securities Lending Trust. For purposes of this
restriction, privately issued collateralized mortgage obligations will not be
treated as investment company securities if issued by "Exemptive Issuers".
Exemptive Issuers are defined as unmanaged, fixed-asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue redeemable securities
as defined in section 2(a)(32) of the 1940 Act, (c) operate under general
exemptive orders exempting them from "all provisions of the Investment Company
Act of 1940," and (d) are not registered or regulated under the 1940 Act as
investment companies. This restriction (14) shall not apply to the Lifestyle
Funds.
(15) Pledge, hypothecate, mortgage or transfer (except as provided in
restriction (8) as security for indebtedness) any securities held by the
Portfolio, except in an amount of not more than 10% (33 1/3% in the case of the
Blue Chip Growth, Equity-Income, International Stock and Science & Technology
Funds, 15% in the case of the International Small Cap, Growth Equity, Balanced
and Worldwide Growth Funds and 50% in the case of the Value Trust) of the value
of the Portfolio's total assets and then only to secure borrowings permitted by
restrictions (3) and (11). For purposes of this restriction, collateral
arrangements with respect to Hedging and Other Strategic Transactions will not
be deemed to involve a pledge of assets.
(16) Invest in securities of any issuer if, to the knowledge of the
Portfolio, any officer or Trustee of the Fund or officer or director of the
Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer,
19
<PAGE>
(17) Purchase interests in oil, gas or other mineral exploration or
development programs or leases, except that it may acquire the securities of
companies engaged in the production or transmission of oil, gas or other
minerals.
(18) Purchase warrants if, as a result, the Portfolio would then have
more than 10% of its total net assets (taken at the lower of cost or current
value) invested in warrants, or if more than 5% of the value of the Portfolio's
total net assets would be invested in warrants which are not listed on a
recognized United States or foreign stock exchange, except for warrants included
in units or attached to other securities.
(19) Purchase securities of foreign issuers, except that (A) the
International Small Cap, Capital Growth Bond, Real Estate Securities, Common
Stock, Global Equity, Worldwide Growth, High Yield, International Growth and
Income, International Stock, Strategic Income, Global Government Bond, and
Pacific Rim Emerging Markets Funds may each, without limitation, invest up to
100% of its assets in securities issued by foreign entities and/or denominated
in foreign currencies, (B) the Balanced, Science and Technology, and Growth
Equity Funds may each invest up to 30% of its assets in such securities, (C) the
Equity-Income Fund may invest up to 25% of its assets in such securities, (D)
the Pilgrim Baxter Growth Fund may invest up to 15% of its assets in such
securities, (E) the Value Fund may invest up to 5% of its assets in such
securities, and (F) each of the other portfolios (other than the U.S. Government
Securities, National Municipal Bond and Equity Index Funds) may invest up to 20%
of its assets in securities issued by foreign entities and/or denominated in
foreign currencies. (In the case of the Small/Mid Cap, Growth Equity, Balanced
and Value Funds, ADRs and U.S. dollar denominated securities are not included in
the percentage limitation.)
(20) Purchase or sell real estate limited partnership interests.
In addition to the above policies, the Money Market Fund is subject to
certain restrictions required by Rule 2a-7 under the 1940 Act. In order to
comply with such restrictions, the Money Market Fund will, among other things,
not purchase the securities of any issuer if it would cause (i) more than 5% of
its total assets to be invested in the securities of any one issuer (excluding
U.S. Government securities and repurchase agreements fully collateralized by
U.S. Government securities), except as permitted by Rule 2a-7 for certain
securities for a period of up to three business days after purchase, (ii) more
than 5% of its total assets to be invested in "second tier securities," as
defined by Rule 2a-7, or (iii) more than the greater of $1 million or 1% of its
total assets to be invested in the second tier securities of that issuer.
For the purposes of the investment limitations applicable to the
National Municipal Bond Fund, the identification of the issuer of a municipal
obligation depends on the terms and conditions of the obligation. If the assets
and revenues of an agency, authority, instrumentality, or other political
subdivision are separate from those of the government creating the subdivision
and the obligation is backed only by the assets and revenues of the subdivision,
such subdivision would be regarded as the sole issuer. Similarly, in the case of
a private activity bond, if the bond is backed only by the assets and revenues
of the non-governmental user, such non-governmental user would be regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the guarantee would be considered a separate security
and treated as an issue of such government or entity.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in the investment's percentage of the value of a
Portfolio's total assets resulting from a change in such values or assets will
not constitute a violation of the percentage restriction, except in the case of
the Money Market Fund where the percentage limitation of restriction (9) must be
met at all times.
PORTFOLIO TURNOVER
The annual rate of portfolio turnover will normally differ for each
Portfolio and may vary from year to year. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the Portfolio's securities
(excluding from the computation all securities, including options, with
maturities at the time of acquisition of one year or less). A high rate of
portfolio turnover (in excess of 100%) generally involves correspondingly
greater brokerage commission expenses, which must be borne directly by the
Portfolio. No portfolio turnover rate can be calculated for the Money Market
Fund due to the short maturities of the instruments purchased. The portfolio
turnover rates for the Portfolios of the Fund in existence prior to December 31,
1996 for the periods shown below were as follows:
<TABLE>
<CAPTION>
11/1/94 11/1/95
to to
10/31/95 10/31/96
<S> <C> <C>
Small/Mid Cap....................... NA %**
International Small Cap............. NA %**
Growth Equity....................... NA %**
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Global Equity....................... 57% %
Equity-Income....................... 54% %
Growth and Income................... 40% %
Balanced............................ 226% %
Strategic Income.................... 180% %
Investment Quality Bond............. 132% %
U.S. Govt. Securities............... 469% %
National Municipal Bond 44% %
International Growth and Income 69%* %
</TABLE>
* For the period January 9, 1995 (commencement of operations) to October
31, 1995.
** For the period March 4, 1996 (commencement of operations) to October
31, 1996.
Anticipated portfolio turnover rates (based on normal circumstances) for
newer portfolios are as follows:
<TABLE>
<CAPTION>
<S> <C>
Emerging Growth Fund .......................................... xxx%
Pilgrim Baxter Growth Fund .................................... 800%
Pacific Rim Emerging Markets Fund ............................. xxx%
International Stock Fund ...................................... xxx%
Worldwide Growth Fund ......................................... xxx%
Science & Technology Fund ..................................... xxx%
Growth Equity Fund ............................................ 175%
Common Stock Fund ............................................. xxx%
Real Estate Securities Fund ................................... xxx%
Blue Chip Growth Fund ......................................... xxx%
Value Fund .................................................... xxx%
Equity Index Fund ............................................. xxx%
High Yield Fund ............................................... xxx%
Global Government Bond Fund ................................... xxx%
Capital Growth Bond Fund ...................................... xxx%
Conservative Lifestyle Fund ................................... xxx%
Moderate Lifestyle Fund ....................................... xxx%
Balanced Lifestyle Fund ....................................... xxx%
Growth Lifestyle Fund ......................................... xxx%
Aggressive Lifestyle Fund ..................................... xxx%
</TABLE>
Prior rates of portfolio turnover do not provide an accurate guide as to what
the rate will be in any future year, and prior rates and estimated rates are not
a limiting factor when it is deemed appropriate to purchase or sell securities
for a Portfolio. Each Portfolio of the Fund intends to comply with the various
requirements of the Code so as to qualify as a "regulated investment company"
thereunder. One such requirement is that a Portfolio must derive less than 30%
of its gross income from gains on the sale or other disposition of stock or
securities held for less than three months. Accordingly, the ability of a
particular Portfolio to effect certain portfolio transactions may be limited.
MANAGEMENT OF THE FUND
The Trustees and officers of the Fund, together with information as to
their principal occupations during the past five years, are listed below:
<TABLE>
<CAPTION>
Name, Address and Age Position Principal Occupation
with the During Past Five
Fund Years
<S> <C> <C>
Don B. Allen Trustee Senior Lecturer,
136 Knickerbocker Rd. William E. Simon
Pittsford, NY Graduate School of
14534 Business Admin.,
Age: 68 University of
Rochester.
Charles L. Bardelis Trustee President and Chief
297 Dillingham Avenue Executive Officer, Island Commuter Corporation
Falmouth, MA 02540 (marine transport).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Address and Age Position Principal Occupation
with the During Past Five
Fund Years
Age: 55
Joe Scott President President, North American Funds, September 25,
116 Huntington Avenue 1996 to the present; Vice President, Business
Boston, MA 02116 Development and Marketing of North American
Age: 47 Funds, January 1, 1996 to September 25, 1996;
Annuities Vice President, U.S. Savings and
Retirement Services Division, of Manulife,
January 1, 1995 to December 31, 1995;
Distribution Vice President, U.S. Group and
Pension Division, of Manulife, January 1, 1990
to December 31, 1994.
Samuel Hoar Trustee Senior Mediator, Judicial Arbitration Mediation
73 Tremont Street Services "JAMS/Endispute", June 1, 1994 to date;
Boston, MA 02109 Partner, Goodwin, Proctor & Hoar, prior to June
Age: 68 1, 1994.
Robert J. Myers Trustee Consulting Actuary (self-employed), April 1983 to
9610 Wire Avenue date; Member, Prospective Payment Assessment
Silver Spring, MD 20901 Commission, June 1993 to present; Chairman,
Age: 83 Commission on Railroad Retirement Reform
1988-1990.
John D. Richardson* Chairman Senior Vice President and General Manager, U.S.
200 Bloor Street East of the Operations of Manulife -- 1995-present; Senior
Toronto, Ontario, Trustees Vice President and General Manager, Canadian
Canada Operations of Manulife -- 1992-1994; Senior Vice
M4W lE5 President, Financial Services of Manulife -- 1992.
Age: 58
F. David Rolwing Trustee President, Montgomery Mutual Insurance Co., Sandy
17810 Meeting House Spring, MD.
Road
Sandy Spring, MD 20860
Age: 62
John G. Vrysen Vice Vice President, Chief Financial Officer, U.S.
116 Huntington Avenue President Operations, of Manulife, January 1, 1996 to date;
Boston, MA 02116 Vice President and Chief Actuary, January 1986 to
Age: 40 date, North American Security Life Insurance
Company.
James D. Gallagher Secretary Vice President, Legal Services, of Manulife,
116 Huntington Avenue January 1, 1996 to date; Vice President,
Boston, MA 02116 Secretary and General Counsel, June 1994 to date,
Age: 42 North American Security Life Insurance Company;
Vice President and Associate General Counsel,
1990-1994, The Prudential Insurance Company of
America.
Richard C. Hirtle Vice Vice President, Chief Financial Officer,
116 Huntington Avenue President, Annuities, of Manulife, January 1996 to date;
Boston, MA 02116 Treasurer Vice President, Treasurer and Chief Financial
Age: 40 and Chief Officer, November 1988 to date, North American
Financial Security Life Insurance Company.
Officer
</TABLE>
*Trustee who is an "interested person", as defined in the 1940 Act.
Compensation of Trustees
22
<PAGE>
The Fund does not pay any remuneration to its Trustees who are officers
or employees of the Adviser or its affiliates. Trustees not so affiliated
receive an annual retainer of $4,000, a fee of $1, 000 for each meeting of the
Trustees that they attend in person and a fee of $200 for each such meeting
conducted by telephone. Trustees are reimbursed for travel and other
out-of-pocket expenses. The officers listed above are furnished to the Fund
pursuant to the Advisory Agreement described below and receive no compensation
from the Fund. These officers spend only a portion of their time on the affairs
of the Fund.
<TABLE>
<CAPTION>
Compensation Table
===============================================================================================
<S> <C> <C>
Name of Person, Aggregate Compensation From Total Compensation from Fund
Position Fund for Fiscal Year Ended Complex for Fiscal Year
October 31, 1996* Ended October 31, 1996#*
- -----------------------------------------------------------------------------------------------
Don B. Allen, Trustee $ $
- -----------------------------------------------------------------------------------------------
Charles L. Bardelis, $ $
Trustee
- -----------------------------------------------------------------------------------------------
Samuel Hoar, $ $
Trustee
- -----------------------------------------------------------------------------------------------
Robert J. Myers, $ $
Trustee
===============================================================================================
</TABLE>
*Compensation received for services as Trustee.
#Fund Complex includes all portfolios of the Fund as well as all portfolios of
NASL Series Trust of which the Adviser is the investment adviser.
Principal Holders of Securities
As of November 30, 1996 (i) Frontier Trust Company, Trustee FBO Saia
Motor Freight Line Incorporated 401k Plan, Springhouse Corporate Center II, 323
Norristown Road, Ambler, Pennsylvania 192202-2756 owned record ______ shares (
___% of the outstanding shares) of Investment Quality Bond Fund, ______ shares
(______% of the outstanding shares) of the Money Market Fund, (ii) Security
Life, 116 Huntington Avenue, Boston, Massachusetts 02116 beneficially owned
______ shares (______% of the outstanding shares) of the International Growth
and Income Fund; and (iii) Nalco Pension Plan for US Members, Elliot & Page, 120
Adelaide Street West 1120, Toronto, Ontario owned of record ______ shares
(______% of the outstanding shares) of the Global Equity Fund and (iv) Arlene
Moskowitz, Trustee, Calabasas Mental Health Services, Retirement Fund, 4043
Camamito, San Diego, CA 92122-51055 owned of record ______ (______% of the
outstanding shares) of the Money Market Fund. As of such date, no other
shareholder owned of record or, to the knowledge of the Fund, beneficially owned
more than 5% of the outstanding shares of any Portfolio of the Fund. The
officers and Trustees of the Fund as a group own less than 1% of the outstanding
shares of each Portfolio of the Fund.
INVESTMENT MANAGEMENT ARRANGEMENTS
The following information supplements the material appearing in the
Prospectus under the caption "MANAGEMENT OF THE FUND." The principal terms of
the Advisory and Subadvisory Agreements are described in the Prospectus. The
following supplemental discussion of such agreements covers certain legal terms
of such agreements. The Advisory and Subadvisory Agreements discussed below have
been filed with and are available from the Commission.
Advisory and Subadvisory Agreements
The Advisory Agreement, each Subadvisory Agreement (except those
described below) and the Salomon Brothers Asset Management Limited Consulting
Agreement were approved by the Trustees on September 28, 1995 and by the
shareholders of the portfolios on December 5, 1995. These approvals occurred in
connection with the change of control of NASL Financial as a result
23
<PAGE>
of the merger of North American Life Assurance Company, the ultimate controlling
parent of NASL Financial, with The Manufacturers Life Insurance Company on
January 1, 1996.
On December 15, 1995, the Trustees appointed Fred Alger Management, Inc.
("Alger") pursuant to a new Subadvisory Agreement with Alger ("Alger Subadvisory
Agreement") as subadviser to the Small/Mid Cap Fund. The Alger Subadvisory
Agreement, which provides for the management of the newly-established Small/Mid
Cap Fund, was approved by the Trustees, including a majority of the Trustees who
are not parties to the Alger Subadvisory Agreement or interested persons of any
party to such Agreement on December 15, 1995. The Alger Subadvisory Agreement
was approved by the sole shareholder of the Small/Mid Cap Fund on March 1,
1996.
On December 15, 1995, the Trustees appointed Founders Asset Management,
Inc. ("Founders") pursuant to a new Subadvisory Agreement with Founders
("Founders Subadvisory Agreement") as subadviser to the International Small Cap
and the Growth Equity Fund. The Founders Subadvisory Agreement, which provides
for the management of the newly-established International Small Cap and Growth
Equity Fund, was approved by the Trustees, including a majority of the Trustees
who are not parties to the Founders Subadvisory Agreement or interested persons
of any party to such Agreement on December 15, 1995. The Founders Subadvisory
Agreement was approved by the sole shareholder of the International Small Cap
and Growth Equity Fund on March 1, 1996.
Effective October 1, 1996, Oechsle International, Wellington Management,
and Goldman Sachs Asset Management, the Subadvisers of the Global Equity
(formerly Global Growth), Money Market and Equity-Income (formerly Value Equity
and prior thereto Growth) Funds, respectively, resigned their positions as
Subadvisers of those Portfolios. On September 27, 1996, the Trustees (i)
appointed Morgan Stanley Asset Management Inc. ("Morgan Stanley") pursuant to a
new Subadvisory Agreement with Morgan Stanley ("Morgan Stanley Subadvisory
Agreement") to manage the Global Equity Fund, (ii) appointed T. Rowe Price
Associates, Inc. ("T. Rowe Price") pursuant to a new Subadvisory Agreement with
T. Rowe Price ("T. Rowe Price Subadvisory Agreement") to manage the
Equity-Income Fund, and (iii) appointed Manufacturers Adviser Corporation
("MAC") pursuant to a new Subadvisory Agreement with MAC ("MAC Subadvisory
Agreement") to manage the Money Market Fund. All such Subadvisory Agreements
were approved by the Trustees, including a majority of the Trustees who are not
parties to the agreements or interested persons of any party to such agreements,
on September 27 (with an effective date of October 1, 1996) and by the
shareholders of the respective portfolios on December 20, 1996.
Also on September 27, 1996, the Trustees (i) appointed Miller Anderson &
Sherrerd, LLP ("MAS") pursuant to a new Subadvisory Agreement with MAS ("MAS
Subadvisory Agreement") to manage the Value and High Yield Funds, (ii) appointed
Pilgrim Baxter & Associates, Inc. ("PBHG") to manage the Pilgrim Baxter Growth
Fund pursuant to a new agreement with PBHG ("PBHG Subadvisory Agreement"), (iii)
appointed Warburg Pincus Counsellors, Inc. ("Warburg") pursuant to a new
agreement with Warburg ("Warburg Subadvisory Agreement") to manage the Emerging
Growth Trust, (iv) appointed T. Rowe Price pursuant to the T. Rowe Price
Subadvisory Agreement to also manage the Blue Chip Growth and Science &
Technology Funds, (v) appointed Rowe Price-Fleming International, Inc.
("Price-Fleming") pursuant to a new Subadvisory Agreement with Price Fleming
("Price-Fleming Subadvisory Agreement") to manage the International Stock Fund,
(vi) appointed Founders pursuant to an amendment to the Founders Subadvisory
Agreement to manage the Worldwide Growth and Balanced Funds, (vii) appointed MAC
pursuant to the MAC Subadvisory Agreement to also manage the Pacific Rim
Emerging Markets, Real Estate Securities, Common Stock, Capital Growth Bond and
Equity Index Funds, (viii) appointed Oechsle International pursuant to a new
Subadvisory Agreement with Oechsle International ("Oechsle Subadvisory
Agreement") to manage the Global Government Bond Fund and (ix) appointed the
Adviser to manage the Lifestyle Funds pursuant to an amendment to the Advisory
Agreement. Such Subadvisory Agreements or amended Subadvisory Agreement and
amendments to the Advisory Agreement, to provide for the management of the
newly-established portfolios, were approved by the Trustees, including a
majority of the Trustees who are not parties to the agreements or interested
persons of any party to such agreements, on September 27, 1996 and were approved
by the sole shareholder of each such portfolio on December , 1996.
For the periods November 1, 1993 to October 31, 1994, November 1, 1994
to October 31, 1995, November 1, 1995 to October 31, 1996, the Fund paid total
advisory fees to the Adviser of $3,483,764, $4,324,695 and $________,
respectively. The amounts represented by each of the Portfolios are as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/93 to 10/31/94 11/1/94 to 10/31/95 11/1/95 to 10/31/96
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small/Mid Cap NA NA *
International Small Cap NA NA *
Growth Equity NA NA *
Global Equity $882,302 $1,185,949
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Portfolio 11/1/93 to 10/31/94 11/1/94 to 10/31/95 11/1/95 to 10/31/96
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity-Income $556,612 $758,694
Growth and Income $333,531 $521,769
International Growth and Income N/A **$102,022
Strategic Income *** $195,046
Investment Quality Bond $89,202 $99,260
U.S. Government $860,225 $661,449
National Municipal Bond $19,807 $68,638
Money Market $38,127 $44,306
Balanced $703,958 $687,562
</TABLE>
*For the period March 4, 1996 (commencement of operations) to October
31, 1996.
**For the period January 9, 1995 (commencement of operations) to October
31, 1995.
***For the period November 30, 1993 (commencement of operations) to
October 31, 1994.
For information concerning waivers of advisory fees and expense
reimbursements, see note 5 to the financial statements dated October 31, 1996
included in this Statement of Additional Information.
For the same periods, the Adviser paid total subadvisory fees of
$1,609,821, $2,060,667 and $_________, respectively. The amounts represented by
each of the Portfolios are as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/93 to 10/31/94 11/1/94 to 10/31/95 11/1/95 to 10/31/96
<S> <C> <C>
Small/Mid Cap N/A N/A *
International Small Cap N/A N/A *
Growth Equity N/A N/A *
Global Equity $539,184 $724,749
Equity-Income $241,581 $323,912
Growth and Income $148,991 $227,367
International Growth and N/A **$56,679
Income
Strategic Income ***$0 #$91,022
Investment Quality Bond $33,714 $37,223
U.S. Government $323,714 $248,043
National Municipal Bond $9,819 $40,125
Money Market $14,296 $16,615
Balanced $298,522 $294,932
</TABLE>
*For the period March 4, 1996 (commencement of operations) to October
31, 1996.
**For the period January 9, 1995 (commencement of operations) to October
31, 1995.
***For the period November 30, 1993 (commencement of operations) to
October 31, 1994.
25
<PAGE>
#Of these amounts, $29,730 and $xx,xxx, respectively, were paid by
SBAM to Salomon Brothers Asset Management Limited under the Subadvisory
Consulting Agreement.
The Prospectus refers to a subadvisory consulting agreement between SBAM
and Salomon Brothers Asset Management Limited ("SBAM Limited"). Under that
agreement SBAM Limited provides certain investment advisory services to SBAM
relating to currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Strategic Income Fund. SBAM pays SBAM Limited,
as full compensation for all services provided under the subadvisory consulting
agreement, a portion of its subadvisory fee, such amount being an amount equal
to the fee payable under SBAM's subadvisory agreement multiplied by the current
value of the net assets of the portion of the assets of the Strategic Income
Fund that SBAM Limited has been delegated to manage divided by the current value
of the net assets of the Portfolio. The Fund will not incur any additional
expenses in connection with SBAM Limited's services. SBAM Limited is a wholly
owned subsidiary of Salomon Brothers Europe Limited ("SBEL"). Salomon
(International) Finance A G ("SIF") owns 100% of SBEL's Convertible Redeemable
Preference Shares and 36.8% of SBEL's Ordinary Shares, while the remaining 63.2%
of SBEL's Ordinary Shares are owned by Salomon Brothers Holding Company Inc
("SBH"). SIF is wholly owned by SBH, which is in turn, a wholly owned subsidiary
of Salomon Inc.
The Advisory Agreement and each Subadvisory Agreement, including the
SBAM Limited Consulting Agreement (collectively, the "Agreements") will continue
in effect as to a Portfolio for a period no more than two years from the date of
its execution or the execution of an amendment making the agreement applicable
to that Portfolio only so long as such continuance is specifically approved at
least annually either by the Trustees or by the vote of a majority of the
outstanding voting securities of each of the Portfolios of the Fund, provided
that in either event such continuance shall also be approved by the vote of the
majority of the Trustees who are not interested persons of any party to the
Agreements, cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval of any continuance of any of the
Agreements shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the class of capital stock of that Portfolio
vote to approve such continuance, notwithstanding that such continuance may not
have been approved by a majority of the outstanding voting securities of the
Fund.
If the shareholders of any Portfolio fail to approve any continuance of
any Agreement, the Adviser or Subadviser (including SBAM Limited), as
applicable, will continue to act as such with respect to such Portfolio pending
the required approval of the continuance of such Agreement, of a new contract
with the Adviser or Subadviser or different investment adviser or subadviser, or
other definitive action. In the case of the Adviser and Oechsle International,
the compensation received by them in respect of such a Portfolio during such
period will be no more than its actual costs incurred in furnishing investment
advisory and management services to such Portfolio or the amount it would have
received under the Agreement in respect of such Portfolio, whichever is less. In
the case of the Subadvisers, the compensation received by them in respect of
such a Portfolio during such a period will be no more than that permitted by
Rule 15a-4 under the 1940 Act.
The Agreements may be terminated at any time, without the payment of
penalty, by the Trustees of the Fund or by the vote of a majority of the
outstanding voting securities of the applicable Portfolios of the Fund, with
respect to any Portfolio by the vote of a majority of the outstanding shares of
such Portfolio, or by the Adviser or applicable Subadviser on 60 days' written
notice to the other party or parties to the Agreement and, in the case of the
Subadvisory Agreements, to the Fund. Each of the Agreements will automatically
terminate in the event of its assignment.
The Agreements may be amended by the parties provided that such
amendment is specifically approved by the vote of a majority of the outstanding
voting securities of the Fund or applicable Portfolio(s), as the case may be,
and by the vote of a majority of the Trustees of the Fund who are not interested
persons of the Fund, of the Adviser or of the applicable Subadviser or of SBAM
Limited, cast in person at a meeting called for the purpose of voting upon such
approval. The required shareholder approval of any amendment shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio vote to approve the amendment, notwithstanding that the
amendment may not be approved by a majority of the outstanding voting securities
of (i) any other Portfolio affected by the amendment or (ii) all the Portfolios
of the Fund.
Each Subadvisory Agreement, except the Oechsle Subadvisory Agreement and
the J.P. Morgan Subadvisory Agreement, and the SBAM Limited Consulting
Agreement, provides that the Subadviser or SBAM Limited will not be liable to
the Fund or the Adviser for any losses resulting from any matters to which the
agreement relates other than losses resulting from the Subadviser's or SBAM
Limited's willful misfeasance, bad faith or gross negligence in the performance
of, or from reckless disregard of, its duties. The Oechsle Subadvisory Agreement
and the J.P. Morgan Subadvisory Agreement each provide that the subadviser will
not be liable to the Fund or NASL Financial for any losses resulting from any
error of judgment made in the good faith exercise of the Subadviser's investment
discretion in connection with selecting investments, except for losses resulting
from willful misfeasance, bad faith or gross negligence of, or from reckless
disregard of, it duties, and that it shall not be liable for any losses
resulting from any other matters except for losses resulting from willful
misfeasance, bad faith or negligence in the performance of, or from disregard
of, its duties.
26
<PAGE>
DISTRIBUTION PLANS
The Fund currently offers three classes of shares in each Portfolio
(other than the Lifestyle Funds): "Class A" shares, "Class B" shares and "Class
C" shares (the "Multiple Pricing System"). See "MULTIPLE PRICING SYSTEM" and
"HOW TO PURCHASE SHARES" in the Prospectus.
In addition to the front end sales charge which may be deducted at the
time of purchase of Class A shares and the CDSC which may apply on redemption of
Class B shares, each class of shares of each Portfolio is authorized under the
Distribution Plan applicable to that class of shares (the "Class A Plan," the
"Class B Plan" and the "Class C Plan," collectively, the "Plans") adopted
pursuant to Rule 12b-1 under the 1940 Act to use the assets attributable to such
class of shares of the Portfolio to finance certain activities relating to the
distribution of shares to investors. The Plans are "compensation" plans
providing for the payment of a fixed percentage of average net assets to finance
distribution expenses. The Plans provide for the payment by each class of shares
of each Portfolio of the Fund, other than the Money Market Fund, of a monthly
distribution and service fee to the Distributor, as principal underwriter for
the Fund. Portions of the fees prescribed below are used to provide payments to
the Distributor, to promotional agents, to brokers, dealers or financial
institutions (collectively, "Selling Agents") and to Service Organizations for
ongoing account services to shareholders and are deemed to be "service fees" as
defined in paragraph (b)(9) of Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
Under the Class A Plan, Class A shares of each Portfolio (except as
described in the next sentence) are subject to a fee of up to .35% of their
respective average annual net assets, five-sevenths of which (.25%) constitutes
a "service fee." Class A shares of the National Municipal Bond Fund are subject
to a fee of up to .15% of Class A average annual net assets, the entire amount
of which constitutes a "service fee," and Class A shares of the Money Market
Fund and the Lifestyle Funds bear no such fees. Under the Class B Plan, Class B
shares of each Portfolio (with the exception of the Money Market Fund and the
Lifestyle Funds) are subject to a fee of up to 1.00% of their respective average
annual net assets, one-fourth (.25%) of which constitutes a "service fee." Under
the Class C Plan, Class C shares of each Portfolio (with the exception of the
Money Market Fund and the Lifestyle Funds) are subject to a fee of up to 1.00%
of their respective average annual net assets, one-fourth (.25%) of which
constitutes a "service fee."
Payments under the Plans are used primarily to compensate the
Distributor for distribution services provided by it in connection with the
offering and sale of the applicable class of shares, and related expenses
incurred, including payments by the Distributor to compensate or reimburse
Selling Agents for sales support services provided and related expenses incurred
by such Selling Agents. Such services and expenses may include the development,
formulation and implementation of marketing and promotional activities, the
preparation, printing and distribution of prospectuses and reports to recipients
other than existing shareholders, the preparation, printing and distribution of
sales literature, expenditures for support services such as telephone facilities
and expenses and shareholder services as the Fund may reasonably request,
provision to the Fund of such information, analyses and opinions with respect to
marketing and promotional activities as the Fund may, from time to time,
reasonably request, commissions, incentive compensation or other compensation
to, and expenses of, account executives or other employees of the Distributor or
Selling Agents, attributable to distribution or sales support activities,
respectively, overhead and other office expenses of the Distributor or Selling
Agents, attributable to distribution or sales support activities, respectively,
and any other costs and expenses relating to distribution or sales support
activities. The Distributor may pay directly Selling Agents and may provide
directly the distribution services described above, or it may arrange for such
payment or the performance of some or all of such services by Wood Logan, the
Fund's exclusive promotional agent, at such level of compensation as may be
agreed to by the Distributor and Wood Logan.
The distribution and service fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase shares without the
assessment of a front end sales charge, and, with respect to the Class C shares,
without the assessment of a front end sales charge or a CDSC, and at the same
time permit the Distributor to compensate securities dealers with respect to
sales of such shares.
The Distributor is authorized by each Plan to retain any excess of the
fees it receives thereunder over its payments to selected dealers or Wood Logan
and its expenses incurred in connection with providing distribution services.
Thus, payments under a Plan may result in a profit to the Distributor. Each Plan
also provides that to the extent that any payments by any class of any Portfolio
of the Fund to the Distributor in its capacity as investment adviser to the
Fund, such as for investment management fees, may be deemed to be an indirect
payment of distribution expenses, those indirect payments are deemed to be
authorized by the Plans.
In adopting the Plans, the Trustees determined that the adoption of the
Plans is in the best interests of the Fund and its shareholders, that there is a
reasonable likelihood that the Plans will benefit the Fund and its shareholders,
and that the Plans are
27
<PAGE>
essential to, and an integral part of, the Fund's program for financing the sale
of shares of the various Portfolios of the Fund to the public.
The Distributor, a wholly-owned subsidiary of North American Security
Life Insurance Company, is a broker/dealer registered under the Securities
Exchange Act of 1934, as amended ("1934 Act") and a member of the NASD. The
Distributor's address is the same as that of the Fund and the Distributor also
serves as the investment adviser to the Fund as described above under
"MANAGEMENT OF THE FUND." The Distributor has entered into an exclusive
promotional agent agreement with Wood Logan pursuant to which Wood Logan will
solicit securities dealers to sell Fund shares, offer sales training to
registered representatives of such dealers, prepare and distribute certain sales
and promotional materials and otherwise assist in the distribution of Fund
shares. For providing such services, the Distributor will pay Wood Logan such
amounts as are agreed to from time to time pursuant to the promotional agent
agreement. Wood Logan, a broker/dealer registered under the 1934 Act and a
member of the NASD, is a subsidiary of Wood Logan Associates, Inc., a
corporation which is a wholly owned subsidiary of a holding company that is 85%
owned by Manulife and approximately 15% owned by principals of Wood Logan. The
address of Wood Logan is 1455 East Putnam Avenue, Old Greenwich, Connecticut
06870.
Neither a Plan nor any related agreements can take effect until approved
by a majority vote of both all the Trustees and those Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of a Plan or in any agreements related to it (the
"Qualified Trustees"), cast in person at a meeting called for the purpose of
voting on such Plan and the related agreements. Such approvals of the Plans were
obtained on December 16, 1993. The Plan relating to Class A shares was approved
(i) with respect to the Strategic Income, Investment Quality Bond, U.S.
Government Securities, National Municipal Bond and Money Market Funds, by the
shareholders of each such Portfolio on February 18, 1994, as the initial
shareholders of the Class A shares in each such Portfolio, (ii) with respect to
the Global Equity, Equity-Income, Growth and Income and Balanced Funds, by the
Distributor on March 30, 1994 as sole initial shareholder of the Class A shares
of each such Portfolio, (iii) with respect to the International Growth and
Income Fund, by the Distributor on January 4, 1995 as sole initial shareholder
of the Class A shares of such Portfolio, (iv) with respect to the Small/Mid Cap,
Growth Equity and the International Small Cap Funds, by the Distributor on March
1, 1996 as sole initial shareholder of the Class A shares of such Portfolio, and
(v) with respect to the Emerging Growth, Pilgrim Baxter Growth, Pacific Rim
Emerging Markets, International Stock, Worldwide Growth, Science & Technology,
Common Stock, Real Estate Securities, Blue Chip Growth, Value, Equity Index,
High Yield, Global Government Bond, Capital Growth Bond [and Lifestyle Funds?],
by the Distributor on December, 1996 as sole initial shareholder of the Class A
shares of each such Portfolio. The Plan relating to Class B shares was approved
(i) with respect to the Strategic Income, Investment Quality Bond, U.S.
Government Securities, National Municipal Bond, Money Market, Global Equity,
Equity-Income, Growth and Income and Balanced Funds by the Distributor on March
30, 1994 as sole initial shareholder of the Class B shares of each such
Portfolio, (ii) with respect to the International Growth and Income Fund, by the
Distributor on January 4, 1995 as sole initial shareholder of the Class B shares
of such Portfolio, (iii) with respect to the Small/Mid Cap, Growth Equity and
International Small Cap Funds by the Distributor on March 1, 1996 as sole
initial shareholder of the Class B shares of each such Portfolio, and (iv) with
respect to the Emerging Growth, Pilgrim Baxter Growth, Pacific Rim Emerging
Markets, International Stock, Worldwide Growth, Science & Technology, Common
Stock, Real Estate Securities, Blue Chip Growth, Value, Equity Index, High
Yield, Global Government Bond, Capital Growth Bond [and Lifestyle Funds?], by
the Distributor on December, 1996 as sole initial shareholder of the Class B
shares of each such Portfolio. The Plan relating to Class C shares was approved
(i) with respect to the Global Equity, Equity-Income, Growth and Income and
Balanced Funds, by the shareholders of each such Portfolio on February 18, 1994,
as the initial shareholders of the Class C shares in each such Portfolio, (ii)
with respect to the Strategic Income, Investment Quality Bond, U.S. Government
Securities, National Municipal Bond and Money Market Funds, by the shareholders
of each such Portfolio on March 30, 1994, as the initial shareholders of the
Class C shares in each such Portfolio, (iii) with respect to the International
Growth and Income Fund, by the Distributor on January 4, 1995 as sole initial
shareholder of the Class C shares of such Portfolio, (iv) with respect to the
Small/Mid Cap, Growth Equity and International Small Cap Funds, by the
Distributor on March 1, 1996 as sole initial shareholder of the Class C shares
of such Portfolio, and (v) with respect to the Emerging Growth, Pilgrim Baxter
Growth, Pacific Rim Emerging Markets, International Stock, Worldwide Growth,
Science & Technology, Common Stock, Real Estate Securities, Blue Chip Growth,
Value, Equity Index, High Yield, Global Government Bond, Capital Growth Bond
[and Lifestyle Funds?], by the Distributor on December, 1996 as sole initial
shareholder of the Class C shares of each such Portfolio.
The Plans will continue in effect only so long as their continuance is
specifically approved at least annually by the Trustees in the manner described
above for Trustee approval of the Plans. The Trustees will receive quarterly and
annual statements concerning distribution and shareholder servicing
expenditures. In such statements, only expenditures properly attributable to the
sale or servicing of a particular class of shares will be used to justify any
distribution or servicing fee charged to that class. Expenditures not related to
the sale or servicing of a particular class will not be presented to the
Trustees to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, will be subject to the
review and approval of the Qualified Trustees in the exercise of their fiduciary
duty. Each Plan may be terminated at any time with respect to any one or more
Portfolios by a majority vote of the Qualified Trustees or by vote of a majority
of the outstanding voting securities attributable to Class A, Class B and Class
C shares, as applicable, of such Portfolio or Portfolios. If a Plan is
terminated by the Trustees or is otherwise
28
<PAGE>
discontinued with respect to one or more Portfolios, no further payments would
be made by the Fund in respect of the Class A, Class B and Class C shares, as
applicable, of such Portfolio or Portfolios under that Plan. A Plan may remain
in effect with respect to Class A, Class B, Class C or shares, as applicable, of
a Portfolio even if it has been terminated with respect to the Class A, Class B
and Class C shares, as applicable, of one or more other Portfolios.
A Plan may not be amended with respect to any class of any Portfolio so
as to materially increase the amount of the fees payable thereunder unless the
amendment is approved by a vote of at least a majority of the outstanding voting
securities of such class of such Portfolio. In addition, no material amendment
to a Plan may be made unless approved by the Trustees in the manner described
above for Trustee approval of the Plans.
For the period November 1, 1995 to October 31, 1996 , the Fund paid
distribution and service fees pursuant to the Class A Plan to the Distributor of
$______ comprised of:
$_____ from the Small/Mid Cap Fund*,
$_____ from the International Small Cap Fund*,
$_____ from the Growth Equity Fund*,
$_____ from the Global Equity Fund,
$_____ from the Equity-Income Fund,
$_____ from the Growth and Income Fund,
$_____ from the Strategic Income Fund,
$_____ from the Balanced Fund,
$_____ from the Investment Quality Bond Fund,
$_____ from the U.S. Government Securities Fund,
$_____ from the International Growth and Income Fund, and
$_____ from the National Municipal Bond Fund.
*For the period March 4, 1996 to October 31, 1996.
Of the total, $_______ was paid by the Distributor to Wood Logan for providing
promotional and shareholder services. Of this latter amount, approximately __%
was spent for sales literature and printing prospectuses for other than current
shareholders, __% represented allocated overhead expenses of Wood Logan and 13%
represented allocated compensation of personnel of Wood Logan. The balance of
the fees were, in accordance with the Class A Plan, retained by the Distributor
and used to fund shareholder servicing, promotional activities and expenses. In
addition, $______ of the total distribution fees for Class A were paid to
securities dealers, comprised of:
$______ from the Small/Mid Cap Fund,
$______ from the International Small Cap Fund,
$______ from the Growth Equity Fund,
$______ from the Global Equity Fund,
$______ from the Equity-Income Fund,
$______ from the Growth and Income Fund,
$______ from the Strategic Income Fund,
$______ from the Balanced Fund,
$______ from the Investment Quality Bond Fund
$______ from the U.S. Government Securities Fund
$______ from the International Growth and Income Fund and
$______ from the National Municipal Bond Fund.
For the period November 1, 1995 to October 31, 1996, the Fund paid
distribution and service fees pursuant to the Class B Plan to the Distributor of
$_______ comprised of:
$_______ from the Small/Mid Cap Fund,
$_______ from the International Small Cap Fund,
$_______ from the Growth Equity Fund,
$_______ from the Global Equity Fund,
$_______ from the Equity-Income Fund,
$_______ from the Growth and Income Fund,
$_______ from the Strategic Income Fund,
$_______ from the Balanced Fund,
$_______ from the Investment Quality Bond Fund,
29
<PAGE>
$_______ from the U.S. Government Securities Fund,
$_______ from the International Growth and Income Fund and
$_______ from the National Municipal Bond Fund.
Of the total, $_____ was paid by the Distributor to Wood Logan for providing
promotional and shareholder services. Of this latter amount, approximately __%
was spent for sales literature and printing prospectuses for other than current
shareholders, __% represented allocated overhead expenses of Wood Logan and ___%
represented allocated compensation of personnel of Wood Logan. The balance of
the fees were, in accordance with the Class B Plan, retained by the Distributor
and used to fund shareholder servicing, promotional activities and expenses. In
addition, $_______ of the total distribution fees for Class B were paid to
securities dealers, comprised of:
$_______ from the Small/Mid Cap Fund,
$_______ from the International Small Cap Fund,
$_______ from the Growth Equity Fund,
$_______ from the Global Equity Fund,
$_______ from the Equity-Income Fund,
$_______ from the Growth and Income Fund,
$_______ from the Strategic Income Fund,
$_______ from the Balanced Fund,
$_______ from the Investment Quality Bond Fund,
$_______ from the U.S. Government Securities Fund,
$_______ from the International Growth and Income Fund and
$_______ from the National Municipal Bond Fund.
For the period November 1, 1995 to October 31, 1996, the Fund paid
distribution and service fees pursuant to the Class C Plan to the Distributor of
$________, comprised of:
$_______ from the Small/Mid Cap Fund,
$_______ from the International Small Cap Fund,
$_______ from the Growth Equity Fund,
$_______ from the Global Equity Fund,
$_______ from the Equity-Income Fund,
$_______ from the Growth and Income Fund,
$_______ from the Strategic Income Fund,
$_______ from the Balanced Fund,
$_______ from the Investment Quality Bond Fund,
$_______ from the U.S. Government Securities Fund,
$_______ from the International Growth and Income Fund and
$_______ from the National Municipal Bond Fund.
Of the total, $_______ was paid by the Distributor to Wood Logan for providing
promotional and shareholder services. Of this latter amount, approximately ___%
was spent for sales literature and printing prospectuses for other than current
shareholders, __% represented allocated overhead expenses of Wood Logan and ___%
represented allocated compensation of personnel of Wood Logan. The balance of
the fees were, in accordance with the Class C Plan, retained by the Distributor
and used to fund shareholder servicing, promotional activities and expenses. In
addition, $________ of the total distribution fees for Class C were paid to
securities dealers, comprised of:
$_______ from the Small/Mid Cap Fund,
$_______ from the International Small Cap Fund,
$_______ from the Growth Equity Fund,
$_______ from the Global Equity Fund,
$_______ from the Equity-Income Fund,
$_______ from the Growth and Income Fund,
$_______ from the Strategic Income Fund,
$_______ from the Balanced Fund,
$_______ from the Investment Quality Bond Fund,
$_______ from the U.S. Government Securities Fund,
$_______ from the International Growth and Income Fund and
$_______ from the National Municipal Bond Fund.
30
<PAGE>
Underwriters
For the periods November 1, 1993 to October 31, 1994, November 1, 1994
to October 31, 1995 and November 1, 1995 to October 31, 1996, the Distributor
received underwriting commissions of $1,344,806, $960,690 and $_______
respectively. The amounts were comprised as reflected below, with respect to
shares of the following Portfolios:
<TABLE>
<CAPTION>
Portfolio 11/1/93 to 11/1/94 to 11/1/95 to
10/31/94 10/31/95 10/31/96
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small/Mid Cap NA NA *$
International Small Cap NA NA *$
Growth Equity NA NA *$
Global Equity $413,960 $172,487
Equity-Income $213,835 $138,334
Growth and Income $102,711 $123,745
International Growth and N/A **$100,890
Income
Strategic Income ***$206,721 $65,693
Investment Quality Bond $33,392 $19,367
U.S. Government $155,785 $223,721
National Municipal Bond $20,201 $31,612
Balanced $198,201 $84,841
</TABLE>
*For the period March 4, 1996 (commencement of operations) to October
31, 1996.
**For the period January 9, 1995 (commencement of operations) to October
31, 1995.
***For the period November 30, 1993 (commencement of operations) to
October 31, 1994.
Of the total underwriting commissions received during the three fiscal
year periods, $______, $_____and $_____, respectively, were retained by the
Distributor. The balance of such commissions was paid to securities dealers and
the promotional agent. During such periods the Distributor did not receive
directly or indirectly from the Fund any compensation on the redemption or
repurchase of Fund shares, brokerage commissions or other underwriting
compensation.
PORTFOLIO BROKERAGE
Pursuant to the Subadvisory Agreements, the Subadvisers are responsible
for placing all orders for the purchase and sale of portfolio securities of the
Fund, except for the Lifestyle Funds the portfolio transactions for which are
the responsibility of the Adviser. The Subadvisers have no formula for the
distribution of the Fund's brokerage business, their intention being to place
orders for the purchase and sale of securities with the primary objective of
obtaining the most favorable overall results for the Fund. The cost of
securities transactions for each Portfolio will consist primarily of brokerage
commissions or dealer or underwriter spreads. Bonds and money market instruments
are generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Subadvisers
will, where possible, deal directly with dealers who make a market in the
securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.
31
<PAGE>
The Subadvisers consider various factors in selecting brokers through
which orders for client accounts are executed. The Subadvisers' primary
consideration is the broker's ability to provide the best execution of the trade
(including both trade price and commission). Assuming equal execution
capabilities, the Subadvisers also take other factors into account.
In determining which brokers provide best execution, the Subadvisers
look primarily to the stock price quoted by the broker, and normally place
orders with the broker through which they can obtain the most favorable price.
If the same price is available from more than one broker, a Subadviser's
judgment as to the following factors may influence the selection of a broker for
a particular trade: the execution, clearance and settlement capabilities of the
brokers under consideration; the nature of the security being traded; the size
of the transaction; the desired timing of the trade; the activity existing and
expected in the market for the particular security; confidentiality; the
financial stability of the brokers under consideration; actual or apparent
operational problems of any broker under consideration; and the negotiated
commission rates available at the time of the trade. The Subadvisers may also
consider the willingness of particular brokers to sell shares of the Fund and
difficulty of execution.
The Subadvisers also consider the nature and extent of research services
provided when they select brokers. Assuming equal execution capabilities as
described above, the Subadvisers may direct commission business to brokers who
provide research services. Such services include, but are not limited to:
analyses and reports concerning economic factors and trends, industries,
specific securities, portfolio strategy, and valuation and performance of
accounts; advice regarding critical factors supporting research recommendations
and special reports or information based on the specific requests of a
Subadviser's portfolio manager/analysts. The Subadvisers may also from time to
time obtain research services prepared by third parties and provided by brokers
in exchange for a predetermined amount of commission business. These services
include portfolio monitoring, analysis and performance measurement systems,
various economic forecasting and research services covering stocks and bonds,
research and trading conferences, and a source of information as to block
trading opportunities. Some third party arrangements are cancelable at any time
while others require notice. Such third party arrangements do not involve a
substantial amount of the Subadvisers' commission business on behalf of clients.
In accordance with industry practice, commission rates are normally
determined through negotiations with brokers conducted by the Subadvisers'
traders. These negotiations take into account industry norms for particular
transactions, the size and type of trades, the size and expertise of the
brokerage firm involved and the nature of brokerage and research services
provided, including special services in connection with a particular trade.
(Such special services could include, among other things, the assumption of
market risk in connection with a trade or series of trades or the facilitation
of trades in a thin or volatile market.) Commission rates paid by the
Subadvisers in those cases may be higher than those charged by brokers for
execution of similar trades without the provision of research and/or special
services.
No precise monetary value can be assigned to research and special
execution services furnished to the Subadvisers by brokers. The Subadvisers will
review all research services and will determine if the amounts of commissions
directed to brokers are reasonable in relation to the value of the brokerage and
research services provided, viewed in terms of both particular transactions and
the Subadvisers' overall responsibilities with respect to the accounts over
which they exercise investment discretion. Each Subadviser will maintain an
internal allocation procedure to identify those brokers who provide them with
research services and the amount of research services they provide, and will
endeavor to direct sufficient commissions to them to ensure the continued
receipt of such services as the Subadviser believes to be valuable.
Research services furnished by brokers will generally be used in
servicing all of the Portfolios of the Fund advised by a Subadviser, although
not all of such services may be used in connection with any particular Portfolio
that paid commissions to the brokers providing such services.
The Subadvisers' practices in selecting brokers will be reviewed
periodically by the Trustees of the Fund.
The Subadvisers and/or their affiliates currently manage portfolios and
accounts other than those of the Fund. Although investment recommendations or
determinations for the Fund's Portfolios will be made by the Subadvisers
independently from the investment recommendations and determinations made by
them for any other portfolio or account or by the Subadvisers' affiliates for
the portfolios or accounts they manage, investments deemed appropriate for the
Fund's Portfolios by the Subadvisers may also be deemed appropriate by them or
affiliated advisers for other portfolios or accounts, so that the same security
may be purchased or sold at or about the same time for both the Fund's
Portfolios and such other portfolios or accounts. In such circumstances, the
Subadvisers may determine that orders for the purchase or sale of the same
security for the Fund's Portfolios and one or more other portfolios or accounts
should be combined, in which event the transactions will be priced and allocated
in a manner deemed by the Subadvisers to be equitable and in the best interests
of the Fund's Portfolios and such other portfolios or accounts. While in some
instances combined orders could adversely affect the price or volume of a
security, the Subadvisers and the Fund believe that its participation in such
transactions on balance will produce better overall results for the Fund.
32
<PAGE>
For the periods November 1, 1993 to October 31, 1994, November 1, 1994
to October 31, 1995 and November 1, 1995 to October 31, 1996, the Fund paid
brokerage commissions in connection with portfolio transactions of $777,036,
$1,039,631 and $_________, respectively. The amounts represented by each of the
Portfolios are as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/93 to 10/31/94 11/1/94 to 10/31/95 11/1/95 to
10/31/96
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Global Equity* $462,441 $509,668
Equity-Income** $140,638 $211,194
Growth and Income $70,381 $97,836
International Growth and N/A ***$12,558
Income
Balanced**** $103,576 $208,375
</TABLE>
* Formerly known as the Global Growth Fund.
** Formerly known as the Value Equity Fund and prior thereto the Growth
Fund *** For the period January 9, 1995 (commencement of operations)
to October 31, 1995.
**** Formerly known as the Asset Allocation Fund.
Salomon Brothers Inc. ("Salomon"), Dresdner Bank, J.P. Morgan Securities
Inc and J.P. Morgan Securities Ltd. ("J.P. Morgan") and Morgan Stanley & Co.
Incorporated are affiliated brokers of the Fund due to the positions of Salomon,
Oechsle International, J.P. Morgan and Morgan Stanley, respectively, as
Subadvisers to Fund portfolios. Prior to October 1, 1996, Goldman Sachs & Co.
("Goldman") was an affiliated brokers of the Fund due to the position of Goldman
as Subadviser to the Equity-Income Fund.
From November 1, 1993 to October 31, 1994, brokerage commissions were
paid to Goldman, Sachs & Co. as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/93 to % of Portfolio's % of aggregate $
10/31/94 Brokerage Commissions amount of
Represented for the transactions for the
period period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity-Income $10,169 7% 1%
Growth and Income $2,502 4% 1%
Balanced $9,284 9% 0.12%
Investment Quality $0 0% 0.48%
National Municipal Bond $0 0% 37%
Money Market $0 0% 4%
</TABLE>
From November 1, 1994 to October 31, 1995, brokerage commission were paid to
Goldman, Sachs & Co. as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/94 to % of Portfolio's % of aggregate $
10/31/95 Brokerage Commissions amount of
Represented for the transactions for
period the period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $4,137 0.81% 0.67%
Equity-Income $23,638 11.19% 0.27%
Balanced $16,464 7.90% 0.26%
International Growth $1,690 13.46% 1.97%
and
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Portfolio 11/1/94 to % of Portfolio's % of aggregate $
10/31/95 Brokerage Commissions amount of
Represented for the transactions for
period the period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income*
Growth and Income $4,086 4.18% 0.36%
</TABLE>
*For the period January 9, 1995 (commencement of operations) to October 31, 1995
From November 1, 1995 to October 31, 1996, brokerage commissions were
paid to Goldman, Sachs & Co. as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/95 to % of Portfolio's % of aggregate $
10/31/96 Brokerage Commissions amount of
Represented for the transactions for
period the period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $_____ % %
Equity-Income $_____ % %
Growth and Income $_____ % %
Balanced $_____ % %
</TABLE>
From November 1, 1993 to October 31, 1994, brokerage commissions were
paid to Salomon Brothers Inc as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/93 to 10/31/94 % of Portfolio's % of aggregate $
Brokerage Commissions amount of
Represented for the transactions for
period the period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $2,277 0% 1%
Equity-Income $7,181 5% 0.13%
Growth & Income $7,908 11% 1%
Balanced $7,396 7% 4%
Investment Quality $0 0% 1%
Bond
U.S. Government $0 0% 0.25%
Money Market $0 0% 1%
</TABLE>
From November 1, 1994 to October 31, 1995, brokerage commissions were
paid to Salomon Brothers Inc as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/94 to 10/31/95 % of Portfolio's % of aggregate $
Brokerage amount of
Commissions transactions for the
Represented for the period
period
<S> <C> <C> <C>
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Portfolio 11/1/94 to 10/31/95 % of Portfolio's % of aggregate $
Brokerage amount of
Commissions transactions for the
Represented for the period
period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $6,414 1.26% 0.86%
Equity-Income $8,760 4.15% 0.16%
Growth and Income $10,402 10.63% 0.71%
Balanced $8,117 3.90% 2.71%
</TABLE>
From November 1, 1995 to October 31, 1996, brokerage commissions were
paid to Salomon Brothers Inc as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/95 to 10/31/96 % of Portfolio's % of aggregate $
Brokerage Commissions amount of
Represented for the transactions for
period the period
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $ % %
Equity-Income $ % %
Growth & Income $ % 6
Balanced $ % %
Money Market $ % %
</TABLE>
From January 1, 1995 to October 31, 1995, brokerage commissions were
paid to J.P.Morgan Securities as follows:
<TABLE>
<CAPTION>
Portfolio 1/9/95 to 10/31/95 % of Portfolio's % of aggregate $
Brokerage Commissions amount of
Represented for the transactions for
period the period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $3,265 0.64% 0.48%
Equity-Income $13,056 6.18% 0.21%
Growth & Income $300 0.31% 0.03%
Balanced $13,735 6.59% 0.88%
</TABLE>
From November 1, 1995 to October 31, 1996, brokerage commissions were
paid to J.P. Morgan Securities as follows:
<TABLE>
<CAPTION>
Portfolio 11/1/95 to 10/31/96 % of Portfolio's % of aggregate $
Brokerage Commissions amount of
Represented or the transactions for
period the period
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity $ % %
Equity-Income $ % %
Growth & Income $ % 6
Balanced $ % %
Money Market $ % %
</TABLE>
From November 1, 1994 to October 31, 1996, there were no brokerage
commissions were paid to Dresden Bank.
DETERMINATION OF NET ASSET VALUE
35
<PAGE>
The following supplements the discussion under the caption "GENERAL
INFORMATION -- Net Asset Value" set forth in the Prospectus. The assets
belonging to each class of shares of a Portfolio will, in each case, be invested
together in a single portfolio. The net asset value of each class will be
determined separately by subtracting the expenses and liabilities allocated to
that class from the assets belonging to that class.
The following provides further information concerning the Fund's use of
the amortized cost method of valuation for certain types of securities.
All instruments held by the Money Market Fund and money market
instruments with a remaining maturity of 60 days or less held by the other
Portfolios will be valued on an amortized cost basis. Under this method of
valuation, the instrument is initially valued at cost (or in the case of
instruments initially valued at market value, at the market value on the day
before its remaining maturity is such that it qualifies for amortized cost
valuation); thereafter, the Fund assumes a constant proportionate amortization
in value until maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
would be received upon sale of the instrument.
The Money Market Fund uses the amortized cost valuation method in
reliance upon Rule 2a-7 under the 1940 Act. As required by Rule 2a-7, the Money
Market Fund will maintain a dollar weighted average maturity of 90 days or less.
In addition, the Money Market Fund is permitted to purchase only securities that
the Trustees determine to present minimal credit risks and which are at the time
of purchase "eligible securities," as defined by Rule 2a-7. Generally, eligible
securities must be rated by a nationally recognized statistical rating
organization in one of the two highest rating categories for short-term debt
obligations or be of comparable quality. The Money Market Fund will invest only
in obligations that have remaining maturities of 397 days or less.
The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, the Money Market Fund's price per share (for each
class) as computed for the purposes of sales and redemptions at $1.00. Such
procedures include a directive to the Adviser to establish procedures which will
allow for the monitoring of the propriety of the continued use of amortized cost
valuation to maintain a constant net asset value of $1.00 per share. Such
procedures also include a directive to the Adviser that requires that on
determining net asset value per share based upon available market quotations,
the Money Market Fund shall value weekly (a) all portfolio instruments for which
market quotations are readily available at market, and (b) all portfolio
instruments for which market quotations are not readily available or are not
obtainable from a pricing service, at their fair value as determined in good
faith by the Trustees, although the actual calculations may be made by persons
acting pursuant to the direction of the Trustees. If the fair value of a
security needs to be determined, the Subadviser will provide determinations, in
accordance with procedures and methods established by the Trustees of the Fund,
of the fair value of securities held by the Portfolios for which market
quotations are not readily available for purposes of enabling the Portfolio's
Custodian to calculate net asset value. The Adviser, with the Subadviser's
assistance, periodically (but no less frequently than annually) shall prepare a
written report to the Trustees verifying the accuracy of the pricing system or
estimate. A non-negotiable security which is not treated as an illiquid security
because it may be redeemed with the issuer, subject to a penalty for early
redemption, shall be assigned a value that takes into account the reduced amount
that would be received if it were currently liquidated. In the event that the
deviation from the amortized cost exceeds .50 of 1% or more or a difference of
$.005 per share in net asset value, the Adviser shall promptly call a special
meeting of the Trustees to determine what, if any, action should be initiated.
Where the Trustees believe the extent of any deviation from the Fund's amortized
cost price per share may result in material dilution or other unfair results to
investors or existing shareholders, it shall take such action as it deems
appropriate to eliminate or reduce to the extent reasonably practical such
dilution or unfair results. The actions that may be taken by the Board include,
but are not limited to: (a) redeeming shares in kind; (b) selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
the average portfolio maturity of the Portfolio; (c) withholding or reducing
dividends;(d) utilizing a net asset value per share based on available market
quotations; and (e)investing all cash in instruments with a maturity on the next
business day.
PERFORMANCE INFORMATION
As indicated in the Prospectus, the Fund may advertise its yield and/or
total return performance for all classes of shares of one or more of the
Portfolios, calculated in accordance with the rules of the Commission. Such
performance information may include time periods prior to the implementation of
the Multiple Pricing System on April 1, 1994, and will be calculated as
described below. For purposes of quoting and comparing the performance of the
classes of the Portfolios to that of other mutual funds and to stock or other
relevant indices in advertisements or in reports to shareholders, performance
will be stated in terms of total return and yield. Both "total return" and
"yield" figures are based on historical performance, show the performance of a
hypothetical investment and are not intended to indicate future performance.
Under the rules of the Commission, funds advertising performance must
include total return quotes, "T" below, calculated according to the following
formula:
36
<PAGE>
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the "n" year period (or
fractional portion thereof) at the end of such period.
The average annual total return will be calculated under the foregoing
formula and the time periods used in advertising will be based on rolling
calendar quarters, updated to the last day of the most recent quarter prior to
submission of the advertising for publication, and will cover one, five, and ten
year periods (if available) plus the time period since the effective date of the
Fund's registration statement. When the period since inception for a Portfolio
is less than one year, the total return quoted will be the aggregate return for
the period. In calculating the ending redeemable value, for Class A shares, the
current maximum front end sales charge of 4.75% (as a percentage of the offering
price) is deducted from the initial $1,000 payment, and for Class B shares, the
applicable CDSC imposed on a redemption of shares held for the period is
deducted. The schedule of CDSCs due upon redemption is described under "PURCHASE
OF SHARES -- Class B Shares" in the Prospectus. The formula also assumes that
all dividends and distributions have been reinvested at net asset value as
described in the Prospectus on the reinvestment dates during the period. Total
return, or "T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portions thereof) that would equate the initial amount invested to the ending
redeemable value. Any sales charges that might in the future be made applicable
to reinvestments would be included as would any recurring account charges that
might be imposed by the Fund.
The Fund implemented the Multiple Pricing System by reclassifying the
then existing shares of each Portfolio as shares of a particular class of each
such Portfolio. This reclassification was effected in such a manner so that the
shares of each Portfolio outstanding at April 1, 1994 would be subject to
identical distribution and service fees both before and after the
reclassification. Specifically, all outstanding shares of the Strategic Income,
Investment Quality Bond, U.S. Government Securities, National Municipal Bond and
Money Market Funds were reclassified as Class A shares of each such Portfolio,
and all outstanding shares of the Global Equity, Equity-Income, Growth and
Income and Balanced Funds were reclassified as Class C shares of each such
Portfolio.
The figures shown in the table below are, for all classes, restated to
reflect front end sales charges and CDSCs currently payable by each class of
shares under the Multiple Pricing System (as described above), and (for all of
the tables presented below) are based on the distribution and service fees and
other expenses actually paid by each Portfolio for the periods presented, rather
than the distribution and service fees and other expenses currently payable by
each class of shares under the Multiple Pricing System, which in certain cases
are different. Until April 1, 1994, each Portfolio paid distribution and service
fees under the Prior Plan. Under the Prior Plan, (i) the Global Equity,
Equity-Income, Growth and Income and Balanced Funds paid the Distributor a
distribution fee at an annual rate of up to .75% of average daily net assets and
a service fee of up to .25% of average daily net assets; (ii) the Strategic
Income, Investment Quality Bond and U.S. Government Securities Funds paid the
Distributor a distribution fee at an annual rate of up to .10% of average daily
net assets and a service fee of up to .25% of average daily net assets; (iii)
the National Municipal Bond Fund paid the Distributor no distribution fee and a
service fee at an annual rate of up to .15% of average daily net assets; and
(iv) the Money Market Fund did not pay any fees. The distribution and service
fees currently payable by each class of shares under the Multiple Pricing System
are described in "DISTRIBUTION PLANS" in this Statement of Additional
Information.
The following tables set forth the average annual total returns
for each class of shares of each Portfolio for certain periods of time ending
October 31, 1996, restated to reflect the effects of the maximum front end sales
charges and any applicable CDSCs payable by an investor under the Multiple
Pricing System:
Class A shares
37
<PAGE>
<TABLE>
<CAPTION>
Through
<S> <C> <C> <C> <C>
10/31/96 One Year Five Years Since Inception Inception Date
Small/Mid Cap NA NA % (03-04-96)*
International Small Cap NA NA % (03-04-96)*
Growth Equity NA NA % (03-04-96)*
Global Equity % % % (11-07-90)
Equity-Income % % % (08-28-89)
Growth & Income % % % (05-01-91)
International Growth and Income % NA % (01-09-95)
Strategic Income % NA % (11-01-93)
Balanced % % % (08-28-89)
Investment Quality Bond % % % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % NA % (07-06-93)
</TABLE>
*Aggregate total return from March 4, 1996 (commencement of operations) to
October 31, 1996.
Class B shares
<TABLE>
<CAPTION>
Through
<S> <C> <C> <C> <C>
10/31/96 One Year Five Years Since Inception Inception Date
Small/Mid Cap NA NA % (03-04-96)*
International Small Cap NA NA % (03-04-96)*
Growth Equity NA NA % (03-04-96)*
Global Equity % % % (11-07-90)
Equity-Income % % % (08-28-89)
Growth & Income % % % (05-01-91)
International Growth and Income % NA % (01-09-95)
Strategic Income % NA % (11-01-93)
Balanced % % % (08-28-89)
Investment Quality Bond % % % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % NA % (07-06-93)
</TABLE>
*Aggregate total return from March 4, 1996 (commencement of operations) to
October 31, 1996.
38
<PAGE>
<TABLE>
<CAPTION>
Class C shares
Through
<S> <C> <C> <C> <C>
10/31/96 One Year Five Years Since Inception Inception Date
Small/Mid Cap NA NA % (03-04-96)*
International Small Cap NA NA % (03-04-96)*
Growth Equity NA NA % (03-04-96)*
Global Equity % % % (11-07-90)
Equity-Income % % % (08-28-89)
Growth & Income % % % (05-01-91)
International Growth and Income % N/A % (01-09-95)
Strategic Income % N/A % (11-01-93)
Balanced % % % (08-28-89)
Investment Quality Bond % % % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % NA % (07-06-93)
</TABLE>
*Aggregate total return from March 4, 1996 (commencement of operations) to
October 31, 1996.
As described in the Prospectus under the caption "FEE TABLE AND
EXAMPLE," the Portfolios have been and still are subject to certain fee
reimbursements. Absent such reimbursement, the returns shown above would be
lower.
The performance data quoted represents past performance; investment
returns and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. On July 10, 1992, the former Aggressive, Moderate and Conservative Asset
Allocation Trusts were reorganized into the Balanced Fund. The Balanced Fund's
investment objectives, policies and restrictions are identical to the old
Moderate Asset Allocation Trust. The performance figures shown above for the
Balanced Fund therefore are based on the past performance of the former Moderate
Asset Allocation Trust for the period prior to July 10, 1992.
A Portfolio's yield is a way of showing the rate of income the Portfolio
earns on its investments as a percentage of the Portfolio's share price. Under
the rules of the Commission, yield must be calculated according to the following
formula:
a-b 6
YIELD = 2[(--- + 1) - 1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last
day of the period.
Yields for the classes of the Portfolios of the Fund used in advertising are
computed by dividing the class of the Portfolio's interest and dividend income
for a given 30 day period, net of expenses, by the average number of shares
entitled to receive distributions during the period, dividing this figure by the
offering price (including the applicable front end sales charge or CDSC) at the
end of the
39
<PAGE>
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation. Income calculated for the purposes
of calculating the Portfolio's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted for a
class of a Portfolio may differ from the rate of distributions paid over the
same period or the rate of income reported in the Fund's financial statements.
The yields for Classes A, B and C of the Investment Quality Bond Fund for the
thirty day period ended October 31, 1996 were ____%, ____% and _____%,
respectively. The yields for Classes A, B and C of the U.S. Government
Securities Fund for the thirty day period ended October 31, 1995 were ____%,
____% and _____%, respectively. The yields for Classes A, B and C of the
Strategic Income Fund for the thirty day period ended October 31, 1996 were
____%, ____% and ___%, respectively.
Yield quotations for the Investment Quality Bond and U.S. Government
Securities and Strategic Income Funds will reflect the fact that such Portfolios
will have paid no advisory fees during certain periods of their operations.
Therefore, the yield for those Portfolios encompassing the periods during which
no advisory fees were paid will be higher than the yields the Portfolios would
have realized had the suspension of advisory fees not been in effect.
The yields for Classes A, B and C of the National Municipal Bond Fund
for the thirty day period ended October 31, 1996 were ____%, ____% and ____%,
respectively. With respect to the National Municipal Bond Fund, tax-equivalent
yields are computed by dividing that portion of yield that is tax-exempt by one,
minus a stated income tax rate and adding the quotient to that portion, if any,
of the yield that is not tax-exempt.
Yields for the Money Market Fund will be computed on the basis of
seven-day periods, and such quotations will be in lieu of total return
quotations for the one, five and ten year periods described above. Yields will
be computed by dividing the net change, exclusive of capital changes, in the
value of a hypothetical account having a balance of one share at the beginning
of the seven-day period by the value of the account at the beginning of the
period and multiplying the return so determined ("base period return") by 365/7.
Effective yields will be computed by compounding the base period return in
accordance with the following formula:
Effective yield = [(Base period return+1)365/7] - 1
For the seven-day period ended October 31, 1996, yields for Classes A, B and C
of the Money Market Fund were ____%, ____% and _____%, respectively. For the
seven-day period ended October 31, 1996, the effective yields for Classes A, B
and C of the Money Market Fund were _____%, ____% and _____%, respectively.
Yield and total return are calculated separately for each class of
shares of a Portfolio. As discussed above, these calculations adjust for the
different front end sales charges and CDSCs currently payable with respect to
each class, and are based on distribution and service fees and other expenses
actually paid by each Portfolio for the periods presented.
The Fund may also from time to time include in such advertising a total
aggregate return figure or an average annual total return figure that is not
calculated according to the formula set forth above in order to compare
performance more accurately with other measures of investment return. Each class
of a Portfolio may quote an aggregate total return figure in comparing total
return with data published by Lipper Analytical Services, Inc. or with the
performance of various indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Value Line
Composite Index, the Lehman Brothers Bond, Government Corporate, Corporate and
Aggregate Indices, Merrill Lynch Government & Agency Index, Merrill Lynch
Intermediate Agency Index, Morgan Stanley Capital International Europe,
Australia, Far East Index or the Morgan Stanley Capital International World
Index. For such purposes, aggregate total return is calculated for the specified
periods of time by assuming the investment of $1,000 in shares of a class of a
Portfolio 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. The Fund does not, for these
purposes, deduct from the initial value invested any amount representing front
end sales charges or CDSCs applicable to a class. To calculate its average
annual total return, the aggregate return is then annualized according to the
Commission's formula for total return quotes, outlined above. When the period
since inception is less than one year, the total return quoted will be the
aggregate return for the period. The Fund will, however, disclose the maximum
front end sales charge or CDSC applicable to each class and will also disclose
that the performance data does not reflect sales charges and that the inclusion
of sales charges would reduce the performance quoted. Such alternative total
return information will be given no greater prominence in such advertising than
the information prescribed under Commission rules and all advertisements
containing performance data will include a legend disclosing that such
performance data represent past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The Fund may
also advertise the performance rankings assigned certain Portfolios (or
40
<PAGE>
classes thereof) or their investment subadvisers by various publications and
statistical services, including but not limited to SEI, Lipper Analytical
Services, Inc.'s Mutual Fund Performance Analysis, Intersec Research Survey of
Non-U.S. Equity Fund Returns, Frank Russell International Universe, and any
other data which may be presented from time to time by such analysis as Dow
Jones, Morningstar, Chase Investment Performance, Wilson Associates, Stanger,
CDA Investment Technology, the Consumer Price Index ("CPI"), The Bank Rate
Monitor National Index, IBC/Donaghue's Average/U.S. Government and Agency, or as
they appear in various publications including but not limited to The Wall Street
Journal, Forbes, Barrons, Fortune, Money Magazine, The New York Times, Financial
World and Financial Services Week.
Calculated in the manner set forth immediately above, the average annual total
returns for each class of each Portfolio for the one and five year periods ended
October 31, 1996 and since inception to October 31, 1996 are as follows:
<TABLE>
<CAPTION>
Class A shares
Through
10/31/96 One Year Five Years Since Inception Inception Date
<S> <C> <C> <C> <C>
Small/Mid Cap NA NA % (03-04-96)*
International Small Cap NA NA % (03-04-96)*
Growth Equity NA NA % (03-04-96)*
Global Equity % % % (11-07-90)
Equity-Income % % % (08-28-89)
Growth & Income % % % (05-01-91)
International Growth and Income % NA % (01-09-95)
Strategic Income % % % (11-01-93)
Balanced % % % (08-28-89)
Investment Quality Bond % % % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % NA % (07-06-93)
</TABLE>
*Aggregate total return from March 4, 1996 (commencement of operations)
to October 31, 1996.
Class B shares
41
<PAGE>
<TABLE>
<CAPTION>
Through
10/31/96 One Year Five Years Since Inception Inception Date
<S> <C> <C> <C> <C>
Small/Mid Cap NA NA % (03-04-96)*
International Small Cap NA NA % (03-04-96)*
Growth Equity NA NA % (03-04-96)*
Global Equity % % % (11-07-90)
Equity-Income % % % (08-28-89)
Growth & Income % % % (05-01-91)
International Growth and Income % NA % (01-09-95)
Strategic Income % NA % (11-01-93)
Balanced % % % (08-28-89)
Investment Quality Bond % % % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % NA % (07-06-93)
</TABLE>
*Aggregate total return from March 4, 1996 (commencement of operations) to
October 31, 1996
<TABLE>
<CAPTION>
Class C shares
Through
10/31/96 One Year Five Years Since Inception Inception Date
<S> <C> <C> <C> <C>
Small/Mid Cap NA NA % (03-04-96)*
International Small Cap NA NA % (03-04-96)*
Growth Equity NA NA % (03-04-96)*
Global Equity % % % (11-07-90)
Equity-Income % % % (08-28-89)
Growth & Income % % % (05-01-91)
International Growth and Income % N/A % (01-09-95)
Strategic Income % N/A % (11-01-93)
Balanced % % % (08-28-89)
Investment Quality Bond % % % (05-01-91)
U.S. Government Securities % % % (08-28-89)
National Municipal Bond % NA % (07-06-93)
</TABLE>
*Aggregate total return from March 4, 1996 (commencement of operations) to
October 31, 1996.
As described in the Prospectus under the caption "FEE TABLE AND
EXAMPLE," the Portfolios have been and still are subject to certain fee
reimbursements. Absent such reimbursement, the returns shown above would be
lower.
The Fund may also from time to time include in advertising and sales
literature the following: 1) information regarding its portfolio subadvisers,
such as information regarding a subadviser's specific investment expertise,
client base, assets under management or other relevant information; 2)
quotations about the Fund, its portfolios or its investment subadvisers that
appear in various publications and media; and 3) general discussions of economic
theories, including but not limited to discussions of how
42
<PAGE>
demographics and political trends may effect future financial markets, as well
as market or other relevant information. The Fund will include performance data
for each class of shares of a Portfolio in any advertisement or information
including performance data of such Portfolio.
TAXES
The following information supplements the disclosure contained in the
Prospectus under the heading "Taxes." No attempt is made to present a detailed
explanation of all federal, state, local and foreign tax concerns, and the
discussion set forth here and in the Prospectus do not constitute tax advice.
Investors are urged to consult their own tax advisers with specific questions
relating to federal, state, local and foreign taxes.
Each Portfolio intends to qualify as a regulated investment company (a
"RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and to continue to so qualify. Qualification as a RIC requires, among
other things, that each Portfolio: (a) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stocks or securities; (b) derive less than 30% of its gross income in
each taxable year from the sale or other disposition of any of the following
held for less than three months: (i) stock or securities, (ii) options, futures,
or forward contracts, or (iii) foreign currencies (or foreign currency options,
futures or forward contracts) that are not directly related to its principal
business of investing in stock or securities (or options and futures with
respect to stocks or securities) (the "30% limitation"); and (c) diversify its
holdings so that, at the end of each quarter of each taxable year, (i) at least
50% of the market value of a Portfolio's assets is represented by cash, cash
items, U.S. government securities, securities of other regulated investment
companies and other securities with such other securities limited, in respect of
any issuer, to an amount not greater than 5% of the value of a Portfolio's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities (other
than U.S. government securities or the securities of other regulated investment
companies) of any one issuer.
As a RIC, a Portfolio will not be subject to federal income tax on its
net investment income (i.e., its investment company taxable income, as that term
----
is defined in the Code, determined without regard to the deduction for dividends
paid) and "net capital gains" (the excess of a Portfolio's net long-term capital
gains over net short-term capital losses), if any, that it distributes in each
taxable year to its shareholders, provided that it distributes (i) 90% of its
net investment income for such taxable year and (ii) in the case of the National
Municipal Bond Fund at least 90% of its net tax-exempt income for such taxable
year. Each Portfolio expects to designate amounts retained as undistributed net
capital gains in a notice to its shareholders who (i) will be required to
include in income for United States federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (ii) will
be entitled to credit their proportionate shares of the 35% tax paid by a
Portfolio on the undistributed amount against their federal income tax
liabilities and to claim refunds to the extent such credits exceed their
liabilities and (iii) will be entitled to increase their tax basis, for federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed net capital gains included in the shareholder's income.
A Portfolio will be subject to a nondeductible 4% excise tax on the
amount by which the aggregate income it distributes in any calendar year is less
than the sum of: (a) 98% of a Portfolio's ordinary income for such calendar
year; (b) 98% of its capital gain net income (the excess of capital gains over
capital losses, both long- and short-term) for the one-year period ending on
October 31 of each year; and (c) 100% of the undistributed ordinary income and
gains from prior years. For this purpose, any income or gains retained by a
Portfolio subject to corporate income tax will be considered to have been
distributed by year-end. Each Portfolio expects to distribute substantially all
of its net income and gain, and, assuming that it does so, it will not be
subject to this excise tax.
Pay-in-kind Bonds, Zero Coupon Bonds and Discount Obligations. Certain
Portfolios may make investments that produce income that is not matched by a
corresponding cash distribution to the Portfolio, such as investments in
pay-in-kind bonds or in discount obligations such as zero coupon securities,
certain sovereign debt securities and stripped mortgage securities having
original issue discount or market discount (if a Portfolio elects to accrue the
market discount on a current basis with respect to such instruments). Such
income would be treated as income earned by the Portfolio and therefore would be
subject to the distribution requirements of the Code. Because such income may
not be matched by a corresponding cash distribution to the Portfolio, the
Portfolio may be required to borrow money or dispose of other securities to be
able to make distributions to its investors. For example, pursuant to a
provision of the Code governing the treatment of securities such as the stripped
mortgage securities described in this Statement of Additional Information, a
principal-only ("PO") class will be treated as having been issued with original
issue discount and, consequently, will result in income to the Portfolio without
a corresponding distribution of cash to the Portfolio. A portion of the amount
received on a PO class will constitute a return of the Portfolio's investment
and as such will not be income.
Futures and Forward Transactions. Under Section 1256 of the Code, gain
or loss on certain futures contracts and forward contracts ("Section 1256
contracts") will be treated as 60% long-term and 40% short-term capital gain or
loss (hereinafter "blended gain or loss"). In addition, Section 1256 contracts
held by a Portfolio at the end of each taxable year will be required to be
treated as sold at market value on the last day of such taxable year for U.S.
federal income tax purposes and the resulting gain or loss will be treated as
blended gain or loss.
Offsetting positions held by a Portfolio involving certain futures
transactions may be considered to constitute, for federal income tax purposes,
"straddles" which are subject to special rules under the Code. Under these
rules, depending on different elections which may be made by a Portfolio, the
amount, timing and character of gain and loss realized by a Portfolio and its
shareholders may be affected.
The requirements for qualification as a regulated investment company
under the Code may limit a Portfolio's ability to engage in certain transactions
in futures contracts and forward contracts.
Special Rules for Certain Foreign Currency Transactions. Under section
988 of the Code, special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., in a
Portfolio's case, currencies other than the United States dollar). In general,
foreign currency gains or losses from certain forward contracts not traded in
the interbank
43
<PAGE>
market and from futures contracts that are not "regulated futures contracts"
will be treated as ordinary income or loss under section 988 of the Code. In
certain circumstances, a Portfolio may elect capital gain or loss treatment for
such transactions. The rules under section 988 of the Code may also affect the
timing of income recognized by a Portfolio.
Investments in Passive Foreign Investment Companies. If a Portfolio
purchases shares in a foreign investment company treated for U.S. federal income
tax purposes as a "passive foreign investment company" (a "PFIC"), a Portfolio
may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by the Portfolio to its shareholders.
Additional charges in the nature of interest may be imposed on a Portfolio in
respect of deferred taxes arising from such distributions or gains. If a
Portfolio were to invest in a PFIC and elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, a
Portfolio would be required to include in income each year a portion of the
ordinary earnings and net capital gain of the qualified electing fund, even if
not distributed to the Portfolio, and such amounts would be subject to the
distribution requirements described in the Prospectus. On March 31, 1992 the IRS
proposed regulations providing a mark-to-market election for RICs that would
have effects similar to the proposed legislation. These regulations would be
effective for taxable years ending after promulgation of the regulations as
final regulations.
Foreign Withholding Taxes. Certain dividends and interest received by a
Portfolio may be subject to foreign withholding taxes. If more than 50% in value
of a Portfolio's total assets at the close of any taxable year consists of
stocks or securities of foreign corporations, the Portfolio may elect to treat
any foreign income taxes paid by it as paid by its shareholders. If eligible,
the Portfolio(s) intend to make this election. If a Portfolio makes this
election, its shareholders will be required to include in income their
respective pro rata portions of foreign income taxes paid by the Portfolio(s)
and, if they itemize their deductions, will be entitled to deduct such
respective pro rata portions in computing their taxable income or,
alternatively, to claim foreign tax credits (subject to the limitations
discussed below). Each year that a Portfolio makes this election, it will report
to its shareholders the amount per share of foreign income taxes it has elected
to have treated as paid by its shareholders.
Generally, a credit for foreign income taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of a
Portfolio's income flows through to its shareholders. A Portfolio's gains from
the sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables, will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, such as the
portion of dividends received from a Portfolio that qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals. Because
of these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate share of the foreign taxes paid by a Portfolio.
State and Local Income Taxes. Depending on the residence of the shareholder for
tax purposes, distributions may also be subject to state and local taxes or
withholding taxes. Most states provide that a RIC may pass through (without
restriction) to its shareholders state and local income tax exemptions available
to direct owners of certain types of U.S. government securities. Thus, for
residents of these states, distributions derived from a Portfolio's investment
in certain types of U.S. government securities should be free from state and
local income taxes to the extent that the interest income from such investments
would have been exempt from state and local income taxes if such securities had
been held directly by the respective shareholders themselves. Certain states,
however, do not allow a RIC to pass through to its shareholders the state and
local income tax exemptions available to direct owners of certain types of U.S.
government securities unless the RIC holds at least a required amount of U.S.
government securities. Accordingly, for residents of these states, distributions
derived from a Portfolio's investment in certain types of U.S. government
securities may not be entitled to the exemptions from state and local income
taxes that would be available if the shareholders had purchased U.S. government
securities directly. Shareholders' dividends attributable to a Portfolio's
income from repurchase agreements generally are subject to state and local
income taxes, although states and regulations vary in their treatment of such
income. The exemption from state and local income taxes does not preclude states
from asserting other taxes on the ownership of U.S. government securities. To
the extent that a Portfolio invests to a substantial degree in U.S. government
securities which are subject to favorable state and local tax treatment,
shareholders of such Portfolio will be notified as to the extent to which
distributions from the Portfolio are attributable to interest on such
securities.
National Municipal Bond Fund
The National Municipal Bond Fund intends to qualify to pay
"exempt-interest dividends," as that term is defined in the Code, by holding at
the end of each quarter of its taxable year at least 50% of the value of its
total assets in the form of municipal obligations described in section 103(a) of
the Code. Because the National Municipal Bond Fund will primarily invest in
municipal obligations, dividends from the Portfolio will generally be exempt
from regular federal income tax in the hands of shareholders subject to the
possible application of the alternative minimum tax. Further, gain from a sale
of redemption of shares of the National Municipal Bond Fund will be taxable to
shareholders as capital gain even though the increase in value of such shares is
attributable to tax-exempt income. Thus, it will normally be advantageous for
the National Municipal Bond Fund to declare exempt-interest dividends
frequently.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals based on certain items of tax preference. Interest
on certain municipal obligations, such as bonds issued to make loans for housing
purposes or to private entities (but not to certain tax-exempt organizations
such as universities and non-profit hospitals) is included as an item of tax
preference in determining the amount of a taxpayer's alternative minimum taxable
income. To the extent that the Portfolio receives income from municipal
obligations treated as a tax preference item for purposes of the alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from federal income tax, will be taxable to shareholders to the extent that
their tax liability will be determined under the alternative minimum tax. The
Portfolio will annually supply shareholders with a report indicating the
percentage of portfolio income attributable to municipal obligations subject to
the alternative minimum tax. Additionally, taxpayers must disclose to the
Internal Revenue Service on their tax returns the entire amount of tax-exempt
interest (including exempt-interest dividends on shares of the Portfolio)
received or accrued during the year.
In addition, for corporations, the alternative minimum taxable income is
increased by a percentage of the amount by which an alternative measure of
income ("adjusted current earnings", referred to as "ACE") exceeds the amount
otherwise determined to be
44
<PAGE>
the alternative minimum taxable income. Interest on all municipal obligations,
and therefore all exempt-interest dividends paid by the Portfolio, is included
in calculating ACE. Taxpayers that may be subject to the alternative minimum tax
should consult their tax advisers before investing in the Portfolio.
Under the Omnibus Budget Reconciliation Act of 1993, all or a portion of
the National Municipal Bond Fund's gain from the sale or redemption of
tax-exempt obligations acquired after April 30, 1993 attributable to market
discount will be treated as ordinary income rather than capital gain. This rule
may increase the amount of ordinary income dividends received by shareholders.
Shares of the Portfolio would not be a suitable investment for
tax-exempt institutions and may not be a suitable investment for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts, because such plans and accounts are generally tax-exempt
and, therefore, would not gain any additional benefit from the receipt of
exempt-interest dividends from the Portfolio. Moreover, subsequent distributions
of such dividends to the beneficiaries will be taxable.
In addition, the Portfolio may not be an appropriate investment for
entities that are "substantial users" of facilities financed by private activity
bonds or "related persons" thereof. A "substantial user" is defined under United
States Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his trade or business and, unless such facility, or
part thereof, is constructed, reconstructed or acquired specifically for the
non-exempt person, whose gross revenue derived with respect to the facilities
financed by the issuance of bonds is more than 5% of the total revenue derived
by all users of such facilities. "Related persons" include certain related
natural persons, affiliated corporations, partnerships and their partners and S
Corporations and their shareholders. The foregoing is not a complete statement
of all of the provisions of the Code covering the definitions of "substantial
user" and "related person". For additional information, investors should consult
their tax advisers before investing in the Portfolio.
All or a portion of the exempt-interest dividends received by certain
foreign corporations may be subject to the federal branch profits tax. Likewise,
all or a portion of the exempt-interest dividends may be taxable to certain
Subchapter S Corporations that have Subchapter C earnings and profits and
substantial passive investment income. In addition, the exempt-interest
dividends may reduce the deduction for loss reserves for certain insurance
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the Portfolio. The Code may also require
shareholders that receive exempt-interest dividends to treat as taxable income a
portion of certain otherwise nontaxable social security and railroad retirement
benefit payments.
SHAREHOLDER SERVICES
Systematic Withdrawal Plan. You may establish a plan for redemptions to
be made automatically at monthly, quarterly, semiannual or annual intervals with
payments sent directly to you or to persons designated by you as recipients of
the withdrawals (the "Withdrawal Plan"). Requests for this service not made on
the initial application require signature guarantees unless the payments are to
be made to you and mailed to the address of record on your account. You are
required to have a minimum account value of $10,000 per Portfolio in order to
establish this plan. The Withdrawal Plan provides for monthly or other periodic
checks in any amount not less than $50. Maintenance of a Withdrawal Plan
concurrently with purchases of additional shares may be disadvantageous to you
because of the front end sales charge on certain purchases and the CDSC on
certain redemptions.
The Fund acts as agent for the shareholder in redeeming sufficient full
and fractional shares to provide the amount of the periodic withdrawal payment.
The Withdrawal Plan may be terminated at any time, and, while no fee is
currently charged (although a CDSC may be applicable to certain redemptions that
exceed 12% annually of the value of the account), the Fund reserves the right to
initiate a fee of up to $5 per withdrawal upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield, or
income. If periodic withdrawals continuously exceed reinvested dividends and
capital gains distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes.
Withdrawals which are made concurrently with purchases of additional shares are
generally inadvisable because of the front end sales charges and CDSCs which may
be applicable to the purchase of additional shares or to redemptions.
45
<PAGE>
Automatic Investment Plan. A shareholder who wishes to make additional
investments in the Fund on a regular basis may do so by authorizing the Fund on
the Shareholder Application to deduct a fixed amount (not less than $50) each
month from the shareholder's checking account at his or her bank. This amount
will automatically be invested on the same day that the pre-authorized check is
issued. The shareholder will receive a confirmation from the Fund, and the
checking account statement will show the amount charged.
Tax Deferred Retirement Plans. Retirement plans are either available or
expected to be available for use by Individual Retirement Accounts ("IRAs"),
plans under Section 403(b)(7) of the Code, and other retirement plans. Adoption
of such plans should be on advice of legal counsel or a tax adviser. With the
exception of the National Municipal Bond Fund, the Portfolio may be available
for purchase through retirement plans or other programs offering deferral of or
exemption from income taxes, which may produce superior after-tax returns over
time. For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,099.86 after ten years, assuming
tax was deducted at a 31% rate from the deferred earnings at the end of the ten
year period.
For further information regarding plan administration, custodial fees
and other details, investors should contact their broker or Wood Logan or call
the shareholder inquiry number for the Fund.
GENERAL
Adviser's Rationale for Multi-Manager Fund
Every investment adviser has different strengths and weaknesses. Finding
the right investment adviser is an important part of choosing the right family
of mutual funds. That is why the Fund has selected thirteen companies that are,
in the opinion of the Adviser, among the world's most distinguished asset
management firms. Each of these firms has been recognized as among the finest in
the world for their particular investment style or area of investment expertise.
The Adviser believes that together the Portfolios offer investors a unique
opportunity to benefit from some of the industry's finest investment
professionals.
It is well recognized that one of the basic principles of managing money
is diversification. The Fund is designed, in the opinion of the Adviser, to make
it easy for investors to create a sound and diversified investment program that
can help them meet their current and future investment needs. The Fund is
specifically designed to enable investors to allocate their assets effectively
across a spectrum of investment Portfolios representing particular investment
styles or asset classes. As conditions change, investors in the Fund can easily
adjust the allocation of their assets among the Fund's investment Portfolios.
Global Equity Fund. The investment objective of the Global Equity Fund (prior to
October 1, 1996, the "Global Growth Fund") is long-term capital appreciation.
Morgan Stanley manages the Global Equity Fund and seeks to attain this objective
by investing primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, American and Global Depository
Receipts and other equity securities of issuers throughout the world, including
issuers in the U.S. and emerging market countries.
Under normal circumstances, at least 65% of the value of the total
assets of the Global Equity Fund will be invested in equity securities and at
least 20% of the value of the portfolio's total assets will be invested in the
common stocks of U.S. issuers. The Subadviser's approach is oriented to
individual stock selection and is value driven. In selecting stocks for the
portfolio, the Subadviser initially identifies those stocks that it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues, and then evaluates the future value of such stocks by running the
results of an in-depth study of the issuer through a dividend discount model. In
selecting investments, the Subadviser utilizes the research of a number of
sources, including Morgan Stanley Capital International, an affiliate of the
Subadviser located in Geneva, Switzerland. Portfolio holdings are regularly
reviewed and subjected to fundamental analysis to determine whether they
continue to conform to the Subadviser's value criteria, equity securities which
no longer conform to such investment criteria will be sold.
Foreign securities in which the Global Equity Fund may invest include
emerging market securities. The Subadviser's approach to emerging markets
investing is based on the Subadviser's evaluation of both short-term and
long-term international economic trends and the relative attractiveness of
emerging markets and individual emerging market securities. Emerging markets
describes any country which is generally considered to be an emerging, or
developing country by the international financial community such as the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. There are currently
over 130 countries which are generally considered to be emerging or developing
countries by the international financial community, approximately 40 of which
currently have stock markets.
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<PAGE>
Growth Equity Fund. The investment objective of the Growth Equity Fund is to
seek long-term growth of capital. Founders manages the Growth Equity Fund and
will pursue this objective by investing at least 65% of its assets in common
stocks of well-established, high-quality growth companies. These companies tend
to have strong performance records, solid market positions and reasonable
financial strength, and have continuous operating records of three years or
more. The Portfolio may also invest up to 30% of its assets in foreign
securities, with no more than 25% invested in any one foreign country.
The Growth Equity Fund may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when Founders believes
that these investments offer opportunities for capital appreciation. Current
income will not be a substantial factor in the selection of these securities.
The Portfolio will only invest in bonds, debentures and corporate
obligations--other than convertible securities and preferred stock--rated
investment-grade (BBB or higher by Moody's and Baa or higher by S&P) or, if
unrated, of comparable quality in the opinion of Founders at the time of
purchase. Convertible securities and preferred stocks purchased by the Portfolio
may be rated in medium and lower categories by Moody's or S&P (Ba or lower by
Moody's and BB or lower by S&P) but will not be rated lower than B. The
Portfolio may also invest in unrated convertible securities and preferred stocks
in instances in which Founders believes that the financial condition of the
issuer or the protection afforded by the terms of the securities limits risk to
a level similar to that of securities rated in categories no lower than B. The
Portfolio is not required to dispose of debt securities whose ratings are
down-graded below these ratings subsequent to the Portfolio's purchase of the
securities.
International Growth and Income Fund. The International Growth and Income Fund
seeks long-term growth of capital and income. The Portfolio is designed for
investors with a long-term investment horizon who want to diversify their
investments by adding international securities and take advantage of investment
opportunities outside the United States.
J.P. Morgan seeks to achieve its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The Portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries. The Portfolio
may also invest in securities of issuers located in emerging markets countries.
The Portfolio invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in certain restricted or unlisted securities. Under normal
circumstances, the International Growth and Income Fund expects to invest
primarily in equity securities. However, the Portfolio may invest up to 35% of
its assets in corporate or sovereign issuers rated A or higher by Moody's or
S&P, or if unrated, of equivalent credit quality as determined by the
Subadviser.
In pursuing the International Growth and Income Fund's objective, J.P.
Morgan will actively manage the assets of the Portfolio through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques and experienced judgment, J.P. Morgan uses a
structured decision-making process to allocate the Portfolio primarily across
the developed countries of the world outside the United States. This universe is
typically represented by the Morgan Stanley Europe, Australia and Far East Index
(the "EAFE Index").
Growth and Income Fund. The Growth and Income Fund seeks long-term growth of
capital and income consistent with prudent investment risk by investing
primarily in a diversified portfolio of dividend-paying common stocks of U.S.
issuers believed to be of high quality. In selecting investments for this Fund,
Wellington Management emphasizes medium to large capitalization companies
having: leadership position within their industries; solid balance sheets and
low leverage; relatively high return on equity; steady or increasing dividends;
and strong management. The Growth and Income Fund is structured to provide, in
the opinion of the Adviser, an excellent opportunity for investors to
participate in the growth of the U.S. stock market through a conservatively
managed, well-diversified portfolio of stocks. By investing primarily in medium
to large capitalization issuers with above-average dividend yields, the Fund
seeks to reduce the volatility generally experienced by stocks through the
income cushion provided by dividend income. In addition to providing potential
downside protection, over the past 30 years reinvested dividends have accounted
for approximately 70% of the total appreciation of the S&P 500. An important
feature of the Fund is its exposure to convertible securities. The Fund
dedicates a portion of its assets to convertible securities, which, in general,
provide higher yields than common stocks while participating in the stock's
capital appreciation potential.
Strategic Income Fund. The Strategic Income Fund seeks a high level of total
return consistent with preservation of capital by giving SBAM broad discretion
to deploy the Fund's assets among various segments of the fixed income market.
SBAM may deploy the Fund's assets based on their analysis of current economic
and market conditions and the relative risks and opportunities present in a wide
range of market segments, including: U.S. Government securities; mortgage-backed
securities; high yield corporate bonds; high yield international bonds; and
investment quality corporate and foreign bonds.
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<PAGE>
SBAM expects that the Fund's investments will emphasize U.S. Government
securities, high yield corporate bonds and high yield international bonds. SBAM
believes that there is a low correlation among these distinct bond markets and,
historically, they have rarely reacted to interest rate changes and economic
conditions at the same time or in the same manner. Diversifying the portfolio
among securities in markets with low correlation is designed to reduce the risk
of owning securities in just one bond market. While there is no guarantee that
this market diversification will produce the results intended, SBAM believes
that it can help to alleviate the risk of investing in less than investment
grade securities.
Investment Quality Bond Fund. The Investment Quality Bond Fund seeks a high
level of current income consistent with the maintenance of principal and
liquidity by investing primarily in a diversified portfolio of investment grade
corporate bonds and U.S. government bonds with intermediate to longer-term
maturities. In the present low interest rate environment, high quality U.S.
Government securities and investment grade corporate bonds can offer an
opportunity for investors to achieve rates of return higher than those available
from short-term investments such as certificates of deposit, savings accounts,
and money market funds. Historically, investors have achieved consistently
higher levels of income from investment grade corporate bonds than U.S. Treasury
securities. Nevertheless, investment grade bonds are subject to greater credit
risk than U.S. Treasury securities. In addition, certificates of deposit and
savings accounts are insured and offer a fixed rate of return and money market
funds seek to provide a stable net asset value. The investment returns and
principal value of the Investment Quality Bond Fund will fluctuate with changes
in market conditions.
This Fund will be invested primarily in investment grade corporate
bonds, mortgage-related bonds and U.S. government bonds with intermediate to
long-term maturities. This Fund may also invest up to 20% of its assets in
non-investment grade fixed income securities. Wellington Management, in managing
the Fund's investments, emphasizes a sector rotation strategy which seeks to
identify relative value among these three major sectors of the fixed income
marketplace.
U.S. Government Securities Fund. The U.S. Government Securities Fund seeks a
high level of current income consistent with preservation of capital and
maintenance of liquidity by investing in securities issued or guaranteed as to
the timely payment of interest or principal by the U.S. government, its agencies
or instrumentalities. The U.S. Government Securities Fund, managed by SBAM, is
designed to provide investors with high current income and a high degree of
credit safety in one fund. To date, the U.S. Government has never defaulted on
or delayed payments of principal or interest on its obligations. In addition,
under normal market conditions, the medium and long-term U.S. Government
securities in which the Fund invests have historically provided higher yields
than short-term securities. Moreover, U.S. Government securities are considered
to be highly liquid.
National Municipal Bond Fund. The National Municipal Bond Fund seeks to achieve
a high level of current income exempt from regular federal income taxes,
consistent with the preservation of capital, by investing primarily in a
portfolio of municipal obligations. A fund that invests in municipal bonds can
provide income free from federal income tax liability, even as taxes rise. In
addition, earnings may grow more quickly when they are permitted to compound
without federal income taxation.
An investor may want to determine which investment, tax-exempt or
taxable, will provide a higher after-tax return. To determine the taxable
equivalent yield, simply divide the yield from the tax-exempt investment by the
sum of (1 minus the investor's marginal tax rate). The tables below are provided
for making this calculation for selected tax-exempt yield and taxable income
levels. These yields are presented for purposes of illustration only and are not
representative of any yield that the Fund may generate. The tables are based
upon the 1996 federal tax rates (in effect as of January 1, 1997.
48
<PAGE>
Taxable Equivalent Yields
<TABLE>
<CAPTION>
==============================================================================================
Single Joint Marginal A Tax-Exempt Yield of:
Federal
Income Tax 3% 4% 5% 6% 7% 8%
Taxable Income** Rate
Is Equivalent to a Taxable Yield of:
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
under $24,000 under $40,100 15% 3.53, 4.71, 5.88, 7.06, 8.24, 9.41
- ----------------------------------------------------------------------------------------------
$24,000-$58,150 $40,100-$96,900 28% 4.17, 5.56, 6.94, 8.33, 9.72, 11.11
- ----------------------------------------------------------------------------------------------
$58,150-$121,300 $96,900-$147,700 31% 4.35, 5.80, 7.25, 8.70, 10.14, 11.59
- ----------------------------------------------------------------------------------------------
$121,300-$263,750 $147,700-$263,750 36% 4.69, 6.25, 7.81, 9.38, 10.94, 12.50
- ----------------------------------------------------------------------------------------------
over $263,750 over $263,750 39.6% 4.97, 6.62, 8.28, 9.93, 11.59, 13.25
==============================================================================================
</TABLE>
* Certain taxpayers may, to the extent such taxpayers itemize deductions or
claim personal exemptions, be subject to a higher marginal rate. In addition,
the tax rate on net capital gains of individuals may not exceed 28%.
**Taxable Income amounts apply for taxable years beginning in 1996. The amounts
are indexed annually for inflation.
Fund Shares
The Fund's Declaration of Trust permits its Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Fund.
At a meeting of the Board of Trustees held on December 16, 1993, the
Trustees, including each Trustee who is not an "interested person," as such term
is defined under the Investment Company Act of 1940, as amended, unanimously
approved amendments to the Declaration of Trust to permit implementation of the
Multiple Pricing System. Shareholders of the Fund approved these amendments at a
special meeting held February 18, 1994. The Multiple Pricing System was
implemented on April 1, 1994. All shares of the Fund have equal voting rights
and will be voted in the aggregate, and not by series (Portfolio) or class,
except where voting by series or class is required by law or where the matter
involved affects only one series or class (for example, matters pertaining to
the plan of distribution relating to Class A shares will only be voted on by
Class A shares). Matters required by the 1940 Act to be voted upon by each
affected series include changes to (i) the Advisory Agreement, (ii) a
Subadvisory Agreement and (iii) the fundamental investment objectives and
policies.
Shares of each class of a Portfolio represent interests in that
Portfolio in proportion to each share's net asset value. Certain operating
expenses which are specifically allocable to a class of a Portfolio may be so
allocated by the Trustees. Upon the Fund's liquidation, all shareholders of a
class would share pro rata in the net assets of that class available for
distribution to shareholders of the Portfolio, but, as shareholders of such
class of such Portfolio, would not be entitled to share in the distribution of
assets belonging to any other class or Portfolio. As of the date of this
Statement of Additional Information, the Trustees have designated thirty-two
Portfolios of the Fund and three classes of Shares in each Portfolio: Class A,
Class B and Class C shares.
Certificates representing shares are issued only upon written request to
the Fund.
Redemption in Kind
Although it is each of the Portfolios' present policy to make payment of
redemption proceeds in cash, if the Trustees determine it appropriate,
redemption proceeds may be paid in whole or in part by a distribution in kind of
marketable securities held by that Portfolio subject to the limitation that each
Portfolio is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day period
for any one account. If a redemption in kind is made, a shareholder might be
required to bear transaction costs, including brokerage commissions, to dispose
of such securities. The Fund will endeavor to only distribute securities for
which there is an active trading market.
49
<PAGE>
Repurchase of Shares
The Distributor is authorized to repurchase Portfolio shares through
certain securities dealers who have entered into dealer agreements with the
Distributor. The offer to repurchase may be suspended by the Distributor at any
time. Dealers may charge for their services in connection with a repurchase, but
neither the Fund nor the Distributor makes any such charge. Repurchase
arrangements differ from redemptions in that the dealer buys the shares as
principal from his customer in lieu of tendering shares to the Fund for
redemption as agent for the customer. The proceeds to the shareholder will be
the net asset value of the shares repurchased as next determined after receipt
of the repurchase order by the dealer. By a repurchase, the customer should be
able to receive the sale proceeds from the dealer more quickly. Shareholders
should contact their dealers for further information as to how to effect a
repurchase and the dealer's charges applicable thereto.
Payment for the Shares Presented
Payment for shares presented for redemption will be based on the net
asset value of the applicable class of the applicable Portfolio next computed
after a request is received in proper form at the Transfer Agent's office. As
described in the Prospectus under the caption "PURCHASE OF SHARES -- Class B
Shares", certain redemptions of Class A, B and C shares may be subject to a
CDSC, which will be deducted from the redemption proceeds. Payment proceeds will
be mailed within seven days following receipt of all required documents.
However, payment may be postponed or the right of redemption suspended (i) for
any period during which the New York Stock Exchange is closed for other than
customary weekend and holiday closing or during which trading on the New York
Stock Exchange is restricted; (ii) for any period during which an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets; or (iii) for such other periods
as the Commission may by order permit for the protection of shareholders,
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions described in (i) and (ii) exist. Payment of proceeds
may also be delayed if the shares to be redeemed or repurchased were purchased
by check and that check has not cleared (which may be up to 15 days or more).
Transfer Agent
State Street Bank and Trust Company acts as the Fund's transfer agent,
provides shareholder services and acts as dividend disbursing and redemption
agent. Its mailing address is P.O. Box 8505, Boston, Massachusetts 02266-8505.
State Street Bank and Trust Company also serves as the custodian for all
Portfolios of the Fund.
Independent Accountants
The Fund's independent accountants, Coopers & Lybrand L.L.P., One Post
Office Square, Boston Massachusetts 02109, examine the Fund's annual financial
statements, assist in the preparation of certain reports to the Commission and
prepare the Fund's tax returns.
50
<PAGE>
Item 24: Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
(1) Audited Financial Statements (to be filed by amendment)
:
Report of Independent Public Accountants, December __, 1996 --
Part B
Statements of Assets and Liabilities at October 31, 1996 --
Part B
Statements of Operations for the year ended October 31, 1996 --
Part B
Statements of Changes in Net Assets for the periods ended
October 31, 1996 and October 31, 1995 -- Part B
Financial Highlights -- Parts A and B
Portfolio of Investments owned -- Part B
Notes to Financial Statements, October 31, 1996 -- Part B
(b) Exhibits
(1)(a) Agreement and Declaration of Trust dated September 28,
1988 -- previously filed as Exhibit (b)(1) to North American
Security Trust's initial registration statement on Form N-1A
(File No. 33-27958) dated April 5, 1989.
(1)(b) Amended and Restated Agreement and Declaration of Trust
dated June 1, 1993 -- previously filed as Exhibit (b)(1)(b)
to North American Fund's Post-Effective Amendment No. 13 on
Form N-1A (File No. 33-27958) dated June 1, 1993.
(1)(c) Amended and Restated Agreement and Declaration of Trust
dated February 18, 1994 -- previously filed as Exhibit
(b)(1)(c) to North American Funds' Post-Effective Amendment
No. 17 on Form N-1A (File No. 33-27958) dated April 1, 1994.
(1)(d) Declaration of Trust Amendment -- Establishment and
Designation of Additional Series of Shares for the
International Growth and Income Fund, dated December 28,
1994 -- previously filed as Exhibit (b)(1)(d) to North
American Fund's Post Effective Amendment No. 19 on Form N-1A
(File No. 33-27958) filed December 29, 1994.
(1)(e) Declaration of Trust Amendment - Establishment and
Designation of Classes A, B and C, dated March 17, 1994 --
previously filed as Exhibit (b)(1)(e) to North American
Fund's Post-Effective Amendment No. 19 on Form N-1A (File
No. 33- 27958) filed December 29, 1994.
(1)(f) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Small/Mid Cap Fund, dated February
28, 1996 -- Filed herewith.
(1)(g) Establishment and Designation of Additional Series of Shares
of
<PAGE>
Beneficial Interest - International Small Cap Fund dated
February 28, 1996 -- Filed herewith.
(1)(h) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Growth Equity Fund dated February
28, 1996 -- Filed herewith.
(2) By-laws of North American Security Trust -- previously filed
as Exhibit (b)(2) to North American Security Trust's initial
registration statement on Form N-1A (File No. 33-27958)
dated April 5, 1989.
(3) Not applicable.
(4)(a) Specimen Share Certificate for Global Growth Trust --
previously filed as Exhibit No. (b)(4)(a) to North American
Security Trust's Post-Effective Amendment No. 3 on
Form N-1A (File No. 33-27958) dated February 1, 1991.
(b) Specimen Share Certificate for Growth Trust -- previously
filed as Exhibit (b)(4)(a) to North American Security
Trust's Post-Effective Amendment No. 1 on Form N-1A
(File No. 33-27958) dated December 29, 1989.
(c) Specimen Share Certificate for Growth and Income Trust --
previously filed as Exhibit (b)(4)(c) to North American
Security Trust's Post-Effective Amendment No. 4 on Form N-1A
(File No. 33-27958) dated February 22, 1991.
(d) Specimen Share Certificate for Investment Quality Bond Trust
previously filed as Exhibit (b)(4)(d) to North American
Security Trust's Post-Effective Amendment No. 6 on Form N-1A
(File No. 33-27958) dated April 22, 1991.
(e) Specimen Share Certificate for U.S. Government Securities
Trust -- previously filed as Exhibit (b)(4)(b) to North
American Security Trust's Post-Effective Amendment No. 1 on
Form N-1A (File No. 33-27958) dated December 29, 1989.
(f) Specimen Share Certificate for Money Market Trust --
previously filed as Exhibit (b)(4)(c) to North American
Security Trust's Post-Effective Amendment No. 1 on Form N-1A
(File No. 33-27958) dated December 29, 1989.
(g) Specimen Share Certificate for Asset Allocation Trust --
previously filed as Exhibit (b)(4)(g) to North American
Security Trust's Post-Effective Amendment No. 8 on Form N-1A
(File No. 33-27958) dated May 12, 1992.
(h) Forms of Specimen Share Certificates for Strategic Income
Fund, National Municipal Bond Fund, California Municipal
Bond Fund, Global Growth Fund, Growth Fund, Growth and
Income Fund, U.S. Government Securities Fund, Money Market
Fund and Asset Allocation Fund -- previously filed as
Exhibit (b)(4)(h) to North American Funds' Post-Effective
Amendment No. 13 on Form N-1A (File No. 33-27958) dated June
30, 1993.
2
<PAGE>
(I) Forms of Specimen Share Certificates: for Strategic Income
Fund - A, Investment Quality Bond Fund - A, National
Municipal Bond Fund - A, California Municipal Bond Fund - A,
Global Growth Fund - A, Growth Fund A, Growth and Income
Fund - A, U.S. Government Securities Fund - A, Money Market
Fund - A, Asset Allocation Fund - A; for Strategic Income
Fund - B, Investment Quality Bond Fund - B, National
Municipal Bond Fund - B, California Municipal Bond Fund - B,
Global Growth Fund - B, Growth Fund - B, Growth and Income
Fund - B, U.S. Government Securities Fund - B, Money Market
Fund - B, Asset Allocation Fund - B; for Strategic Income
Fund - C, Investment Quality Bond Fund - C, National
Municipal Bond Fund - C, California Municipal Bond Fund - C,
Global Growth Fund - C, Growth Fund - C, Growth and Income
Fund - C, U.S. Government Securities Fund - C, Money Market
Fund - C, and Asset Allocation Fund - C -- previously filed
as Exhibit (b)(4)(i) to North American Funds' Post-Effective
Amendment No.17 on Form N-1A (File No. 33-27958) dated April
1, 1994.
(j) Forms of Specimen Share Certificates for International
Growth and Income Fund: A, B, C and D -- previously filed as
Exhibit (b)(4)(j) to North American Funds' Post-Effective
Amendment No. 18 on Form N-1A (File No. 33-27958) dated
October 20, 1994.
(k) Forms of Specimen Share Certificates, for the Small/Mid Cap,
the International Small Cap and the Growth Equity Fund - A,B
and C. -- previously filed as Exhibit (b)(4)(k) to North
American Funds Post effective Amendment No. 21 on Form N1-A
(File No. 33-27958) dated December 15, 1995.
(l) Forms of Specimen Share Certificates, for the Value Fund,
High Yield Fund, Blue Chip Growth Fund, International Stock
Fund, Science & Technology Fund, Worldwide Growth Fund,
Pacific Rim Emerging Markets Fund, Real Estate Securities
Fund, Capital Growth Bond Fund, Equity Index Fund, Common
Stock Fund, Emerging Growth Fund and Pilgrim Baxter Growth
Fund, Class A, B and C -- Filed herewith.
5(a)(i) Form of Amended and Restated Advisory Agreement between
North American Funds and NASL Financial Services, Inc. --
previously filed as Exhibit (b)(5)(a)(ix) to North American
Funds Post effective Amendment No. 21 on Form N1-A (File No.
33-27958) dated December 15, 1995.
(b) Subadvisory Agreement Between NASL Financial Services, Inc.
and Oechsle International Advisors, L.P. dated January 1,
1996 --previously filed as Exhibit (b)(5)(b) to North
American Funds Post-Effective Amendment No. 22 on Form N-1A
(File No. 33-27958) dated February 23, 1996.
(c) Subadvisory Agreement Between NASL Financial Services, Inc.
and Wellington Management Company dated January 1, 1996 --
previously filed as Exhibit (b)(5)(c) to North American
Funds Post-Effective Amendment No. 22 on Form N-1A (File No.
33-27958) dated February 23, 1996.
(d) Subadvisory Agreement Between NASL Financial Services, Inc.
and Salomon Brothers Asset Management Inc dated January 1,
1996 -- previously filed as
3
<PAGE>
Exhibit (b)(5)(d) to North American Funds Post-Effective
Amendment No. 22 on Form N-1A (File No. 33-27958) dated
February 23, 1996.
(d)(i) Subadvisory Consulting Agreement Between Salomon Brothers
Asset Management Inc and Salomon Brothers Asset Management
Limited on behalf of Strategic Income Fund dated January 1,
1996 -- previously filed as Exhibit (b)(5)(d)(i) to North
American Funds Post-Effective Amendment No. 22 on Form N-1A
(File No. 33-27958) dated February 23, 1996.
(e) Subadvisory Agreement Between NASL Financial Services, Inc.
and Goldman Sachs Asset Management dated January 1, 1996 --
previously filed as Exhibit(b)(5)(e) to North American Funds
Post-Effective Amendment No. 22 on Form N-1A (File No.
33-27958) dated February 23, 1996.
(f) Subadvisory Agreement between NASL Financial Services, Inc.
and J.P. Morgan Investment Management Inc. dated January 1,
1996 -- previously filed as Exhibit (b)(5)(f) to North
American Funds Post-Effective Amendment No.22 on Form N-1A
(File No. 33-27958) dated February 23, 1996.
(g) Form of Subadvisory Agreement between NASL Financial
Services, Inc. and Fred Alger Management, Inc., dated
January 2, 1996 - previously filed as Exhibit (b)(5)(g) to
North American Funds Post-Effective Amendment No. 22on Form
N-1A (File No. 33-27958) dated February 23, 1996.
(h) Form of Subadvisory Agreement between NASL Financial
Services, Inc. and Founders Asset Management, Inc., dated
January 2, 1996 - previously filed as Exhibit (b)(5)(h) to
North American Funds Post-Effective Amendment No. 22on Form
N-1A (File No. 33-27958) dated February 23, 1996.
(6)(a) Distribution Agreement Between North American Funds and
NASL Financial Services, Inc. -- previously filed as Exhibit
(b)(6)(a) to North American Funds Post-Effective Amendment
No. 22 on Form N-1A (File No. 33-27958) dated February 23,
1996.
(b)(i) Amended and Restated Promotional Agent Agreement Among
NASL Financial Services, Inc., Wood Logan Associates, Inc.,
and North American Security Life Insurance Company dated
June 15, 1990 -- previously filed as Exhibit (b)(6)(b)(i) to
North American Security Trust's Post-Effective Amendment No.
2 on Form N-1A (File No. 33-27958) dated August 29, 1990.
(b)(ii) Form of Assignment from Wood Logan Associates, Inc. to
Wood Logan Distributors, Inc., dated July 27, 1990 --
previously filed as Exhibit (b)(6)(b)(ii) to North American
Security Trust's Post-Effective Amendment No. 2 on Form N-1A
(File No. 33-27958) dated August 29, 1990.
(c)(i) Form of Dealer Agreement Among NASL Financial Services,
Inc., Wood Logan Associates, Inc. and Selected Broker-Dealer
-- previously filed as Exhibit (b)(6)(c) to North American
Security Trust's initial registration statement on Form N-1A
(File No. 33-27958) dated April 5, 1989.
4
<PAGE>
(c)(ii) Form of Dealer Agreement -- previously filed as Exhibit
(b)(6)(c)(ii) to North American Fund's Post-Effective
Amendment 19 on Form N-1A (File No. 33- 27958)filed December
29, 1994.
(c)(iii) Form of Dealer Agreement Among NASL Financial Services,
Inc., Wood Logan Associates, Inc. and Selected Broker-Dealer
- previously filed as Exhibit (b)(6)(c)(iii) to North
American Fund's Post-Effective Amendment 20 on Form N-1A
(File No. 33-27958) filed June 30, 1995.
(7) Not applicable.
(8)(a) Custodian Agreement Between North American Security Trust
and Boston Safe Deposit and Trust Company -- previously
filed as Exhibit (b)(8)(a) to North American Security
Trust's initial registration statement on Form N-1A (File
No. 33-27958) dated November 1, 1991.
(b) Custodian Agreement Between North American Security Trust
and State Street Bank and Trust Company -- previously filed
as Exhibit (b)(8)(a) to North American Security Trust's
initial registration statement on Form N-1A (File No.
33-27958) dated April 5, 1989.
(c) Transfer and Shareholder Services Contract Between North
American Security Trust and State Street Bank and Trust
Company -- previously filed as Exhibit (b)(8)(b) to North
American Security Trust's initial registration statement on
Form N-1A (File No. 33-27958) dated April 5, 1989.
(d) Forms of Sub-Custodian Agreements Between State Street Bank
and Trust Company and the Bank of New York, Chemical Bank
and Bankers Trust -- previously filed as Exhibit (8)(d) to
North American Funds' Post-Effective Amendment No. 17 on
Form N-1A (File No. 33-27958) dated April 1, 1994.
(9) Not applicable.
(10)(a) Opinion of Ruth Ann Fleming, Esq. -- previously filed as
Exhibit (b)(10) to North American Security Trust's
Post-Effective Amendment No. 2 on Form N-1A (File No.
33-27958) dated August 29, 1990.
(b) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(b) to North American Security Trust's
Post-Effective Amendment No. 6 on Form N-1A (File No.
33-27958) dated April 22, 1991.
(c) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(c) to North American Security Trust's
Post-Effective Amendment No. 7 on Form N-1A (File No.
33-27958) dated November 1, 1991.
(d) Opinion of Christina M. Perrino, Esq. -- previously filed as
Exhibit (b)(10)(d) to North American Security Trust's
Post-Effective Amendment No. 9 on Form N-1A (File No.
33-27958) dated July 7, 1992.
(e) Opinion of Jeffrey M. Ulness, Esq. -- previously filed as
Exhibit (b)(10)(e) to North American Security Trust's
Post-Effective Amendment No. 13 on Form N-1A (File No.
33-27958) dated June 29, 1993.
5
<PAGE>
(f) Opinion of Tracy A. Kane, Esq. -- previously filed as
Exhibit (10)(f) to North American Funds' Post-Effective
Amendment No. 17 on Form N-1A (File No. 33-27958) dated
April 1, 1994.
(g) Opinion of Counsel of Betsy Anne Seel, Esq. -- previously
filed as Exhibit (b)(10)(g) to North American Fund's Post
Effective Amendment No. 19 on Form N-1A (File No. 33-27958)
filed December 29, 1994.
(h) Opinion of Counsel of Betsy Anne Seel, Esq. -- previously
filed as Exhibit (b)(10)(h) to North American Funds Post
effective Amendment No. 21 on Form N1-A (File No. 33-27958)
dated December 15, 1995.
(11) Consent of Coopers & Lybrand L.L.P. -- (To be filed by
amendment).
(12) Not applicable.
(13) Letter Containing Investment Undertaking of North American
Life Assurance Company -- previously filed as Exhibit
(b)(13) to North American Security Trust's Post-Effective
Amendment No. 2 on Form N-1A (File No. 33-27958) dated
August 29, 1990.
(14) Model Plans Documents for Custodial IRAs -- previously filed
as Exhibit (b)(14) to North American Security Trust's
Post-Effective Amendment No. 1 on Form N-1A (File No.
33-27958) dated December 29, 1989.
(15)(a) Distribution Plan of North American Security Trust as
amended March 26, 1993 -- previously filed as Exhibit
(15)(a) to North American Funds' Post- Effective Amendment
No. 13 on Form N-1A (File No. 33-27958) dated June 30, 1993.
(b) Distribution Plan of North American Funds as amended June
18, 1993 -- previously filed as Exhibit (15)(b) to North
American Funds' Post-Effective Amendment No. 13 on Form N-1A
(File No. 33-27958) dated June 30, 1993.
(c) Distribution Plan of North American Funds as amended
September 30, 1993 -- previously filed as Exhibit (15)(d) to
North American Funds' Post-Effective Amendment No. 14 on
Form N-1A (File No. 33-27958) dated November 30, 1993.
(d) Class A Distribution Plan -- previously filed as Exhibit
(15)(d) to North American Funds' Post-Effective Amendment
No. 16 on Form N-1A (File No.33-27958) dated January 31,
1994.
(e) Class B Distribution Plan -- previously filed as Exhibit
(15)(e) to North American Funds' Post-Effective Amendment
No. 16 on Form N-1A (File No. 33-27958) dated January 31,
1994
(f) Class C Distribution Plan -- previously filed as Exhibit
(15)(f) to North American Funds' Post-Effective Amendment
No. 16 on Form N-1A (File No. 33-27958) dated January 31,
1994.
6
<PAGE>
(g) Class A, B and C Distribution Plans as amended March 18,
1994 -- previously filed as Exhibit (15)(g) to North
American Funds' Post-Effective Amendment No. 17 on Form N-1A
(File No. 33-27958) dated April 1, 1994.
(h) Form of Class D Distribution Plan -- previously filed as
Exhibit (15)(h) to North American Funds' Post-Effective
Amendment No. 18 on Form N-1A (File No. 33-27958) dated
October 20, 1994.
(i) Amendment to 12b-1 Distribution Plans for J.P. Morgan
International Growth and Income Fund - Classes A, B, and C
-- previously filed as Exhibit 15. to North American Funds'
Post Effective Amendment No. 19 on Form N-1A on December 29,
1994.
(j) Amendment to 12b-1 Plans for the Small/Mid Cap,
International Small Cap and Growth Equity Fund Classes A, B
and C -- previously filed as Exhibit (b)(15)(j) to North
American Funds Post effective Amendment No. 21 on Form N1-A
(File No. 33-27958) dated December 15, 1995.
(16) (a) Schedule of Computations of Total Return and Yield
Figures for the Growth and Income, Investment Quality Bond
and Global Growth Trusts -- previously filed as Exhibit
(b)(16)(a) to North American Security Trust's Post-Effective
Amendment No. 7 on Form N-1A (File No. 33-27958) dated
November 1, 1991.
(b) Schedule of Computations of Total Return and Yield Figures
for the Growth, U.S. Government and Asset Allocation Trusts
-- previously filed as Exhibit (b)(16) to North American
Security Trust's Post-Effective Amendment No. 1 on Form N-1A
(File No. 33-27958) filed December 29, 1989.
(c) Schedule of Computations of Total Return and Yield Figures
for Class A, Class B and Class C shares -- previously filed
as Exhibit (16)(c) to North American Funds' Post-Effective
Amendment No. 17 on Form N-1A (File No. 33-27958) dated
April 1, 1994.
(d) Schedule of Computations of Total Return and Yield Figures
for Strategic Income Fund Class A, Class B and Class C
shares -- previously filed as Exhibit (b)(16)(d) to North
American Fund's Post-Effective Amendment No. 19 on Form N-1A
(File No. 33-27958) filed December 29, 1994.
(e) Schedule of Computations of Total Return Figures for the
International Growth and Income Fund, Class A, Class B and
Class C Shares -- previously filed as Exhibit (b)(16)(e) to
North American Fund's Post-Effective Amendment No. 20 on
Form N-1A (File No. 33-27958) filed June 30, 1995.
(17) Financial Data Schedule for financials statements for the
year ended October 31, 1996 - To be filed by amendment.
(18 Rule 18f-3 plan, as amended -- To be filed by amendment.
(19)(a) Power of Attorney - previously filed as Exhibit (b)(17)
to North American Security Trust's Post-Effective Amendment
No. 10 on Form N-1A (File No. 33-27958) filed December 30,
1992.
7
<PAGE>
(b) Power of Attorney - Frederick W. Gorbet -- previously filed
as Exhibit (b)(16) to North American Funds' Post-Effective
Amendment No. 16 on Form N-1A (File No. 33-27958) dated
January 31, 1994.
(c) Powers of Attorney -- previously filed as Exhibit (17)(c) to
North American Funds' Post-Effective Amendment No. 18 on
Form N-1A (File No. 33-27958) dated October 20, 1994.
(d) Powers of Attorney - Joseph Scott and Richard C. Hirtle --
Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
No person is directly or indirectly controlled by the Registrant. With
respect to the other portfolios of the Registrant, no person controls the
Registrant by virtue of share ownership in the Registrant. While the Registrant
disclaims any such control relationship, it may be deemed to be controlled by
its investment adviser by virtue of the advisory relationship. In such case, the
Registrant and its adviser, NASL Financial Services, Inc., a Massachusetts
corporation, may be deemed to be under common control of the adviser's parent
corporations. NASL Financial Services, Inc. is 100% owned by North American
Security Life Insurance Company, a stock life insurance company organized under
the laws of Delaware, which in turn is 100% owned by North American Life. A list
of all companies under the control of North American Life is set forth on the
following pages.
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Subsidiaries Organization Chart
- - including certain Significant Investments)
The Manufacturers Life Insurance Company (Canada)
1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%)
2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%)
4. WT (SW) Properties Ltd. - U.K. (100%)
5. OUB Manulife Pte. Ltd. - Singapore (50%)
6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
7. Manulife (Thailand) Ltd. - Thailand (100%)
8. Young Poong Manulife Insurance Company - Korea (50%)
9. Ennal, Inc. - Ohio (100%)
10. First North American Realty, Inc. - Minnesota (100%)
11. NAL Resources Limited - Alberta (100%)
(a) Nottingham Gas Limited - Saskatchewan (31%)
8
<PAGE>
12. Nottingham Gas Limited - Saskatchewan (31%)
13. 484551 Ontario Limited - Ontario (100%)
(a) 911164 Ontario Limited - Ontario (100%)
14. Peel-de Maisonneuve Investments Ltd. - Canada (50%)
(a) 2932121 Canada Inc. - Canada (100%)
15. Balmoral Developments Inc. - Canada (100%)
16. KY Holding Corporation - Canada (100%)
17. 165351 Canada Limited - Canada (100%)
18. 172846 Canada Limited - Canada (100%)
19. 576986 Ontario Inc. - Ontario (100%)
20. Cantay Holdings Inc. - Ontario (100%)
21. Manufacturers Life Capital Corporation Inc. - Canada (100%)
22. Elliott & Page Asset Management Ltd. - Canada (100%)
23. 495603 Ontario Limited - Ontario (100%)
24. 994744 Ontario Inc. - Ontario (100%)
25. The North American Group Inc. - Ontario (100%)
26. Manulife Investment Management Corporation - Canada (100%)
(a) 159139 Canada Inc. - Canada (50%)
i. Altamira Management Ltd. - Canada (60.96%)
A. ACI2 Limited - Cayman (100%)
a/ Regent Pacific Group Limited-Cayman (63.8%)
a.1 Manulife Regent Investment Corporation -
Barbados (100%) [50% by Regent Pacific Group Limited
and 50% by Manulife Data Services Inc.]
b.1 Manulife Regent Investment Asia Limited -
Hong Kong (100%)
B. Altamira Financial Services Inc. - Ontario (100%)
a/ AIS Securities (Partnership) - Ontario (100%) [5% by
Altamira Financial Services, Inc. and 95% by
Altamira Investment Services Inc.]
b/ Altamira Investment Services Inc. - Ontario (100%)
(a) AIS Securities (Partnership) - Ontario (100%)[95% by
by Altamira Investment Services Inc. and 5% by
Altamira Financial Services Inc.]
(b) Altamira (Alberta) Ltd. - Alberta (100%)
(c) Capital Growth Financial Services Inc. -
Ontario (100%)
9
<PAGE>
27. Manulife International Investment Management Limited - U.K. (100%)
(a) Manulife International Fund Management Limited - U.K. (100%)
28. Manulife (International) Limited - Bermuda (100%)
(a) The Manufacturers (Pacific Asia) Insurance Company Limited
- Hong Kong (100%)
(b) Newtime Consultants Limited - Hong Kong (100%)
29. Manulife Data Services Inc.- Barbados (100%)
(a) Manulife Regent Investment Corporation - Barbados - (100%)
[50% by Manulife Data Services Inc. and 50% by Regent
Pacific Group Limited]
(b) Manulife Regent Investment Asia Limited - Hong Kong (100%)
30. FNA Financial Inc. - Canada (100%)
(a) NAL Trustco Inc. - Ontario (100%)
(b) First North America Insurance Company - Canada (100%)
(c) Elliott & Page Limited - Ontario (100%)
(d) Seamark Asset Management Ltd. - Canada (69.175%)
(e) NAL Resources Management Limited - Canada (100%)
(i) NAL Energy Inc. - Alberta (100%)
31. ManuCab Ltd. - Canada (100%)
(a) Plazcab Service Limited - Canada (100%)
32. Townvest Inc. - Ontario (100%)
33. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
(a) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%)
(b) Manulife Holding Corporation - Delaware (100%)
i. Manufacturers Life Mortgage Securities
Corporation - Delaware (100%)
ii. Manulife Property Management of Washington, D.C., Inc.
- Washington D.C. (100%)
iii. Capital Design Corporation - California - (100%)
iv. ManEquity, Inc. - Colorado (100%)
v. Manulife Service Corporation - Colorado (100%)
vi. Succession Planning International Inc. - Wisconsin (100%)
(c) The Manufacturers Life Insurance Company of America - Michigan (100%)
i. Manulife Series Fund, Inc. - Maryland (100%)
ii. Manufacturers Adviser Corporation - Colorado (100%)
(d) Manulife Reinsurance Limited - Bermuda (100%)
34. The Manufacturers Investment Corporation - Michigan (100%)
35. Capitol Bankers Life Insurance Company - Minnesota (100%)
36. NAWL (North American Wood Logan Holding Company) - Delaware (85%)
(a) Wood Logan Associates Inc. - Connecticut (100%)
(i) Wood Logan Distributors - Connecticut (100%)
(b) North American Security Life Insurance Company - Delaware (100%)
(i) NASL Financial Services, Inc. - Massachusetts (100%)
10
<PAGE>
(ii) First North American Life Assurance Company - New York (100%)
37. Manulife (International) Reinsurance Limited - Bermuda (100%)
(a) Manulife (International) P&C Limited - Bermuda (100%)
(b) Manufacturers P&C Limited - Barbados (100%)
38. Manulife Financial Holdings Limited - Ontario (100%)
(a) 742166 Ontario Inc. - Ontario (100%)
(b) Family Realty Firstcorp Limited - Ontario (100%)
(c) Thos. N. Shea Investment Corporation Limited - Ontario (100%)
(d) Manulife Bank of Canada - Canada (100%)
i. Manulife Securities International Ltd. - Canada (100%)
11
<PAGE>
Item 26. Number of Holders of Securities
As of September 30, 1996, the number of holders of the shares of
beneficial interest of each class of each series of shares of the Registrant was
as follows:
Title of Series Number of Record Holders
- --------------- ------------------------
Class A Class B Class C
Global Growth Fund Shares of 1,191 2,688 5,581
Beneficial Interes
Equity-Income Fund Shares of 1,233 2,477 6,274
Beneficial Interest*
Growth and Income Fund Shares 895 2,521 4,470
of Beneficial Interest
Strategic Income Fund Shares of 621 1,321 789
Beneficial Interest
Balanced Fund Shares of 470 1,076 4,494
Beneficial Interest**
Investment Quality Bond Fund 522 375 431
Shares of Beneficial Interest
U.S. Government Securities Fund 2,879 914 892
Shares of Beneficial Interest
National Municipal Bond Fund 139 131 133
Shares of Beneficial Interest
Money Market Fund Shares of 717 230 665
Beneficial Interest
International Growth and Income 453 1,334 901
Fund Shares of Beneficial Interest
Small/Mid Cap Fund Shares of
Beneficial Interest 472 765 786
International Small Cap Fund Shares 270 465 485
of Beneficial Interest
Growth Equity Fund Shares of
Beneficial Interest 275 352 415
* Formerly the Value Equity Fund and previously the Growth Fund
** Formerly the Asset Allocation Fund
12
<PAGE>
Item 27. Indemnification
---------------
Sections 6.4 and 6.5 of the Agreement and Declaration of Trust of the
Registrant provide that the Registrant shall indemnify each of its Trustees and
officers against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and against
all expenses, including but not limited to accountants and counsel fees,
reasonably incurred in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such trustee or officer may be or
may have been involved as a party or otherwise or with which such person may be
or may have been threatened, while in office or thereafter, by reason of being
or having been such a trustee or officer, except that indemnification shall not
be provided if it shall have been finally adjudicated in a decision on the
merits by the court or other body before which the proceeding was brought that
such trustee or officer (i) did not act in good faith in the reasonable belief
that his or her action was in the best interests of the Registrant or (ii) is
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office.
Registrant has previously provided the undertaking set forth in Rule
481 under the Securities Act of 1933.
Item 28. Business and Other Connections of Investment Advise
---------------------------------------------------
See "Management of the Fund" in the Prospectus and Statement of
Additional Information and "Investment Management Arrangements" in the Statement
of Additional Information for information regarding the business of the Adviser
and each of the Subadvisers. For information as to the business, profession,
vocation or employment of a substantial nature of each director, officer or
partner of the Adviser and each of the Subadvisers, reference is made to the
respective Form ADV, as amended, filed under the Investment Advisers Act of
1940, each of which is herein incorporated by reference.
Item 29. Principal Underwriters
----------------------
a. NASL Financial Services, Inc. also acts a principal underwriter for
NASL Variable Account, a separate account of North American Security
Life Insurance Company, and as investment adviser of NASL Series Trust,
the shares of which are the underlying investments of that separate
account.
b. Officers and Directors of Principal Underwriter
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
- ------------------ -------------------- ------------
Brian L. Moore * Chairman & Director Chairman
John D. DesPrez III** Director
John G. Vrysen ** Vice President Vice President
Richard C. Hirtle ** Vice President & Vice President, Treasurer &
Treasurer Chief Financial Officer
James D. Gallagher** Vice President, Secretary
Secretary &
General Counsel
13
<PAGE>
* 200 Bloor Street
North Tower, 11th Floor
Toronto, Ontario
Canada M4W-1E5
** 116 Huntington Avenue
Boston, MA 02116
c. None.
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained under
Section 31(a) of the Investment Company Act of 1940 are kept by NASL Financial
Services, Inc., the Registrant's investment adviser, at its offices at 116
Huntington Avenue, Boston, Massachusetts 02116, by Oechsle International
Advisors, L.P., the investment subadviser to the Global Government Bond Fund, at
its offices at One International Place, Boston, Massachusetts 02110, by
Wellington Management Company, the investment subadviser to the Growth and
Income Fund and the Investment Quality Bond Fund at its offices at 75 State
Street, Boston, Massachusetts 02109, by Salomon Brothers Asset Management Inc,
the investment subadviser to the U.S. Government Securities Fund, Strategic
Income Fund and National Municipal Bond Fund at its offices at 7 World Trade
Center, New York, New York 10048, by Salomon Brothers Asset Management Limited,
who provides certain advisory services to SBAM relating to currency transactions
and investments in non-dollar denominated debt securities for the benefit of the
Strategic Income Fund at its offices at Victoria Plaza, 111 Buckingham Palace
Road, London SW1W OSB, England, by J.P. Morgan Investment Management Inc., the
investment subadviser to the International Growth and Income Fund at its offices
at 522 5th Avenue, New York, New York 10036, by Fred Alger Management, Inc., the
investment adviser to the Small/Mid Cap Fund at its offices at 30 Montgomery
Street, Jersey City, New Jersey 07302, by Founders Asset Management, Inc., the
investment adviser to the International Small Cap, Worldwide Growth, Balanced
and Growth Equity Fund at its offices at 2930 East Third Avenue, Denver,
Colorado 80206, by T. Rowe Price Associates, Inc., the investment subadviser to
the Blue Chip Growth, Science & Technology and Equity-Income Funds, at its
offices at 100 East Pratt Street, Baltimore, MD 21202, by Rowe Price-Fleming
International, Inc., the investment subadviser to the International Stock Fund,
at its offices at 100 East Pratt Street, Baltimore, MD 21202, by Morgan Stanley
Asset Management, Inc., the investment subadviser of the Global Equity Fund, at
its offices at 1221 Avenue of the Americas, New York, New York 10020, by Miller
Anderson & Sherrerd, LLP, the investment subadviser to the Value and High Yield
Funds, at its offices at One Tower Bridge, Conshohocken PA 19428, by Warburg
Pincus Counsellors, Inc., the investment subadviser to the Emerging Growth
Trust, at its offices at 466 Lexington Avenue, New York, New York 10017-3147, by
Pilgrim Baxter & Associates, Inc., the investment subadviser to the Pilgrim
Baxter Growth Fund, at its offices at 355 Lexington Avenue, NewYork, New York,
by Manufacturers Adviser Corporation, the investment subadviser to the Pacific
Rim Emerging Markets, Common Stock, Real Estate Securities, Equity Index,
Capital Growth Bond and Money Market Funds, at its offices at 200 Bloor Street
East, Toronto, Ontario, Canada M4W lE5, by the Registrant at its principal
business office located at 116 Huntington Avenue, Boston, Massachusetts 02116,
or by State Street Bank and Trust Company, the custodian and transfer agent for
the Registrant, at its offices at 225 Franklin Street, Boston, Massachusetts
02110.
Item 31. Management Services
-------------------
Not applicable.
14
<PAGE>
Item 32. Undertakings
Registrant hereby undertakes to file a post-effective amendment to the
registration statement, using financial statements which need not be certified
for the portfolios being added by this post-effective amendment, within four to
six months after the effective date of this post-effective amendment.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, North American Funds, has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 17 th day of October, 1996.
NORTH AMERICAN FUNDS
--------------------
(Registrant)
By: /s/ Joseph Scott
-------------------------
Joseph Scott, President
Attest:
/s/ Kimberly Ciccarelli
- ------------------------
Kimberly Ciccarelli, Assistant Secretary
16
<PAGE>
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<S> <C> <C>
* Trustee October 17, 1996
--------------------- ----------------------
Don B. Allen (Date)
* Trustee October 17, 1996
-------------------- ----------------------
Charles L. Bardelis (Date)
* Trustee October 17, 1996
-------------------- ----------------------
Samuel Hoar (Date)
* Trustee and October 17, 1996
-------------------- ----------------------
Brian L. Moore Chairman (Date)
* Trustee October 17, 1996
-------------------- ----------------------
Robert J. Myers (Date)
* Vice President, Treasurer October 17, 1996
-------------------- ----------------------
Richard C. Hirtle and Chief Financial Officer (Date)
(Principal Financial and
Accounting Officer)
/s/ Joseph Scott President October 17, 1996
-------------------- ----------------------
Joseph Scott (Chief Executive Officer) (Date)
*By: /s/ James D. Gallagher October 17, 1996
---------------------- ----------------------
James D. Gallagher (Date)
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
17
<PAGE>
Exhibit Index
-------------
Page No.
Where Exhibit
Exhibit No. Description Located
- ----------- ----------- -------
(1)(f) Establishment and Designation of Additional Series of Shares of
Beneficial Interest - Small/Mid Cap Fund, dated February 28, 1996.
(1)(g) Establishment and Designation of Additional Series of Shares of
Beneficial Interest - International Small Cap Fund dated February 28,
1996.
(1)(h) Establishment and Designation of Additional Series of Shares of
Beneficial Interest - Growth Equity Fund dated February 28, 1996.
(4)(l) Forms of Specimen Share Certificates, for the Value Fund, High Yield
Fund, Blue Chip Growth Fund, International Stock Fund, Science &
Technology Fund, Worldwide Growth Fund, Pacific Rim Emerging Markets
Fund, Real Estate Securities Fund, Capital Growth Bond Fund, Equity
Index Fund, Common Stock Fund, Emerging Growth Fund and Pilgrim Baxter
Growth Fund, Class A, B and C.
(19)(d) Powers of Attorney - Joseph Scott and Richard C. Hirtle.
18
<PAGE>
North American Funds
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.001 par value per share)
Establishment and Designation of Classes of Shares
The undersigned, being a majority of the Trustees of North American
Funds (the "Trust"), acting pursuant to Section 4.1(a) of the Amended and
Restated Agreement and Declaration of Trust, dated February 18, 1994 (the
"Declaration of Trust"), hereby establish and designate a new Series of Shares
(as defined in the Declaration of Trust), such Series to have the following
special and relative rights:
1. The new Series of Shares shall be designated the "Small/Mid Cap Fund."
2. The new Series of Shares shall have the relative rights and preferences
described in Section 4.2 of the Declaration of Trust, provided that the
Trustees, in their absolute discretion, may amend any previously
established relative rights and preferences as they may deem necessary
or desirable to enable the Trust to comply with the Investment Company
Act of 1940 or other applicable law.
* * *
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 4.1(b) of the Declaration of Trust, hereby create three
classes of shares of the new Series of Shares, within the meaning of Section
4.1(b), as follows:
1. The three classes of shares are designated "Class A" shares of
beneficial interest, "Class B" shares of beneficial interest and
"Class C" shares of beneficial interest.
2. Class A, Class B and Class C of beneficial interest shall be entitled
to all the rights and preferences accorded to Shares under the
Declaration of Trust.
3. The rights and preferences of Class A, Class B and Class C of
beneficial interest shall be established by the Trustees of the Trust
in accordance with the Declaration of Trust and shall be set forth in
the current prospectus and statement of additional information of the
new Series of Shares, as amended from time to time.
<PAGE>
In witness whereof, the undersigned have executed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this 28th day of February, 1996.
/s/ Don B. Allen
- -------------------------
Don B. Allen
/s/ Charles L. Bardelis
- -------------------------
Charles L. Bardelis
/s/ Samuel Hoar
- -------------------------
Samuel Hoar
/s/ Robert J. Myers
- -------------------------
Robert J. Myers
/s/ Brian L. Moore
- -------------------------
Brian L. Moore
The Amended and Restated Agreement and Declaration of Trust of the Trust, dated
February 18, 1994, a copy of which together with all amendments thereto is on
file in the office of the Secretary of The Commonwealth of Massachusetts,
provides that this instrument was executed by the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of them or the shareholders of the Trust individually but
are binding only upon the assets belonging to the Trust, or the particular
Sub-Trust or class in question, as the case may be.
<PAGE>
North American Funds
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.001 par value per share)
Establishment and Designation of Classes of Shares
The undersigned, being a majority of the Trustees of North American
Funds (the "Trust"), acting pursuant to Section 4.1(a) of the Amended and
Restated Agreement and Declaration of Trust, dated February 18, 1994 (the
"Declaration of Trust"), hereby establish and designate a new Series of Shares
(as defined in the Declaration of Trust), such Series to have the following
special and relative rights:
1. The new Series of Shares shall be designated the "International Small
Cap Fund."
2. The new Series of Shares shall have the relative rights and preferences
described in Section 4.2 of the Declaration of Trust, provided that the
Trustees, in their absolute discretion, may amend any previously
established relative rights and preferences as they may deem necessary
or desirable to enable the Trust to comply with the Investment Company
Act of 1940 or other applicable law.
* * *
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 4.1(b) of the Declaration of Trust, hereby create three
classes of shares of the new Series of Shares, within the meaning of Section
4.1(b), as follows:
1. The three classes of shares are designated "Class A" shares of
beneficial interest, "Class B" shares of beneficial interest and "Class
C" shares of beneficial interest.
2. Class A, Class B and Class C of beneficial interest shall be entitled
to all the rights and preferences accorded to Shares under the
Declaration of Trust.
3. The rights and preferences of Class A, Class B and Class C of
beneficial interest shall be established by the Trustees of the Trust
in accordance with the Declaration of Trust and shall be set forth in
the current prospectus and statement of additional information of the
new Series of Shares, as amended from time to time.
<PAGE>
In witness whereof, the undersigned have executed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this 28th day of February, 1996.
/s/ Don B. Allen
- -------------------------
Don B. Allen
/s/ Charles L. Bardelis
- -------------------------
Charles L. Bardelis
/s/ Samuel Hoar
- -------------------------
Samuel Hoar
/s/ Robert J. Myers
- -------------------------
Robert J. Myers
/s/ Brian L. Moore
- -------------------------
Brian L. Moore
The Amended and Restated Agreement and Declaration of Trust of the Trust, dated
February 18, 1994, a copy of which together with all amendments thereto is on
file in the office of the Secretary of The Commonwealth of Massachusetts,
provides that this instrument was executed by the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of them or the shareholders of the Trust individually but
are binding only upon the assets belonging to the Trust, or the particular
Sub-Trust or class in question, as the case may be.
<PAGE>
North American Funds
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.001 par value per share)
Establishment and Designation of Classes of Shares
The undersigned, being a majority of the Trustees of North American
Funds (the "Trust"), acting pursuant to Section 4.1(a) of the Amended and
Restated Agreement and Declaration of Trust, dated February 18, 1994 (the
"Declaration of Trust"), hereby establish and designate a new Series of Shares
(as defined in the Declaration of Trust), such Series to have the following
special and relative rights:
1. The new Series of Shares shall be designated the "Growth Equity Fund."
2. The new Series of Shares shall have the relative rights and preferences
described in Section 4.2 of the Declaration of Trust, provided that the
Trustees, in their absolute discretion, may amend any previously
established relative rights and preferences as they may deem necessary
or desirable to enable the Trust to comply with the Investment Company
Act of 1940 or other applicable law.
* * *
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 4.1(b) of the Declaration of Trust, hereby create three
classes of shares of the new Series of Shares, within the meaning of Section
4.1(b), as follows:
1. The three classes of shares are designated "Class A" shares of
beneficial interest, "Class B" shares of beneficial interest and "Class
C" shares of beneficial interest.
2. Class A, Class B and Class C of beneficial interest shall be entitled
to all the rights and preferences accorded to Shares under the
Declaration of Trust.
3. The rights and preferences of Class A, Class B and Class C of
beneficial interest shall be established by the Trustees of the Trust
in accordance with the Declaration of Trust and shall be set forth in
the current prospectus and statement of additional information of the
new Series of Shares, as amended from time to time.
<PAGE>
In witness whereof, the undersigned have executed this instrument
in duplicate original counterparts and have caused a duplicate original to
be lodged among the records of the Trust this 28th day of Febrary, 1996
/s/ Don B. Allen
- -------------------------
Don B. Allen
/s/ Charles L. Bardelis
- -------------------------
Charles L. Bardelis
/s/ Samuel Hoar
- -------------------------
Samuel Hoar
/s/ Robert J. Myers
- -------------------------
Robert J. Myers
/s/ Brian L. Moore
- -------------------------
Brian L. Moore
The Amended and Restated Agreement and Declaration of Trust of the Trust, dated
February 18, 1994, a copy of which together with all amendments thereto is on
file in the office of the Secretary of The Commonwealth of Massachusetts,
provides that this instrument was executed by the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of them or the shareholders of the Trust individually but
are binding only upon the assets belonging to the Trust, or the particular
Sub-Trust or class in question, as the case may be.
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
VALUE - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
VALUE - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
HIGH YIELD - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
HIGH YIELD - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
BLUE CHIP GROWTH - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
BLUE CHIP GROWTH - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
INTERNATIONAL STOCK- A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
INTERNATIONAL STOCK - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
SCIENCE & TECHNOLOGY - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
SCIENCE & TECHNOLOGY- A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
WORLDWIDE GROWTH - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
WORLDWIDE GROWTH - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
PACIFIC RIM EMERGING MARKETS - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
PACIFIC RIM EMERGING MARKETS - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
REAL ESTATE SECURITIES - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
REAL ESTATE SECURITIES - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
CAPITAL GROWTH BOND - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
CAPITAL GROWTH BOND - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
EQUITY INDEX - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
EQUITY INDEX - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
COMMON STOCK - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
COMMON STOCK - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
EMERGING GROWTH - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
EMERGING GROWTH - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
PILGRIM BAXTER GROWTH - A
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
PILGRIM BAXTER GROWTH - A
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
VALUE - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
VALUE - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
HIGH YIELD - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
HIGH YIELD - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
BLUE CHIP GROWTH - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
BLUE CHIP GROWTH - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
INTERNATIONAL STOCK- B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
INTERNATIONAL STOCK - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
SCIENCE & TECHNOLOGY - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
SCIENCE & TECHNOLOGY- B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
WORLDWIDE GROWTH - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
WORLDWIDE GROWTH - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
PACIFIC RIM EMERGING MARKETS - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
PACIFIC RIM EMERGING MARKETS - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
REAL ESTATE SECURITIES - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
REAL ESTATE SECURITIES - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
CAPITAL GROWTH BOND - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
CAPITAL GROWTH BOND - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
EQUITY INDEX - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
EQUITY INDEX - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
COMMON STOCK - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
COMMON STOCK - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
EMERGING GROWTH - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
EMERGING GROWTH - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
PILGRIM BAXTER GROWTH - B
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
PILGRIM BAXTER GROWTH - B
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
VALUE - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
VALUE - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
HIGH YIELD - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
HIGH YIELD - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
BLUE CHIP GROWTH - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
BLUE CHIP GROWTH - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
INTERNATIONAL STOCK - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
INTERNATIONAL STOCK - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
SCIENCE & TECHNOLOGY - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
SCIENCE & TECHNOLOGY- C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
WORLDWIDE GROWTH - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
WORLDWIDE GROWTH - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
PACIFIC RIM EMERGING MARKETS - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
PACIFIC RIM EMERGING MARKETS - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
REAL ESTATE SECURITIES - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
REAL ESTATE SECURITIES - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the unds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
CAPITAL GROWTH BOND - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
CAPITAL GROWTH BOND - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
EQUITY INDEX - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
EQUITY INDEX - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
COMMON STOCK - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
COMMON STOCK - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
EMERGING GROWTH - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
EMERGING GROWTH - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
ORGANIZED AS A VOLUNTARY ASSOCIATION
UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
PILGRIM BAXTER GROWTH - C
OF
NORTH AMERICAN FUNDS
THIS CERTIFIES THAT
VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE,
OF
PILGRIM BAXTER GROWTH - C
OF
NORTH AMERICAN FUNDS
In accordance with, and subject to all provisions of, an Agreement and
Declaration of Trust dated September 18, 1988, and any amendments thereto,
("Declaration"), a copy of which has been filed with the Secretary of the
Commonwealth of Massachusetts, to all of which provisions every shareholder
agrees by the acceptance of share certificates.
The Declaration provides that the name "North American Funds" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Trust may be held to any personal liability, or may resort be had
to their private property for the satisfaction or any obligation or claim or
otherwise in connection with the affairs of the Funds, but the Funds property
only shall be liable.
This certificate is not valid until countersigned by the Transfer Agent
IN WITNESS WHEREOF, the Trustees under said Declaration, acting not as
individuals, but as such Trustees, have caused to be affixed to this certificate
the facsimile Seal of the Fund and the facsimile signatures of duly authorized
officers of the Fund, acting not as individuals but as such officers.
TREASURER PRESIDENT
DATED__________________
<PAGE>
North American Funds
POWER OF ATTORNEY
I, Joseph Scott, do hereby constitute and appoint James. D. Gallagher, John
D. DesPrez III, Richard C. Hirtle, Brian L. Moore, John G. Vyrsen and James
Boyle, or any one of them, my true and lawful attorneys to execute registration
statements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act") and/or the Investment
Company Act of 1940, as amended (the "1940 Act"), and to do any and all acts and
things and to execute any and all instruments for me and in my name in the
capacities indicated below, which said attorney, may deem necessary or advisable
to enable North American Funds (the "Fund") to comply with the 1933 Act and the
1940 Act, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with such registration statement, including
specifically, but without limitation, power and authority to sign for me or in
my name and in the capacities indicated below, any and all amendments (including
post-effective amendments); and I do hereby ratify and confirm all that the said
attorneys, or any of them, shall do or cause to be done by virtue of this power
of attorney.
Signature Title Date
- --------- ----- ----
Joseph Scott President September 27, 1996
- ---------------------- ------------------
Joseph Scott
<PAGE>
North American Funds
POWER OF ATTORNEY
I, Richard C. Hirtle, do hereby constitute and appoint James. D. Gallagher,
John D. DesPrez III, Joseph Scott, Brian L. Moore, John G. Vyrsen and James
Boyle, or any one of them, my true and lawful attorneys to execute registration
statements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act") and/or the Investment
Company Act of 1940, as amended (the "1940 Act"), and to do any and all acts and
things and to execute any and all instruments for me and in my name in the
capacities indicated below, which said attorney, may deem necessary or advisable
to enable North American Funds (the "Fund") to comply with the 1933 Act and the
1940 Act, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with such registration statement, including
specifically, but without limitation, power and authority to sign for me or in
my name and in the capacities indicated below, any and all amendments (including
post-effective amendments); and I do hereby ratify and confirm all that the said
attorneys, or any of them, shall do or cause to be done by virtue of this power
of attorney.
Signature Title Date
- --------- ----- ----
Richard C. Hirtle Treasurer September 27, 1996
- ---------------------- Chief Financial Officer ------------------
Richard C. Hirtle