<PAGE>
As filed with the Securities and Exchange Commission
on August 2, 1996
Registration No. 33-56094
811-7428
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. 33 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 35
(Check appropriate box or boxes)
__________________
NICHOLAS-APPLEGATE MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Address of Principal Executive Offices, including Zip Code)
ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Name and Address of Agent for Service)
COPY TO: ROBERT E. CARLSON
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. FLOWER STREET, TWENTIETH FLOOR
LOS ANGELES, CALIFORNIA 90071
__________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.
__________________
[X] immediately upon filing pursuant to paragraph (b)
[ ] on ______________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on ____________ pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii), of Rule 485
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares by this Registration
Statement. Registrant filed a Notice under such Rule for its fiscal year ended
March 31, 1996 on May 30, 1996. This Registration Statement has been executed
by the trustees and principal officers of the Registrant and of Nicholas-
Applegate Investment Trust.
__________________
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
PART A
<S> <C>
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis. . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of Expenses; Prospectus
Summary
Item 3. Condensed Financial Information . . . . . . . . . . . . . . . . Financial Highlights
Item 4. General Description of Registrant . . . . . . . . . . . . . . . Cover Page; Prospectus Summary;
Investment Objectives and
Policies; Organization and
Management; Appendix
Item 5. Management of Fund. . . . . . . . . . . . . . . . . . . . . . . Organization and Management
Item 6. Capital Stock and Other Securities. . . . . . . . . . . . . . . Dividends, Distributions and
Taxes; Purchasing Shares
Item 7. Purchase of Securities Being Offered. . . . . . . . . . . . . . Purchasing Shares; Reducing
Your Sales Charge; Redeeming
Shares; Shareholder Services
Item 8. Redemption of Repurchase. . . . . . . . . . . . . . . . . . . . Redeeming Shares; Shareholder
Services
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . Not Applicable
PART B
Item 10. Cover Page. . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . . . . . . General Information
Item 13. Investment Objectives and Policies. . . . . . . . . . . . . . . Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund. . . . . . . . . . . . . . . . . . . . . Trustees and Officers;
Administrator; Distributor
Item 15. Control Persons and Principal Holders of Securities . . . . . . Principal Holders of Securities
Item 16. Investment Advisory and Other Services. . . . . . . . . . . . . Administrator;
Investment Adviser; Distributor;
Custodian, Transfer and Dividend
Disbursing Agent, Independent
Auditors and Legal Counsel
Item 17. Brokerage Allocation and Other Practices. . . . . . . . . . . . Portfolio Transactions
and Brokerage
Item 18. Capital Stock and Other Securities. . . . . . . . . . . . . . . Miscellaneous
Item 19. Purchase, Redemption and Pricing of Securities Being Offered. . Purchase and Redemption of Portfolio
Shares; Shareholder Services
Item 20. Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends, Distributions and Taxes
Item 21. Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . Distributor
Item 22. Calculation of Performance Data . . . . . . . . . . . . . . . . Performance Information
Item 23. Financial Statements. . . . . . . . . . . . . . . . . . . . . . Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
</TABLE>
<PAGE>
NICHOLAS--APPLEGATE MUTUAL FUNDS
- -------------------------------------------------
MINI CAP GROWTH INSTITUTIONAL PORTFOLIO
PROSPECTUS
Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company comprised of a number of diversified investment portfolios,
including the Mini Cap Growth Institutional Portfolio ("Portfolio") offered
hereby. The Portfolio seeks to maximize long-term capital appreciation. It
invests in the Nicholas-Applegate Mini Cap Growth Fund, which in turn invests
primarily in a diversified portfolio of common stocks of U.S. corporations with
smaller market capitalizations. It is generally offered to institutional
investors, high net worth individuals, and participants in certain mutual fund
asset allocation programs.
- --------------------------------------------------------------------------------
THE PORTFOLIO, UNLIKE MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY ACQUIRE
AND MANAGE THEIR OWN PORTFOLIOS OF SECURITIES, SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN A CORRESPONDING SERIES ("FUND") OF
NICHOLAS-APPLEGATE INVESTMENT TRUST, WHICH HAS THE SAME OBJECTIVE AS THE
PORTFOLIO. THE FUND IN TURN INVESTS ITS ASSETS, INCLUDING THOSE OF THE
PORTFOLIO, IN PORTFOLIO SECURITIES. ACCORDINGLY, THE INVESTMENT EXPERIENCE OF
THE PORTFOLIO WILL CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE
FUND. INVESTORS SHOULD CAREFULLY CONSIDER THIS INVESTMENT APPROACH. SEE
"INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS--SPECIAL CONSIDERATIONS
REGARDING MASTER/FEEDER STRUCTURE" FOR ADDITIONAL INFORMATION REGARDING THIS
UNIQUE STRUCTURE. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO OR FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE.
- --------------------------------------------------------------------------------
SHARES OF THE PORTFOLIO AND INTERESTS IN THE FUND ARE NOT BANK DEPOSITS AND
ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE
PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
This Prospectus presents information you should know before investing in the
Portfolio. It should be retained for future reference. A Statement of Additional
Information for Nicholas-Applegate Mutual Funds dated August 2, 1996 has been
filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. The Statement may be obtained, without charge,
by writing to the Trust, P.O. Box 82169, San Diego, California 92138-2169, or by
calling (800) 551-8643. Inquiries regarding any of the Portfolios can also be
made by calling (800) 551-8643.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AUGUST 2, 1996
<PAGE>
NICHOLAS--APPLEGATE MUTUAL FUNDS
- -------------------------------------------------
MINI CAP GROWTH INSTITUTIONAL PORTFOLIO
TABLE OF CONTENTS
Summary of Expenses...................3
Prospectus Summary....................4
Financial Highlights..................6
Investment Objective, Policies and Risk
Considerations........................7
Organization and Management..........10
Purchasing Shares....................12
Investor Services....................14
Redeeming Shares.....................16
Dividends, Distributions and Taxes...18
General Information..................18
Appendix
Investment Policies, Strategies
and Risks.........................20
Prior Performance of Investment
Adviser...........................29
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE PORTFOLIO OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE PORTFOLIO OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
2
<PAGE>
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SUMMARY OF EXPENSES
This table is designed to help you understand the costs of investing in the
Portfolio. These are expected expenses of the Portfolio for its first year of
operations, and because the Portfolio invests all of its assets in the Fund, the
Portfolio's expenses include its proportionate share of the operating expenses
of the Fund. Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
MINI CAP
GROWTH
INSTITUTIONAL
PORTFOLIO
<S> <C>
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SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases (as a percentage of
offering price) None
Sales charge on reinvested dividends None
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None
Redemption fee None
Exchange fee None
- ----------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF
AVERAGE NET ASSETS (AFTER EXPENSE DEFERRAL):(1)
Management fees 1.25%
12b-1 expenses None
All other expenses (after expense deferral)(1) 0.31%
Total operating expenses (after expense deferral)(1) 1.56%
</TABLE>
The Board of Trustees of the Trust believes that the aggregate per share
expenses of the Portfolio are no greater than the expenses that the Portfolio
would incur if it retained the services of an investment adviser and the assets
of the Portfolio were invested directly in the types of securities held by the
Fund. For a detailed description of the expenses of the Portfolio and the Fund,
see "Organization and Management."
- ---------------------------
(1) The Investment Adviser of the Master Trust has agreed to waive or defer its
management fees payable by the Fund, and to absorb other operating expenses
payable by the Fund and the Portfolio, to ensure that the expenses for the
Portfolio (other than interest, taxes, brokerage commissions and other
portfolio transaction expenses, capital expenditures and extraordinary
expenses) will not exceed 1.56% of the Portfolio's average net assets on an
annual basis through March 31, 1997. In subsequent years, overall operating
expenses for the Portfolio will not fall below 1.56% of average net assets
until the Investment Adviser has fully recouped fees foregone or expenses
paid by the Investment Adviser under this agreement, as the Portfolio will
reimburse the Investment Adviser when operating expenses (before
recoupment) for the Portfolio are less than 1.56% of average net assets.
Accordingly, until all such reduced fees or expenses have been recouped by
the Investment Adviser, the Portfolio's expenses will be higher, and its
yields will be lower, than would otherwise be the case. See "Organization
and Management-Expense Limitation." Actual operating expenses for the
Portfolio for the fiscal year ended March 31, 1997 are estimated to be %
of the Portfolio's average net assets (annualized). The various operating
expenses of the Portfolio are further described under "Organization and
Management."
EXAMPLE OF PORTFOLIO EXPENSES. The following table illustrates the expenses that
an investor would pay on a hypothetical $1,000 investment in the Portfolio over
various time periods, assuming (1) a 5% annual return and (2) redemption at the
end of each time period. The Portfolio does not charge a redemption fee.
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Mini Cap Growth Institutional
Portfolio $ 16 $ 49
</TABLE>
This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under the heading "Annual Portfolio
Operating Expenses" in the fee table above remain the same in the years shown.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE PORTFOLIO'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The hypothetical 5% annual return is used for illustrative purposes only
and should not be interpreted as an estimate of the Portfolio's annual return,
as there can be no guarantee of the Portfolio's future performance.
3
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company comprised of a number of diversified investment portfolios,
including the Mini Cap Growth Institutional Portfolio ("Portfolio") offered
hereby. The Portfolio is generally offered to institutional investors, high net
worth individuals and participants in certain mutual fund asset allocation
programs.
INVESTMENT OBJECTIVE. The investment objective of the Portfolio is described on
the front cover of this Prospectus. There can be no assurance that the Portfolio
will achieve its investment objective. See "Investment Objective, Policies and
Risk Considerations" and "Appendix: Investment Policies, Strategies and Risks."
MASTER/FEEDER STRUCTURE. The Portfolio seeks to achieve its investment objective
by investing all of its assets in the Mini Cap Growth Fund series ("Fund") of
Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified,
open-end management investment company. The Fund has the same investment
objective as the Portfolio. The Fund, in turn, holds investment securities.
Although the "master/feeder" structure employed by the Portfolio to achieve its
investment objectives could provide certain efficiencies and economies of scale,
it could also have potential adverse effects such as those resulting from
large-scale redemptions by other investors of their interests in the Fund, or
from the failure by investors of the Portfolio to approve a change in investment
objectives and policies that has been approved by the investors of the Fund.
There may also be other investment companies through which you can invest in the
Fund which may have higher or lower fees and expenses than those of the
Portfolio. See "Investment Objective, Policies and Risk Considerations-Special
Considerations Regarding Master/Feeder Structure."
The Portfolio may cease investing in the Fund only if the Trust's Board of
Trustees determines that this is in the best interests of the Portfolio and its
investors, and only with the approval of the Portfolio's investors. In such
event the Board of Trustees would consider alternative arrangements such as
investing all of the Portfolio's assets in another investment company with the
same investment objective as the Portfolio or hiring an investment adviser to
manage the Portfolio's assets in accordance with the Portfolio's investment
policies. No assurance exists that satisfactory alternative arrangements would
be available.
INVESTMENT RISKS AND CONSIDERATIONS. INVESTMENT RISKS AND OTHER CONSIDERATIONS
RELEVANT TO THE SECURITIES IN WHICH THE PORTFOLIO INVESTS THROUGH THE FUND ARE
DESCRIBED UNDER "INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS" AND IN
"APPENDIX: INVESTMENT POLICIES, STRATEGIES AND RISKS." They include the
following:
The securities of many companies in which the Fund invests are subject to more
volatile market movements than securities of larger, more established companies
because the issuers are typically more subject to changes in earnings and
prospects. The net asset value of the Portfolio therefore can be expected to
experience above-average fluctuations.
Investments by the Fund in securities of foreign companies and governments
involve special risks in addition to the usual risks inherent in domestic
investments, including fluctuations in foreign exchange rates, political or
economic instability in the country of issue, and the possible imposition of
exchange controls or other laws or restrictions. Settlement of transactions in
foreign markets may be delayed or less frequent than in the U.S., and foreign
governments may withhold taxes from dividends and interest paid on securities
held by the Fund. There is also likely to be less publicly available information
about certain foreign issuers than is available about U.S. companies, and
foreign companies are not generally subject to uniform financial reporting
standards comparable to those applicable to U.S. companies.
The investment approach of Nicholas-Applegate Capital Management (the
"Investment Adviser") results in above-average portfolio turnover. A high rate
of portfolio turnover involves
4
<PAGE>
correspondingly greater brokerage commission expenses, and may also result in
the realization and distribution to shareholders of net capital gains which are
taxable to them as ordinary income for federal tax purposes.
For hedging purposes, the Fund may purchase or write put and call options on
securities and securities indices, and effect transactions in futures contracts
and related options on stock indices. These are derivative instruments, whose
value derives from the value of an underlying security or index. Risks
associated with the use of such instruments include the possibility that the
Investment Adviser's forecasts of market values and currency rates of exchange
and other factors are not correct; imperfect correlation between the Fund's
hedging technique and the asset or liability being hedged; default by the other
party to the transaction; and inability to close out a position because of the
lack of a liquid market. Investment in such derivative instruments may not be
successful, and may reduce the returns and increase the volatility of the Fund.
See "Appendix: Investment Policies, Strategies and Risks" in this Prospectus and
"Investment Objectives, Policies and Risks" in the Statement of Additional
Information.
THE FUND MAY ALSO ENGAGE IN SHORT SALES, WHICH THEORETICALLY INVOLVE UNLIMITED
LOSS POTENTIAL AND MAY BE CONSIDERED A SPECULATIVE TECHNIQUE. SEE THE
DESCRIPTION OF THE RISKS OF SHORT SALES UNDER "SHORT SALES" IN "APPENDIX:
INVESTMENT POLICIES, STRATEGIES AND RISKS."
The Fund may, invest up to 15% of its net assets in illiquid securities. The
Fund may enter into repurchase agreements and lend its portfolio securities,
which involve the risk of loss upon the default of the seller or borrower. The
Fund may also borrow money from banks for temporary purposes which, among other
things, may require the Fund to sell portfolio securities to meet interest and
principal payments at an unfavorable time. See "Repurchase Agreements,"
"Securities Lending" and "Borrowing" in "Appendix: Investment Policies,
Strategies and Risks."
INVESTMENT ADVISER. The Trust has not retained the services of an investment
adviser for the Portfolio, as the Portfolio seeks to achieve its investment
objectives by investing all of its assets in the Fund. Nicholas-Applegate
Capital Management serves as investment adviser to the Fund. The Investment
Adviser has been in the investment advisory business since 1984 and currently
manages approximately $30 billion of discretionary assets for numerous clients,
including employee benefit plans of corporations, public retirement systems and
unions, university endowments, foundations and other institutional investors,
and individuals.
The Investment Adviser is compensated for its services to the Fund in the form
of monthly fees at the annual rate of 1.25% of the Fund's net assets. See
"Organization and Management."
DISTRIBUTOR. Nicholas-Applegate Securities (the "Distributor"), an affiliate of
the Investment Adviser, serves as distributor of shares of the Portfolio. The
Portfolio does not pay distribution or other fees to the Distributor in
connection with services it provides.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN. Investment Company Administration
Corporation (the "Administrator") is the administrator for the Trust, with
responsibility for managing the daily business operations of the Portfolio,
subject to the supervision of the Trust's Board of Trustees. It also acts as
administrator for the Master Trust. PNC Bank (the "Custodian") is the custodian
for the Trust and the Master Trust, and State Street Bank and Trust Company (the
"Transfer Agent") is the transfer and dividend disbursing agent for the Trust.
PURCHASE OF SHARES. Shares of the Portfolio are generally offered to
institutional investors, high net worth individuals, and participants in certain
mutual fund asset allocation programs. Purchases may be made by check or by
wiring federal funds to the Transfer Agent. Shares are purchased at the next
offering price without any sales charge, after an order is received in proper
form by the Transfer Agent or a sub-transfer agent. The minimum initial
investment is $250,000 and the minimum subsequent investment is $10,000. The
minimum initial and subsequent investments are waived for individual
participants of qualified retirement plans and
5
<PAGE>
for certain others, and may be waived from time to time by the Distributor for
other investors. Shares of the Portfolio may also be purchased with securities
which are otherwise appropriate for investment by the Portfolio. See "Purchasing
Shares."
INVESTOR SERVICES. The following services are provided to investors of the
Portfolio for their convenience and flexibility: an automatic investment plan;
automatic reinvestment and cross-reinvestment of dividends and capital gains
distributions; an exchange privilege; and automatic withdrawals. See "Investor
Services." Individual participants of qualified retirement plans should direct
inquiries to their plan sponsor or administrator.
REDEEMING SHARES. Shares of the Portfolio may be redeemed by writing to the
Transfer Agent or by telephone if telephone redemption privileges have been
established. Redemption proceeds will be wired to your bank. Participants of
qualified retirement plans must make redemption requests to the plan sponsor or
administrator. The price received for Portfolio shares redeemed is at the next
determined net asset value after the request is received by the Transfer Agent
or a sub-transfer agent, which may be more or less than the purchase price. No
contingent deferred sales charge or other fee is imposed on redemptions. See
"Redeeming Shares."
DIVIDENDS, DISTRIBUTIONS AND TAXES. The Portfolio declares and pays annual
dividends of net investment income and makes distributions at least annually of
any net capital gains. All dividends and distributions will be paid in the form
of additional shares at net asset value unless cash payment is requested.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Ernst & Young, L.L.P.,
independent auditors whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto
which appear in the Trust's 1996 Annual Report to Shareholders incorporated by
reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
MINI CAP
GROWTH
INSTITUTIONAL
PORTFOLIO
- ---------------------------------------------------------------------------------------------
7-12-95+
to 3-31-96
-------------
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period $ 12.50
Income from investment operations:
Net investment income (deficit) (0.05)
Net realized and unrealized gains on securities 3.40
-------------
Total from investment operations 3.35
Less distributions:
Dividends from net investment income --
Distributions from capital gains --
-------------
Net asset value, end of period $ 15.85
-------------
-------------
TOTAL RETURN: 26.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $ 25,237
Ratio of expenses to average net assets, after expense reimbursement 1.55%*
Ratio of expenses to average net assets, before expense reimbursement 2.46%*
Ratio of net income (deficit) to average net assets, after expense
reimbursement (0.98%)*
Ratio of net income (deficit) to average net assets, before expense
reimbursement (1.36%)*
Portfolio turnover** 106.99%
Average commission rate per share** $ 0.0529
</TABLE>
- ------------------------------
* Annualized
** For the corresponding Fund of the Master Trust.
+ Portfolio commenced operations on July 12, 1995.
6
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of the Portfolio are discussed below and
in "Appendix: Investment Policies, Strategies and Risks."
SPECIAL CONSIDERATIONS REGARDING MASTER/FEEDER STRUCTURE. The Portfolio seeks to
achieve its investment objective by investing all of its assets in the Fund,
which has the same objective as the Portfolio. The Fund, in turn, holds
investment securities. Accordingly, the investment experience of the Portfolio
will correspond directly with the investment experience of the Fund. For a
description of the Fund's objective, policies, restrictions, management and
expenses, see "Investment Objective, Policies and Risk Considerations" below,
the Appendix and "Organization and Management." There can be no assurance that
the Portfolio or Fund will achieve its investment objective. The Portfolio's and
Fund's investment objective is a fundamental policy which may not be changed
without the approval of the holders of a majority of the outstanding shares of
the Portfolio or Fund, respectively, as defined in the Investment Company Act of
1940 (the "Investment Company Act"). Upon any such approval, the Portfolio will
provide at least 30 days' written notice to its investors before any change is
made to its or the Fund's investment objective.
There are certain risks to the Portfolio related to the use of the
"master/feeder" structure. Such risks include, but are not limited to, the
following: Large-scale redemptions by other investment companies of their
interests in the Fund, could have adverse effects, such as lack of portfolio
diversity and decreased economies of scale, and could result in the shareholders
of the Portfolio, as the remaining investor in the Fund, bearing all the
operating costs of the Fund and thus experiencing higher pro rata operating
expenses and lower returns than would otherwise be the case. In addition, the
total withdrawal by another investment company as an investor in the Fund will
cause the Fund to terminate automatically in 120 days, unless the Portfolio and
any other investors in the Fund unanimously agree to continue the business of
the Fund. As the Portfolio is required to submit such matters to a vote of its
shareholders, it will be required to incur the expenses of shareholder meetings
in connection with such withdrawals. If unanimous agreement is not reached to
continue the Fund, the Board of Trustees of the Trust would need to consider
alternative arrangements for the Portfolio, including investing all of the
Portfolio's assets in another investment company with the same investment
objective as the Portfolio or hiring an investment adviser to manage the
Portfolio's assets in accordance with the investment policies described below
and in "Appendix: Investment Policies, Strategies and Risks." The absence of
substantial experience with the master/feeder structure could result in
accounting or other difficulties. Failure by investors of the Portfolio to
approve a change in the investment objective and policies of the Portfolio
parallel to a change that has been approved by the investors of the Fund would
require the Portfolio to redeem its shares of the Fund; this could result in a
distribution in kind to the Portfolio of the portfolio securities of the Fund
(rather than a cash distribution), causing the Portfolio to incur brokerage fees
or other transaction costs in converting such securities to cash, reducing the
diversification of the Portfolio's investments and adversely affecting its
liquidity. Other shareholders in the Fund may have a greater ownership interest
in the Fund than the Portfolio's interest, and could thus have effective voting
control over the operation of the Fund.
The Trust's Board of Trustees believes that the Portfolio will achieve certain
efficiencies and economies of scale through the "master/feeder" structure, and
that the aggregate expenses of the Portfolio will be less than if the Portfolio
invested directly in the securities held by the Fund. However, other investment
companies that offer their shares to the public also may invest all or
substantially all of their assets in the Fund. Accordingly, there may be other
investment companies through which investors can invest indirectly in the Fund.
The fees charged by such other investment companies may be higher or lower than
those charged by
7
<PAGE>
the Portfolio, which may reflect, among other things, differences in the nature
and level of the services and features offered by such companies to their
investors. Information about the availability of other investment companies that
invest in the Fund can be obtained by calling (800) 551-8643.
The Portfolio may cease investing in the Fund only if the Board of Trustees of
the Trust determines that such action is in the best interests of the Portfolio
and its investors, and only with the approval of the Portfolio's investors. In
that event, the Board of Trustees would consider alternative arrangements,
including investing all of the Portfolio's assets in another investment company
with the same investment objective as the Portfolio or hiring an investment
adviser to manage the Portfolio's assets in accordance with the investment
policies described below and in "Appendix: Investment Policies, Strategies and
Risks."
MINI CAP GROWTH INSTITUTIONAL PORTFOLIO. The Mini Cap Growth Institutional
Portfolio seeks to maximize long-term capital appreciation. It invests all of
its assets in the Nicholas-Applegate Mini Cap Growth Fund, which has the same
investment objective as the Portfolio. Assets of the Fund are invested primarily
in common stocks of U.S. companies the earnings and stock prices of which are
expected by the Fund's Investment Adviser to grow faster than the average rate
of companies in the Standard & Poor's 500 Stock Price Index (the "S&P 500
Index"). Companies in which the Fund invests do business in a cross-section of
industries and may be growth companies, cyclical companies or companies believed
to be undergoing a basic change in operations or markets which, in the opinion
of the Investment Adviser, would result in a significant improvement in
earnings. The securities of such companies may be subject to more volatile
market movements than securities of larger, more established companies. Although
the Fund is not restricted to investments in companies of any particular size,
it intends to invest primarily in companies with small market capitalizations
(generally, up to $100 million). However, the Fund will not necessarily sell any
security held by it if the market capitalization of the issuer increases above
$100 million subsequent to purchase. See "Appendix: Investment Policies,
Strategies and Risks" for a discussion of the risks associated with investment
in such growth companies.
Under normal market conditions, at least 75% of the Fund's total assets will be
invested in common stocks. The remainder of the Fund's assets may be invested in
preferred and convertible securities issued by similar growth companies,
investment grade corporate debt securities, securities issued or guaranteed by
the U.S. Government and its agencies or instrumentalities and various other
securities and instruments described in "Appendix: Investment Policies,
Strategies and Risks." The Fund may invest up to 20% of its total assets,
directly or indirectly through American Depository Receipts, in securities
issued by foreign issuers. See the Appendix for a discussion of the risks
associated with investment in foreign securities. The debt securities in which
the Fund may invest will be rated "Baa" or higher by Moody's or "BBB" or higher
by S&P or unrated if determined by the Investment Adviser to be of comparable
quality. These securities are of investment grade, which means that their
issuers have adequate capacity to pay interest and repay principal, although
certain of such securities in the lower grades have speculative characteristics,
and changes in economic conditions or other circumstances may be more likely to
lead to a weakened capacity to pay interest and principal than would be the case
with higher rated securities. If the rating of a debt security held by the Fund
is downgraded below investment grade, the security will be sold as promptly as
practicable. The Fund may also make short sales, which is considered a
speculative technique. See the Appendix for a discussion of the risks associated
with short sale transactions.
INVESTMENT TECHNIQUES AND PROCESSES. The focus of the Investment Adviser's
investment program is GROWTH OVER TIME-REGISTERED TRADEMARK-. In making
decisions with respect to equity securities for the
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Fund, the Investment Adviser uses a proprietary investment methodology which is
designed to capture positive change at an early stage. It adheres rigorously to
this methodology, and applies it to various segments of the capital markets,
domestically and internationally. This methodology consists of investment
techniques and processes designed to identify companies with attractive earnings
and dividend growth potential and to evaluate their investment prospects. These
techniques and processes include relationships with an extensive network of
brokerage and research firms located throughout the world; computer-assisted
fundamental analysis of thousands of domestic and foreign companies; established
criteria for the purchase and sale of individual securities; portfolio
structuring and rebalancing guidelines; securities trading techniques; and
continual monitoring and reevaluation of all holdings with a view to maintaining
the most attractive mix of investments. The Investment Adviser collects data on
approximately 26,000 companies in 35 countries (adjusted for reporting and
accounting differences). There can be no assurance that use of the proprietary
investment methodology will be successful.
The decision to invest assets of the Fund in any particular debt security will
be based on such factors as the Investment Adviser's analysis of the effect of
the yield to maturity of the security on the average yield to maturity of the
total debt security portfolio of the Fund, the Investment Adviser's assessment
of the credit quality of the issuer and other factors the Investment Adviser
deems relevant. In managing the Fund's debt security investments, the Investment
Adviser seeks to capture major moves in interest rates and utilizes a
proprietary model to identify interest rate trends in the bond market. There can
be no assurance that use of these techniques will be successful.
INVESTMENT POLICIES, STRATEGIES AND RISKS. The Appendix and the Statement of
Additional Information describe certain investment securities and techniques of
the Fund, and the associated risks. These include short-term investments in cash
and cash equivalents; investment in sovereign debt securities of U.S. and
foreign governments and their agencies and instrumentalities; floating and
variable rate demand notes and bonds; commercial paper; non-convertible
corporate debt securities; convertible securities and warrants; depository
receipts; over-the-counter securities; when-issued securities and firm
commitment agreements; futures contracts; put and call options on securities;
stock index futures contracts; repurchase agreements; illiquid securities;
securities lending; and borrowing.
INVESTMENT RESTRICTIONS. The Portfolio and Fund are subject to certain
investment restrictions which constitute fundamental policies. Fundamental
policies may not be changed without the approval of the holders of a majority of
the outstanding shares of the Portfolio or Fund, respectively, as defined in the
Investment Company Act. An investment policy or restriction which is not
described as fundamental in this Prospectus or the Statement of Additional
Information may be changed or modified by the Board of Trustees of the Trust or
Master Trust, as the case may be, without shareholder approval.
The investment objective of the Fund and the Portfolio is a fundamental policy.
Certain of the investment restrictions which are fundamental policies are set
forth below. Additional investment restrictions are discussed in the Appendix
and Statement of Additional Information.
1. Neither the Portfolio nor the Fund may invest more than 5% of its total
assets in the securities of any one issuer. However, up to 25% of the
Portfolio's or Fund's total assets may be invested without regard to this
limitation, and this limitation does not apply to investments in
securities of the U.S. Government or its agencies and instrumentalities.
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2. Neither the Portfolio nor the Fund may purchase more than 10% of the
outstanding voting securities of any one issuer, or purchase the
securities of any issuer for the purpose of exercising control.
3. Neither the Portfolio nor the Fund may invest 25% or more of its total
assets in any one particular industry; however, this restriction does not
apply to the securities of the U.S. Government, its agencies and
instrumentalities.
4. Neither the Portfolio nor the Fund may make loans of its portfolio
securities in an aggregate amount exceeding 30% of the value of its total
assets, or borrow money (except from banks for temporary, extraordinary or
emergency purposes or for the clearance of transactions and in an
aggregate amount not exceeding 20% of the value of its total assets).
5. Neither the Portfolio nor the Fund may invest more than 15% of its net
assets in illiquid securities.
The investment restrictions described above do not apply to an investment by the
Portfolio of all of its assets in the Fund.
PORTFOLIO TURNOVER. The Investment Adviser's investment approach results in
above-average portfolio turnover, as the Investment Adviser sells portfolio
securities when it believes the reasons for their initial purchase are no longer
valid or when it believes that the sale of a security owned by the Fund and the
purchase of another security of better value can enhance principal or increase
income. A security may also be sold to avoid a prospective decline in market
value or purchased in anticipation of a market rise. Although it is not possible
to predict future portfolio turnover rates accurately, and such rates may vary
greatly from year to year, the Investment Adviser anticipates that the Fund's
annual portfolio turnover rate may be up to 200%, which is substantially greater
than that of many other investment companies. A high rate of portfolio turnover
(100% or more) will result in the Fund paying greater brokerage commissions on
equity securities (other than those effected with dealers on a principal basis)
than would otherwise be the case, which will be borne directly by the Fund and
ultimately by the investors of the Portfolio. High portfolio turnover should not
result in the Fund paying greater brokerage commissions on debt securities, as
most transactions in debt securities are effected with dealers on a principal
basis. However, debt securities, as well as equity securities traded on a
principal basis, are subject to mark-up by the dealers. High portfolio turnover
may also result in the realization of substantial net capital gains, and any
distributions derived from such gains may be ordinary income for federal tax
purposes.
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ORGANIZATION AND MANAGEMENT
ORGANIZATION. The Portfolio is a series of Nicholas-Applegate Mutual Funds, a
Delaware business trust. The Board of Trustees of the Trust, in addition to
reviewing the actions of the Trust's Administrator and Distributor, as set forth
below, decides upon matters of general policy with respect to the Portfolio. See
"General Information." The trustees and officers of the Trust and of the Master
Trust are described in "Trustees and Principal Officers" in the Statement of
Additional Information. None of the disinterested trustees of the Trust are the
same individuals as the disinterested trustees of the Master Trust.
INVESTMENT ADVISER. The Trust has not retained the services of an investment
adviser for the Portfolio, as the Portfolio seeks to achieve its investment
objective by investing all of its assets in the Fund. Nicholas-Applegate Capital
Management, 600 West Broadway, 30th Floor, San Diego, California 92101, serves
as the Investment Adviser to the Fund. The Investment
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Adviser currently manages a total of approximately $30 billion of discretionary
assets for numerous clients, including employee benefit plans of corporations,
public retirement systems and unions, university endowments, foundations and
other institutional investors. The Investment Adviser was organized in 1984 as a
California limited partnership. Its general partner is Nicholas-Applegate
Capital Management Holdings, L.P., a California limited partnership controlled
by Arthur E. Nicholas. He and thirteen other partners manage a staff of
approximately 325 employees.
As compensation for the services it provides, the Investment Adviser receives a
monthly fee at the annual rate of 1.25% of the Fund's net assets. For the fiscal
year ended March 31, 1996, the Investment Adviser received fees from the
Portfolio equal to 0.24% of the Portfolio's average net assets, after the fee
deferrals and expense reimbursements referred to under "Expense Limitation."
The Fund has been managed since inception under the general supervision of Mr.
Nicholas, who has been the Chief Investment Officer of the Investment Adviser
since its organization. In addition, since December 1995, John D. Wylie, as
Chief Investment Officer-Investor Services Group, is also responsible for
general oversight of the Fund's portfolio. Catherine Somhegyi has been primarily
responsible for the Investment Adviser's day-to-day management of the Fund's
portfolio since the Fund began operation. She has managed similar institutional
accounts for the Investment Adviser for more than the last five years.
For historical performance information regarding institutional private accounts
managed by the Investment Adviser that have investment objectives, policies,
strategies and risks that are substantially similar to those of the Portfolio,
see "Appendix: Prior Performance of Investment Adviser."
ADMINISTRATOR. Investment Company Administration Corporation, a Delaware
corporation, is the Administrator of the Portfolio. Pursuant to an
Administration Agreement with the Trust, and subject to the supervision of the
Board of Trustees of the Trust, the Administrator supervises the overall
administration of the Trust. Its responsibilities include preparing and filing
all documents required for compliance by the Trust with applicable laws and
regulations, arranging for the maintenance of books and records of the Trust and
supervision of other organizations that provide services to the Trust. Certain
officers of the Trust are also provided by the Administrator. For the services
it provides to the Trust, the Administrator receives an annual fee of between
$5,000 and $35,000 for each of the groups of portfolios of the Trust investing
in the various series of the Master Trust; the fee is allocated among various
series of the Trust, including the Portfolio, in accordance with relative net
asset values. The Administrator provides similar services as the administrator
of the Master Trust, subject to the supervision of its Board of Trustees, and is
compensated separately for the services rendered to the Fund at an annual rate
of approximately 0.015% of the average daily net assets of the Fund.
EXPENSE LIMITATION. To limit the expenses of the Portfolio, the Investment
Adviser has agreed to defer its management fees payable by the Fund, and to
absorb the other operating expenses payable by the Fund and the Portfolio, to
ensure that the expenses of the Portfolio (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures and
extraordinary expenses, but including the Portfolio's proportionate share of the
Fund's similar operating expenses) do not exceed 1.56% of the Portfolio's
average net assets on an annual basis through March 31, 1997. The Portfolio will
reimburse the Investment Adviser for fees foregone or other expenses paid by the
Investment Adviser pursuant to this agreement in later years in which operating
expenses for the Portfolio are less than the applicable percentage limitation
set forth above for any such year. No interest, carrying or finance charge will
be paid by the Portfolio with respect to any amounts representing fees deferred
or other expenses paid by the Investment Adviser. In addition,
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neither the Portfolio nor the Fund will be required to repay any unreimbursed
amounts to the Investment Adviser upon termination or non-renewal of its
Investment Advisory Agreement with the Master Trust.
DISTRIBUTOR. Nicholas-Applegate Securities, 600 West Broadway, 30th Floor, San
Diego, California 92101, a California limited partnership, serves as the
Distributor of shares of each Portfolio. The general partner of the Distributor
is Nicholas-Applegate Capital Management Holdings, L.P. and its limited partner
is the Investment Adviser.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. PNC Bank, Airport Business
Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania, 19113,
serves as Custodian for the Portfolio and the Fund. PFPC Inc., an affiliate of
the Custodian, provides accounting services to the Portfolio and the Fund. State
Street Bank and Trust Company, Mutual Funds Division, Nicholas-Applegate, 2
Heritage Drive, 7th Floor, North Quincy, Massachusetts 02171, is the Transfer
Agent and the Dividend Disbursing Agent for the Portfolio.
PORTFOLIO TRANSACTIONS AND BROKERAGE. The Investment Adviser is responsible for
the Fund's portfolio transactions and the allocation of the brokerage business.
In executing such transactions, the Investment Adviser seeks to obtain the best
price and execution for the Fund. Subject to obtaining the best price and
execution, the Investment Adviser may effect transactions through brokers who
sell shares of the Portfolio or provide research services to the Investment
Adviser, which may result in the payment of higher commissions than those
charged by other brokers. However, the selection of such brokers will be made in
accordance with Section 28(e) of the Securities Exchange Act of 1934. Section
28(e) requires the Investment Adviser to make a good faith determination that
the commissions paid are reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Investment Adviser's overall responsibilities with
respect to the accounts as to which it exercises investment discretion.
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PURCHASING SHARES
HOW TO PURCHASE SHARES. Shares of the Portfolio are offered to institutional
investors, high net worth individuals and participants in mutual fund asset
allocation programs sponsored by certain broker-dealers. Shares of the Portfolio
are also offered to former limited partners and participants of certain
investment partnerships and pooled trusts previously managed by the Investment
Adviser (the "former partners"); to partners, officers and employees of the
Investment Adviser and Distributor and their immediate family members; to
Trustees and officers of the Trust and the Master Trust and their immediate
family members; and to certain other persons determined from time to time by the
Distributor.
Investments by individual participants of qualified retirement plans are made
through their plan sponsor or administrator, who is responsible for transmitting
all orders for the purchase, redemption and exchange of Portfolio shares. The
availability of an investment by a plan participant in the Portfolio, and the
procedures for investing, depend upon the provisions of the qualified retirement
plan and whether the plan sponsor or administrator has contracted with the Trust
or the Transfer Agent for special processing services, including subaccounting.
Other institutional investors and eligible purchasers must arrange for services
through the Transfer Agent or Distributor by calling (800) 551-8043.
Shares of the Portfolio may be purchased at net asset value without a sales
charge. The minimum initial investment is $250,000 and the minimum subsequent
investment is $10,000. The minimum initial and subsequent investments are waived
for individual participants of
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qualified retirement plans and for the former partners and trust participants
described above, and may be waived from time to time by the Distributor for
other investors (but not below $10,000). Shares of the Portfolio may also be
purchased with securities which are otherwise appropriate for investment by the
Portfolio. Shares will be purchased for a participant of a qualified retirement
plan only upon receipt by the plan's recordkeeper of the participant's funds
accompanied by the information necessary to determine the proper share
allocation for the participant.
An account may be opened by completing and signing an account application and
sending it to the address indicated on the application. Account applications can
be obtained from the Distributor or Transfer Agent. Individual participants of
qualified retirement plans can obtain an account application from their plan
sponsor or administrator. Plan sponsors and administrators will be responsible
for forwarding to the Transfer Agent all relevant information and account
applications for plan participants.
Purchases of shares of the Portfolio can be made by check or by wiring federal
funds to the Transfer Agent. Checks should be in U.S. dollars and made payable
to Nicholas-Applegate Mutual Funds or, in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. Checks should be
sent to the Transfer Agent, State Street Bank and Trust Company, P.O. Box 8326,
Boston, Massachusetts 02266-8326, Attention: Nicholas-Applegate Mutual Funds.
Please specify the name of the Portfolio, the account number assigned by the
Transfer Agent, and your name. See "Purchase by Wire" below for wiring
instructions.
PURCHASE BY WIRE. Purchases of shares of the Portfolio can be made by wiring
federal funds to the Transfer Agent. Before wiring federal funds, you must first
telephone the Transfer Agent at (800) 551-8043 (toll-free) between the hours of
8:00 A.M. and 4:00 P.M. (Eastern Time) on a day when the New York Stock Exchange
is open for normal trading to receive an account number. The following
information will be requested: your name, address, tax identification number,
dividend distribution election, amount being wired and wiring bank. Instructions
should then be given by you to your bank to transfer funds by wire to the
Portfolio's Transfer Agent, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, 02110, ABA No. 011000028, DDA No. 9904-645-0
Attention: Nicholas-Applegate Mutual Funds, specifying on the wire the name of
the Portfolio, the account number assigned by the Transfer Agent and your name.
If you arrange for receipt by the Transfer Agent of federal funds prior to close
of trading (currently 4:00 P.M., Eastern time) of the New York Stock Exchange on
a day when the Exchange is open for normal trading, you may purchase shares of
the Portfolio as of that day. Your bank is likely to charge you a fee for wire
transfers.
Subsequent purchases by wire may be made at any time by calling the Transfer
Agent and wiring federal funds as outlined above.
Individual participants of qualified retirement plans should purchase Portfolio
shares through their plan sponsor or administrator who is responsible for
forwarding payment to the Transfer Agent.
SHARE PRICE. Shares are purchased at the next offering price after the order is
received in proper form by the Transfer Agent or a sub-transfer agent. An order
in proper form must include all correct and complete information, documents and
signatures required to process your purchase, as well as a check or bank wire
payment properly drawn and collectable. For purchases by a qualified retirement
plan, an order in proper form is defined as receipt of funds and the information
necessary to determine the proper share allocation for each participant. The
price per share is its net asset value, which is determined as of the close of
trading of the New York Stock Exchange on each day the Exchange is open for
normal trading. Orders
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received before 4:00 P.M. (Eastern time) on a day when the Exchange is open for
normal trading will be processed as of the close of trading on that day.
Otherwise, processing will occur on the next business day. To determine the
Portfolio's net asset value per share, the current value of the Portfolio's
total assets, less all liabilities, is divided by the total number of shares
outstanding, and the result is rounded to the nearer cent.
Investors may be charged a fee if they affect transactions through a broker or
agent.
RETIREMENT PLANS. You may invest in the Portfolio through various retirement
plans including IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans, 457
plans, and all qualified retirement plans (including 401(k) plans). For further
information about any of the plans, agreements, applications and annual fees,
contact the Distributor or your dealer. To determine which retirement plan is
appropriate for you, please consult your tax adviser.
OTHER PORTFOLIOS. Currently, the Trust has thirteen Institutional Portfolios.
Twelve other domestic and global Institutional Portfolios are offered pursuant
to separate prospectuses which can be obtained by calling (800) 551-8643. The
Distributor also offers shares of other portfolios of the Trust which invest in
the same Funds of the Master Trust as the Institutional Portfolios. These other
portfolios have different sales charges and other expenses than the
Institutional Portfolios, which may affect their performance. Information about
these other portfolios can be obtained from your dealer or by calling (800)
551-8045.
OTHER PURCHASE INFORMATION. Purchases of Portfolio shares will be made in full
and fractional shares. In the interest of economy and convenience, certificates
for shares will generally not be issued.
The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities in the small capitalization sector of the securities markets may
from time to time be more limited than those in other sectors of the markets.
Therefore, in order to retain adequate investment flexibility, the Investment
Adviser and the Trustees of the Master Trust may from time to time recommend
that the Trust indefinitely discontinue the sale of shares of the Portfolio to
new investors (other than trustees, directors, officers and employees of the
Trust, the Master Trust, the Investment Adviser and affiliated companies). In
such event, the Board of Trustees of the Trust would determine whether such
discontinuance is in the best interests of the Portfolio and its shareholders.
If sales of shares were discontinued, existing shareholders of the Portfolio
would continue to be able to make additional investments in the Portfolio and to
have their dividends and capital gains distributions reinvested. The Portfolio
may recommence the offering of shares to new investors at any time thereafter if
in the Board of Trustees' opinion doing so would be in the best interests of the
Portfolio and its shareholders.
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INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN. Investors may make regular monthly or quarterly
investments in the Portfolio through automatic withdrawals of specified amounts
from their bank account once an automatic investment plan is established.
Individual participants of qualified retirement plans may make regular
investments in the Portfolio through payroll deductions in accordance with
procedures adopted by the plan sponsor or administrator. Further details about
this service and an application form are available from the Distributor or from
your plan sponsor or administrator.
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AUTOMATIC REINVESTMENT. Dividends and capital gain distributions are reinvested
in additional shares at no sales charge unless you indicate otherwise on the
account application. You may elect to have dividends and capital gain
distributions paid in cash.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gain distributions paid by the Portfolio into shares of any other Institutional
Portfolio series of the Trust, subject to conditions outlined in the Statement
of Additional Information and the applicable provisions of the qualified
retirement plan.
EXCHANGE PRIVILEGE. Shares of the Portfolio may be exchanged into shares of any
other available Institutional Portfolio series of the Trust by writing to the
Transfer Agent, State Street Bank and Trust Company, Attention:
Nicholas-Applegate Mutual Funds, P.O. Box 8326, Boston, Massachusetts
02266-8326. Please specify the name of the applicable series, the number of
shares or dollar amount to be exchanged and your name and account number. Shares
may also be exchanged by telephoning the Transfer Agent at (800) 551-8043 or by
sending the Transfer Agent a facsimile at (617) 774-2651, between the hours of
8:00 A.M. and 4:00 P.M. (Eastern time) on a day when the New York Stock Exchange
is open for normal trading (see "Telephone Privilege" below). The Trust's
exchange privilege is not intended to afford shareholders a way to speculate on
short-term market movements. Accordingly, the Trust reserves the right to limit
the number of exchanges an investor or participant may make in any year, to
avoid excessive Portfolio expenses.
Individual participants of qualified retirement plans may exchange shares
(depending upon the provisions of the plan) by written or telephone request
through the plan sponsor or administrator. Such participants may exchange shares
only for shares of other Institutional Portfolios that are included in their
plans. In addition, the exchange privilege may not be available to investors who
are eligible to purchase shares of the Portfolio as a result of agreements
between the Distributor and certain broker-dealers, financial planners and
similar institutions.
Before effecting an exchange, investors should obtain the currently effective
prospectus of the series into which the exchange is to be made. All exchanges
will be made on the basis of the relative net asset values of the two series
next determined after a completed request is received. Exchange purchases are
subject to the minimum investment requirements of the series being purchased. An
exchange will be treated as a redemption and purchase for tax purposes.
TELEPHONE PRIVILEGE. Investors may exchange or redeem shares by telephone if
they have elected the telephone privilege on their account application.
Participants in qualified retirement plans may make telephone requests only
through their plan sponsor or administrator and only if such service is offered
under the plan. Investors should realize that by electing the telephone
privilege, they may be giving up a measure of security that they may have if
they were to exchange or redeem their shares in writing. Furthermore, in periods
of severe market or economic conditions, telephone exchanges or redemptions may
be difficult to implement, in which case investors should mail or send by
overnight delivery a written exchange or redemption request to the Transfer
Agent. Overnight deliveries should be sent to the Transfer Agent, Attention:
Nicholas-Applegate Mutual Funds, 2 Heritage Drive, 7th Floor, North Quincy,
Massachusetts 02171. Requests for telephone exchanges or redemptions received
before 4:00 P.M. (Eastern time) on a day when the New York Stock Exchange is
open for normal trading will be processed as of the close of trading on that
day. Otherwise, processing will occur on the next business day. All exchanges or
redemptions will be made on the basis of the relative net asset values of the
two series next determined after a completed request is received.
The Trust will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine and, if it does not do so, it
may be liable for any
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losses due to unauthorized or fraudulent instructions. The procedures employed
by the Trust include requiring personal identification by account number and
social security number, tape recording of telephone instructions, and providing
written confirmation of transactions. The Trust reserves the right to refuse a
telephone exchange or redemption request if it believes, for example, that the
person making the request is neither the record owner of the shares being
exchanged or redeemed nor otherwise authorized by the investor to request the
exchange or redemption. Investors will be promptly notified of any refused
request for a telephone exchange or redemption. Neither the Portfolio nor its
agents will be liable for any loss, liability or cost which results from acting
upon instructions of a person reasonably believed to be an investor with respect
to the telephone privilege.
AUTOMATIC WITHDRAWAL PLAN. An automatic withdrawal plan may be established by an
investor or by a qualified retirement plan sponsor or administrator for its
participants subject to the requirements of the plan and applicable Federal law.
Individual participants of qualified retirement plans must establish automatic
withdrawal plans with the plan sponsor or administrator rather than the Trust.
Automatic withdrawals of $250 or more may be made on a monthly, quarterly,
semi-annual or annual basis if you have an account of at least $15,000 when the
automatic withdrawal plan begins. Withdrawal proceeds will normally be received
prior to the end of the period designated. All income dividends and capital gain
distributions on shares under the Automatic Withdrawal Plan must be reinvested
in additional shares of the Portfolio. For the protection of investors and the
Trust, wiring instructions must be on file prior to executing any request for
the wire transfer of automatic withdrawal proceeds.
ACCOUNT STATEMENTS. An account is opened in accordance with applicable
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from the Transfer Agent (for qualified retirement plans,
such statements will be provided by the plan sponsor or administrator).
REPORTS TO INVESTORS. The Portfolio will send its investors annual and
semi-annual reports. The financial statements appearing in annual reports will
be audited by independent accountants. In order to reduce duplicate mailing and
printing expenses, the Portfolio may provide one annual and semi-annual report
and annual prospectus per household. In addition, quarterly unaudited financial
data are available from the Portfolio upon request.
INVESTOR INQUIRIES. Investor inquiries should be addressed to the Trust, P.O.
Box 82169, San Diego, California 92138-2169, or by telephone, at (800) 551-8643
(toll free). Individual participants of qualified retirement plans should direct
inquiries to their plan sponsor or administrator.
The services referred to above are available only in states where the Portfolio
to be purchased may be legally offered and may be terminated or modified at any
time upon 60 days' written notice. Investors seeking to add to, change or cancel
their selection of available services should contact the Transfer Agent of the
address and telephone number provided above.
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REDEEMING SHARES
HOW TO REDEEM SHARES. Shares of the Portfolio may be redeemed by writing to the
Transfer Agent, State Street Bank and Trust Company, Attention:
Nicholas-Applegate Mutual Funds, P.O. Box 8326, Boston, Massachusetts
02266-8326. Redemptions by participants in qualified retirement plans must be
made in writing to the plan sponsor or administrator rather than the Trust.
Please specify the name of the Portfolio, the number of shares or dollar amount
to be sold and your name and account number. The price received for the shares
redeemed is at the
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next determined net asset value for the Portfolio shares after the redemption
request is received by the Transfer Agent or a sub-transfer agent. No charge
will be imposed by the Trust or the Transfer Agent for redemptions.
The signature on a redemption request must be exactly as names appear on the
Portfolio's account records, and the request must be signed by the minimum
number of persons designated on the account application that are required to
effect a redemption. Requests by participants of qualified retirement plans must
include all other signatures required by the plan and applicable Federal law.
If redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. If the proceeds of the redemption exceed
$50,000, are to be paid to a person other than the record owner, are to be sent
to an address other than the address on the Transfer Agent's records, or are to
be paid to a corporation, partnership, trust or fiduciary, the signature(s) on
the redemption request may be required to be guaranteed by an "eligible
guarantor," which includes a bank or savings and loan association that is
federally insured or a member firm of a national securities exchange.
REDEMPTIONS BY TELEPHONE. If an election is made on the account application (or
subsequently in writing), redemptions of shares may be requested by contacting
the Transfer Agent by telephone at (800) 551-8043 or by facsimile at (617)
774-2651 between the hours of 8:00 A.M. and 4:00 P.M. (Eastern time) on a day
when the New York Stock Exchange is open for normal trading. Investors should
state the name of the Portfolio, the number of shares or dollar amount to be
sold and their name and account number. Participants of qualified retirement
plans may make telephonic or facsimile redemption requests through their plan
sponsor or administrator, provided that such service is offered under the plan
and satisfactory arrangements have been made with the Transfer Agent. Redemption
requests received by the Transfer Agent before 4:00 P.M. (Eastern time) on a day
when the New York Stock Exchange is open for normal trading will be processed
that day. Otherwise, processing will occur on the next business day. See
"Shareholder Services-Telephone Privilege" above.
Payment for shares presented for redemption will ordinarily be wired to your
bank one business day after redemption is requested, but may take up to three
business days after receipt by the Transfer Agent of a written or telephonic
redemption request except as indicated below. Payment for redemption of recently
purchased shares will be delayed until the Transfer Agent has been advised that
the purchase check has been honored, up to 15 calendar days from the time of
receipt of the purchase check by the Transfer Agent. Such delay may be avoided
by purchasing shares by wire or by certified or official bank checks. Payment
may be postponed or the right of redemption suspended at times when the New York
Stock Exchange is closed for other than customary weekends and holidays, when
trading on such Exchange is restricted, when an emergency exists as a result of
which disposal by the Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Portfolio fairly to
determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Portfolio, the Trust
may redeem all of the shares of any investor whose account has a net asset value
of less than $10,000 due to redemptions other than a shareholder who is a
participant in a qualified retirement plan. The Trust will give such investors
60 days' prior written notice in which to purchase sufficient additional shares
to avoid such redemption.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Trust intends to qualify the Portfolio as a regulated investment company
under the Internal Revenue Code. Accordingly, the Portfolio will not be subject
to federal income taxes on its net investment income and capital gains, if any,
that it distributes to its investors. All dividends out of net investment
income, together with distributions of short-term capital gains, will be taxable
as ordinary income to the investors whether or not reinvested. Any net long-term
capital gains distributed to investors will be taxable as such to the investors,
whether or not reinvested and regardless of the length of time an investor has
owned his shares.
The Portfolio declares and pays annual dividends of net investment income and
makes distributions at least annually of its net capital gains, if any. In
determining amounts of capital gains to be distributed by the Portfolio, any
capital loss carryovers from prior years will be offset against its capital
gains. Under U.S. Treasury Regulations, the Portfolio is required to withhold
and remit to the U.S. Treasury 31% of the dividends, capital gains and
redemption proceeds on the accounts of those investors who fail to furnish their
correct tax identification numbers on IRS Form W-9 (or IRS Form W-8, in the case
of certain foreign investors) with the required certifications regarding the
investor's status under the federal income tax law or who are subject to backup
withholding for failure to include payments of interest or dividends on their
returns. Notwithstanding the foregoing, dividends of net income and short-term
capital gains to a foreign investor will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).
The Trust may elect to "pass through" to the Portfolio's shareholders the amount
of foreign income taxes paid by the Portfolio. The Trust will make such an
election only if it is deemed to be in the best interests of the shareholders.
If this election is made, shareholders of the Portfolio will be required to
include in their gross income their pro rata share of foreign taxes paid by the
Portfolio. However, shareholders will be able to treat their pro rata share of
foreign taxes as either an itemized deduction or a foreign credit against U.S.
income taxes (but not both) on their tax return.
The Fund is not required to pay federal income taxes on its net investment
income and capital gains, as it is treated as a partnership for tax purposes.
Any interest, dividends and gains or losses of the Fund will be deemed to have
been "passed through" to the Portfolio and other investors in the Fund,
regardless of whether such interest, dividends or gains have been distributed by
the Fund or losses have been realized by the Portfolio and such other investors.
Investors should consult their own tax advisers regarding specific questions as
to federal, state or local taxes. See "Taxes" in the Statement of Additional
Information.
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GENERAL INFORMATION
PERFORMANCE INFORMATION. From time to time the Trust may advertise the
Portfolio's total return and, if applicable, its yield. These figures are based
on historical earnings and are not intended to indicate future performance.
Total return shows how much an investment in the Portfolio would have increased
(or decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Portfolio) assuming that all distributions and dividends
by the Trust to investors of the Portfolio were reinvested on the reinvestment
dates during the period. Total return does not take into account any federal or
state income taxes which may be payable by the investor. Yield will be
calculated on a 30-day period pursuant to a formula prescribed by the Securities
and Exchange Commission (the "Commission"). The Trust also may include
comparative performance information in advertising or marketing Portfolio
shares. Such
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performance information may include data from Lipper Analytical Services, Inc.,
Morningstar, Inc., other industry publications, business periodicals, rating
services and market indices. See "Appendix: Prior Performance of Investment
Adviser."
DESCRIPTION OF SHARES. The Portfolio is a series of Nicholas-Applegate Mutual
Funds, a diversified, open-end management investment company. The Trust was
organized in December 1992 as a Delaware business trust. The Trust is authorized
to issue an unlimited number of shares of the Portfolio. Shares of the
Portfolio, when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares of the Portfolio are also
redeemable at the option of the Trust under certain circumstances. There are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of the Portfolio is entitled to its portion of all of
the Portfolio's assets after all debts and expenses of the Portfolio have been
paid. Pursuant to the Trust's Declaration of Trust, the Board of Trustees of the
Trust may authorize the creation of additional series, and classes within
series, with such preferences, privileges, limitations and voting and dividend
rights as the Board may determine.
Investors of the Portfolio are entitled to one vote for each full share held and
fractional votes for fractional shares held, and will vote by series except as
otherwise required by law or when the Board of Trustees of the Trust determines
that a matter to be voted upon affects only the interests of investors of a
particular series. Shares of the Trust do not have cumulative voting rights for
the election of Trustees. The Trust does not intend to hold annual meetings of
its investors unless otherwise required by law. The Trust will not be required
to hold meetings of investors unless the election of Trustees or any other
matter is required to be acted on by investors under the Investment Company Act.
Investors have certain rights, including the right to call a meeting upon the
request of 10% of the outstanding shares of the Portfolio, for the purpose of
voting on the removal of one or more Trustees.
MASTER TRUST. The Fund is a series of Nicholas-Applegate Investment Trust, an
open-end management investment company organized as a Delaware business trust in
December 1992. The trustees and officers of the Master Trust are described in
the Statement of Additional Information. Whenever the Portfolio is requested to
vote on matters pertaining to the Fund or the Master Trust in its capacity as a
shareholder of the Fund, the Trust will hold a meeting of its investors and will
cast its vote as instructed by such investors or, in the case of a matter
pertaining exclusively to the Fund, as instructed particularly by investors of
the Portfolio and other series of the Trust which invest in the Fund. The Trust
will vote shares for which it has received no voting instructions in the same
proportion as the shares for which it does receive voting instructions.
ADDITIONAL INFORMATION. This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Trust
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The Master Trust has also filed a Registration Statement with the
Commission. Copies of the Trust's and Master Trust's Registration Statement may
be obtained at a reasonable charge from the Commission or may be examined,
without charge, at the office of the Commission in Washington, D.C.
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APPENDIX
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INVESTMENT POLICIES, STRATEGIES AND RISKS
The investment policies and strategies of the Portfolio (as implemented through
its investment in the Fund) encompass the following securities, techniques and
risk considerations.
SHORT-TERM INVESTMENTS. The Fund may invest in short-term investments to
maintain liquidity for redemptions or during periods when, in the opinion of the
Investment Adviser, attractive investments are temporarily unavailable. Under
normal circumstances, no more than 10% of the Fund's total assets will be
retained in cash and cash equivalents. However, the Fund may invest without
restriction in short-term investments for temporary defensive purposes, such as
when the securities markets or economic conditions are expected to enter a
period of decline. Short-term investments in which the Fund may invest include
U.S. Treasury bills or other U.S. Government or Government agency or
instrumentality obligations; certificates of deposit; bankers' acceptances; time
deposits; high quality commercial paper and other short-term high grade
corporate obligations; shares of money market mutual funds; or repurchase
agreements with respect to such securities. These instruments are described
below. The Fund will only invest in short-term investments which, in the opinion
of the Investment Adviser, present minimal credit and interest rate risk.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities in which the Fund may invest
include U.S. Treasury securities, which differ only in their interest rates,
maturities and times of issuance. Treasury bills have initial maturities of one
year or less; Treasury notes have initial maturities of one to ten years; and
Treasury bonds generally have initial maturities of more than ten years.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
("GNMA") pass-through certificates, are supported by the full faith and credit
of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by
the right of the issuer to borrow money from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by the 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, only by the credit of the agency or instrumentality.
While the U.S. Government provides financial support to U.S.
Government-sponsored agencies and instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Fund will
invest in securities issued or guaranteed by U.S. Government agencies and
instrumentalities only when the Investment Adviser is satisfied that the credit
risk with respect to the issuer is minimal.
CERTIFICATES OF DEPOSIT, TIME DEPOSITS AND BANKERS' ACCEPTANCES. The Fund may
invest in certificates of deposit, time deposits and bankers' acceptances issued
by domestic banks, foreign banks, foreign branches of domestic banks, domestic
and foreign branches of foreign banks, and domestic savings and loan
associations, all of 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 million, or less than $100 million if the principal
amount of such bank obligations is insured by the Federal Deposit Insurance
Corporation. Certificates of deposit are certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Bankers' acceptances are
credit
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instruments evidencing the obligation of a bank to pay a draft 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.
COMMERCIAL PAPER. The Fund may invest in commercial paper of domestic and
foreign entities which is rated (or guaranteed by a corporation the commercial
paper of which is rated) in the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSROs"), including
"P-1" or "P-2" by Moody's or "A-1" or "A-2" by S&P, or, if rated by only one
NRSRO, in such NRSRO's two highest grades, or, if not rated, is issued by an
entity which the Investment Adviser, acting pursuant to guidelines established
by the Master Trust's Board of Trustees, has determined to be of minimal credit
risk and comparable quality. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
VARIABLE RATE DEMAND SECURITIES. The Fund may purchase floating and variable
rate demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of one year, but which permit the holder to demand payment
of principal at any time, or at specified intervals not exceeding one year, in
each case upon not more than 30 days' notice. Variable rate demand notes include
master demand notes, which are obligations that permit the Fund to invest
fluctuating amounts, which may change daily without penalty. The interest rates
on these notes are adjusted at designated intervals or whenever there are
changes in the market rates of interest on which the interest rates are based.
The issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Such obligations frequently are not rated by credit rating agencies and
the Fund may invest in obligations which are not so rated only if the Investment
Adviser determines that at the time of investment the obligations are of
comparable quality to the other obligations in which the Fund may invest. The
Investment Adviser will monitor the creditworthiness of the issuers of such
obligations and their earning power and cash flow, and will also consider
situations in which all holders of such notes would redeem at the same time.
Investment by the Fund in floating or variable rate demand obligations as to
which it cannot exercise the demand feature on not more than seven days' notice
will be subject to the Fund's limit on illiquid securities of 15% of net assets
if there is no secondary market available for these obligations.
CORPORATE DEBT SECURITIES. The non-convertible corporate debt securities in
which the Fund may invest include obligations of varying maturities (such as
debentures, bonds and notes) over a cross-section of industries. The value of a
debt security changes as interest rates fluctuate, with longer-term securities
fluctuating more widely in response to changes in interest rates than those of
shorter-term securities. A decline in interest rates usually produces an
increase in the value of debt securities, while an increase in interest rates
generally reduces their value. The corporate debt securities held by the Fund
are generally of investment grade. For short-term purposes, the Fund may also
invest in corporate obligations issued by domestic and foreign issuers which
mature in one year or less and which are rated "Aa" or higher by Moody's, "AA"
or higher by S&P, rated in the two highest rating categories by any other NRSRO,
or which are unrated but determined by the Investment Adviser to be of minimal
credit risk and comparable quality.
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CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in securities which may
be exchanged for, converted into, or exercised to acquire a predetermined number
of shares of the issuer's common stock at the option of the holder during a
specified time period (such as convertible preferred stocks, convertible
debentures and warrants). Convertible securities generally pay interest or
dividends and provide for participation in the appreciation of the underlying
common stock but at a lower level of risk because the yield is higher and the
security is senior to common stock. Convertible securities may also include
warrants which give the holder the right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price but which do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for resale,
potential price fluctuations as a result of speculation or other factors, and
the failure of the price of the underlying security to reach or have reasonable
prospects of reaching a level at which the warrant can be prudently exercised,
in which event the warrant may expire without being exercised, resulting in a
loss of the Fund's entire investment therein. As a matter of operating policy,
the Fund will not invest more than 5% of its net assets in warrants.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The credit standing of the issuer and other factors
may also affect the investment value of a convertible security. The conversion
value of a convertible security is determined by the market price of the
underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value.
Like other debt securities, the market value of convertible securities tends to
vary inversely with the level of interest rates. The value of the security
declines as interest rates increase and increases as interest rates decline.
Although under normal market conditions longer term securities have greater
yields than do shorter term securities of similar quality, they are subject to
greater price fluctuations. Fluctuations in the value of the Fund's investments
will be reflected in its and the Portfolio's net asset value per share. A
convertible security may be subject to redemption at the option of the issuer at
a price established in the instrument governing the convertible security. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
Convertible debt securities purchased by the Fund, which are acquired in whole
or substantial part for their equity characteristics, are not subject to rating
requirements.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES. The Fund may invest in
certificates issued by the Government National Mortgage Association as a
short-term investment. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans, which are issued by
lenders such as mortgage bankers, commercial banks and savings associations, and
are either insured by the Federal Housing Administration or the Veterans
Administration. A pool of these mortgages is assembled and, after being approved
by GNMA, is offered to investors through securities dealers. The timely payment
of interest and principal on each mortgage is guaranteed by GNMA and backed by
the full faith and credit of the U.S. Government. Principal is paid back monthly
by the borrower over the term of the loan rather than returned in a lump sum at
maturity. Due to the prepayment feature and the need to
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reinvest prepayments of principal at current market rates, GNMA certificates can
be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates.
EQUITY SECURITIES OF SMALLER GROWTH COMPANIES. The Fund will invest primarily in
companies with small market capitalizations (E.G., $100 million or less),
including growth companies, cyclical companies and companies believed to be
undergoing a basic change in operations or markets which could result in a
significant improvement in earnings. Although equity securities have a history
of long term growth in value, their prices fluctuate based on changes in the
issuer's financial condition and prospects and on overall market and economic
conditions. Small companies and new companies often have limited product lines,
markets or financial resources, and may be dependent upon one or few key persons
for management. The securities of such companies may be subject to more volatile
market movements than securities of larger, more established companies, both
because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects. The
Portfolio's net asset values can be expected to experience above-average
fluctuations, as above-average risk is assumed by the Fund in investing in such
growth companies in seeking higher than average growth in capital.
DEPOSITORY RECEIPTS. The Fund may invest in American Depository Receipts
("ADRs"), which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs,
in registered form, are designed for use in U.S. securities markets. Such
depository receipts may be sponsored by the foreign issuer or may be
unsponsored. Unsponsored depository receipts are organized independently and
without the cooperation of the foreign issuer of the underlying securities; as a
result, available information regarding the issuer may not be as current as for
sponsored depository receipts, and the prices of unsponsored depository receipts
may be more volatile than if they were sponsored by the issuers of the
underlying securities.
FOREIGN INVESTMENT CONSIDERATIONS. There are special risks associated with the
Fund's investments in securities of foreign companies and governments, which add
to the usual risks inherent in domestic investments. Such special risks include
fluctuations in foreign exchange rates, political or economic instability in the
country of issue, and the possible imposition of exchange controls or other laws
or restrictions. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the prices of securities in United States markets. With respect to some foreign
countries there may be the possibility of expropriation or confiscatory
taxation, limitations on liquidity of securities or political or economic
developments which could affect the foreign investments of the Fund. Moreover,
securities of foreign issuers generally will not be registered with the
Securities and Exchange Commission and such issuers generally will not be
subject to the Commission's reporting requirements. Accordingly, there is likely
to be less publicly available information concerning certain of the foreign
issuers of securities held by the Fund than is available concerning U.S.
companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the United States. The Fund
will not invest in securities denominated in a foreign currency unless, at the
time of investment, such currency is considered by the Investment Adviser to be
fully exchangeable into United States dollars without significant legal
restriction. See "Investment Objectives, Policies and Risks--Foreign
Investments" in the Statement of Additional Information.
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SPECIAL CONSIDERATIONS REGARDING EMERGING MARKETS INVESTMENTS. Investments by
the Fund in securities issued by the governments of emerging or developing
countries, and of companies within those countries, involve greater risks than
other foreign investments. Investments in emerging or developing markets involve
exposure to economic and legal structures that are generally less diverse and
mature (and in some cases the absence of developed legal structures governing
private and foreign investments and private property), and to political systems
which can be expected to have less stability, than those of more developed
countries. The risks of investment in such countries may include matters such as
relatively unstable governments, higher degrees of government involvement in the
economy, the absence until recently of capital market structures or
market-oriented economies, economies based on only a few industries, securities
markets which trade only a small number of securities, restrictions on foreign
investment in stocks, and significant foreign currency devaluations and
fluctuations. Emerging markets can be substantially more volatile than both U.S.
and more developed foreign markets. Such volatility may be exacerbated by
illiquidity. The average daily trading volume in all of the emerging markets
combined is a small fraction of the average daily volume of the U.S. market.
Small trading volumes may result in the Fund being forced to purchase securities
at substantially higher prices than the current market, or to sell securities at
much lower prices than the current market.
OVER-THE-COUNTER SECURITIES. Securities owned by the Fund may be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of securities trading on a national
securities exchange. As a result, disposition by the Fund of portfolio
securities to meet redemptions by investors or otherwise may require the Fund to
sell these securities at a discount from market prices, to sell during periods
when such disposition is not desirable, or to make many small sales over a
lengthy period of time.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase
securities on a delayed delivery or "when-issued" basis and enter into firm
commitment agreements (transactions in which the payment obligation and interest
rate are fixed at the time of the transaction but the settlement is delayed).
Delivery and payment for these securities typically occur 15 to 45 days after
the commitment to purchase. No interest accrues to the purchaser during the
period before delivery. There is a risk in these transactions that the value of
the securities at settlement may be more or less than the agreed upon price, or
that the party with which the Fund enters into such a transaction may not
perform its commitment. The Fund will normally enter into these transactions
with the intention of actually receiving or delivering the securities. The Fund
may sell the securities before the settlement date.
To the extent the Fund engages in any of these transactions it will do so for
the purpose of acquiring securities for its portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage. The Fund will segregate liquid assets such as cash, U.S. Government
securities and other liquid debt or equity securities in an amount sufficient to
meet their payment obligations with respect to these transactions. The Fund may
not purchase when-issued securities or enter into firm commitments if, as a
result, more than 15% of the Fund's net assets would be segregated to cover such
contracts.
SHORT SALES. The Investment Adviser believes that its growth equity management
approach, in addition to identifying equity securities the earnings and prices
of which it expects to grow at a rate above that of the S&P 500, also identifies
securities the prices of which can be expected to decline. Therefore, the Fund
is authorized to make short sales of securities it owns or has the right to
acquire at no added cost through conversion or exchange of other securities it
owns (referred to as short sales "against the box") and to make short sales of
securities which it does
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not own or have the right to acquire. A short sale that is not made "against the
box" is a transaction in which the Fund sells a security it does not own in
anticipation of a decline in market price. When the Fund makes a short sale, the
proceeds it receives are retained by the broker until the Fund replaces the
borrowed security. In order to deliver the security to the buyer, the Fund must
arrange through a broker to borrow the security and, in so doing, the Fund
becomes obligated to replace the security borrowed at its market price at the
time of replacement, whatever that price may be.
Short sales by the Fund that are not made "against the box" create opportunities
to increase the Fund's return but, at the same time, involve special risk
considerations and may be considered a speculative technique. Since the Fund in
effect profits from a decline in the price of the securities sold short without
the need to invest the full purchase price of the securities on the date of the
short sale, the Fund's net asset value per share, and that of the Portfolio,
will tend to increase more when the securities it has sold short decrease in
value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. Short sales theoretically involve unlimited loss potential, as the market
price of securities sold short may continuously increase, although the Fund may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. Under adverse market conditions a Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations, and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales. The value of securities of
any issuer in which the Fund maintains a short position which is "not against
the box" may not exceed the lesser of 2% of the value of the Fund's net assets
or 2% of the securities of such class of the issuer.
If the Fund makes a short sale "against the box", the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Adviser believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable for
such security. In such case, any future losses in the Fund's long position would
be reduced by a gain in the short position.
In the view of the Securities and Exchange Commission, a short sale involves the
creation of a "senior security" as such term is defined in the Investment
Company Act, unless the sale is "against the box" and the securities sold are
placed in a segregated account (not with the broker), or unless the Fund's
obligation to deliver the securities sold short is "covered" by placing in a
segregated account (not with the broker) cash, U.S. Government securities or
other liquid debt or equity securities in an amount equal to the difference
between the market value of the securities sold short at the time of the short
sale and any such securities required to be deposited as collateral with a
broker in connection with the sale (not including the proceeds from the short
sale), which difference is adjusted daily for changes in the value of the
securities sold short. The total value of the cash, U.S. Government securities
or other liquid debt or equity securities deposited with the broker and
otherwise segregated may not at any time be less than the market value of the
securities sold short at the time of the short sale. As a matter of policy, the
Master Trust's Board of Trustees has determined that the Fund will not make
short sales of securities or maintain a short position if to do so could create
liabilities or require collateral deposits and segregation of assets aggregating
more than 25% of the Fund's total assets, taken at market value.
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The Fund's ability to enter into short sales transactions is limited by the
requirements of the Internal Revenue Code with respect to the Portfolio's
qualification as a regulated investment company. See "Taxes" in the Statement of
Additional Information.
OPTIONS. The Fund may purchase listed covered "put" and "call" options with
respect to securities which are otherwise eligible for purchase by the Fund and
with respect to various stock indices, for hedging purposes, subject to the
following restrictions: the aggregate premiums on call options purchased by the
Fund may not exceed 5% of the market value of net assets of the Fund as of the
date the call options are purchased, and the aggregate premiums on put options
may not exceed 5% of the market value of the net assets of the Fund as of the
date such options are purchased. In addition, the Fund will not purchase or sell
options if, immediately thereafter, more than 25% of its net assets would be
hedged. A "put" gives a holder the right, in return for the premium paid, to
require the writer of the put to purchase from the holder a security at a
specified price. A "call" gives a holder the right, in return for the premium
paid, to require the writer of the call to sell a security to the holder at a
specified price. An option on a securities index (such as a stock index) gives
the holder the right, in return for the premium paid, to require the writer to
pay cash equal to the difference between the closing price of the index and the
exercise price of the option, expressed in dollars, times a specified
multiplier.
Put and call options are derivatives securities traded on United States and
foreign exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. Additionally, the Fund may purchase options not traded on a securities
exchange, which may bear a greater risk of nonperformance than options traded on
a securities exchange. Options not traded on an exchange are considered dealer
options and generally lack the liquidity of an exchange traded option.
Accordingly, dealer options may be subject to the Fund's restriction on
investment in illiquid securities, as described below. Dealer options may also
involve the risk that the securities dealers participating in such transactions
will fail to meet their obligations under the terms of the option.
The Fund may also write listed covered options on up to 25% of the value of its
net assets. Call options written by the Fund give the holder the right to buy
the underlying securities from the Fund at a stated exercise price; put options
written by the Fund give the holder the right to sell the underlying security to
the Fund. A call option is covered if the Fund owns the security underlying the
call or has an absolute and immediate right to acquire that security without
additional cash consideration upon conversion or exchange of securities
currently held by the Fund. A put option is covered if the Fund maintains cash
or cash equivalents equal to the exercise price in a segregated amount with its
Custodian. If an option written by the Fund expires unexercised, the Fund
realizes a gain equal to the premium received at the time the option was
written. If an option purchased by the Fund expires unexercised, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option written by the Fund
may be closed out by an offsetting purchase or sale of an option of the same
series. The Fund will realize a gain from a closing purchase transaction if the
cost of the closing transaction is less than the premium received from writing
the option; if it is more, the Fund will realize a capital loss. If the premium
received from a closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a gain; if it is less, the Fund will
realize a loss. See "Investment Objectives, Policies and Risks--Options on
Securities and Securities Indices" in the Statement of Additional Information.
26
<PAGE>
FUTURES CONTRACTS. The Fund may purchase and sell stock index futures contracts
as a hedge against changes in market conditions. A stock index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made.
Stock index futures contracts are derivatives instruments traded on United
States commodities and futures exchanges, including the Chicago Mercantile
Exchange, the New York Futures Exchange, the Kansas City Board of Trade, the
Chicago Board of Trade and the International Monetary Market, as well as
commodity and securities exchanges located outside the United States, including
the London International Financial Futures Exchange, the Singapore International
Monetary Exchange, the Sydney Futures Exchange Limited and the Tokyo Stock
Exchange.
The Fund will not engage in transactions in futures contracts for speculation,
but only as a hedge against the risk of unexpected changes in the values of
securities held or intended to be held by the Fund. As a general rule, the Fund
will not purchase or sell futures if, immediately thereafter, more than 25% of
its net assets would be hedged. In addition, the Fund may not purchase or sell
futures or related options if, immediately thereafter, the sum of the amount of
margin deposits on the Fund's existing futures positions and premiums paid for
such options would exceed 5% of the market value of the Fund's net assets. In
instances involving the purchase of futures contracts by the Fund, an amount of
cash or liquid debt or equity securities equal to the market value of the
futures contracts will be deposited in a segregated account with the Fund's
Custodian or with a broker to collateralize the position and thereby insure that
the use of such futures is unleveraged. See "Investment Objectives, Policies and
Risks--Futures Contracts and Related Options" in the Statement of Additional
Information.
SPECIAL HEDGING CONSIDERATIONS. Special risks are associated with the use of
options and futures contracts as hedging techniques. There can be no guaranty of
a correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. A lack of correlation could result in a loss
on both the hedged securities in the Fund and the hedging vehicle, so that the
Fund's return might have been better had hedging not been attempted. In
addition, a decision as to whether, when and how to use options or futures
involves the exercise of skill and judgment which are different from those
needed to select portfolio securities, and even a well-conceived transaction may
be unsuccessful to some degree because of market behavior. If the Investment
Adviser is incorrect in its forecasts regarding market values or other relevant
factors, the Fund may be in a worse position than if the Fund had not engaged in
options or futures transactions. The potential loss incurred by the Fund in
writing options on futures and engaging in futures transactions is unlimited.
The Investment Adviser is experienced in the use of options and futures
contracts as an investment technique.
There can be no assurance that a liquid market will exist at a time when the
Fund seeks to close out an option position or futures contract. Most futures
exchanges and boards of trade limit the amount of fluctuation in futures
contract prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Fund from liquidating an unfavorable position and the
Fund would remain obligated to meet margin
27
<PAGE>
requirements until the position is closed. See "Investment Objectives, Policies
and Risks-- Options and Securities and Securities Indices" and "--Futures
Contracts and Related Options" in the Statement of Additional Information.
The Fund's ability to enter into options and futures contracts is limited by the
requirements of the Internal Revenue Code with respect to the Portfolio's
qualification as a regulated investment company. See "Taxes" in the Statement of
Additional Information.
REPURCHASE AGREEMENTS. The Fund may on occasion enter into repurchase
agreements, in which the Fund purchases securities and the seller agrees to
repurchase them from the Fund at a mutually agreed-upon time and price. The
period of maturity is usually overnight or a few days, although it may extend
over a number of months. The resale price is in excess of the purchase price,
reflecting an agreed-upon rate of return effective for the period of time the
Fund's money is invested in the security. The Fund's repurchase agreements will
at all times be fully collateralized in an amount at least equal to 102% of the
purchase price, including accrued interest earned on the underlying securities.
The instruments held as collateral are valued daily and, if the value of the
instruments declines, the Fund will require additional collateral. If the seller
defaults and the value of the collateral securing the repurchase agreement
declines, the Fund may incur a loss. If bankruptcy proceedings are commenced
with respect to the seller, realization upon the collateral by the Fund may be
delayed or limited. The Fund will only enter into repurchase agreements
involving securities in which it could otherwise invest and with selected
financial institutions and brokers and dealers which meet certain
creditworthiness and other criteria.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily marketable
such as over-the-counter, or dealer traded, options, and repurchase agreements
having a maturity of more than seven days. Mutual funds do not typically hold a
significant amount of restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and the Fund might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, the Investment Adviser, pursuant to
guidelines adopted by the Master Trust's Board of Trustees, may determine that
such securities are not illiquid securities notwithstanding their legal or
contractual restrictions on resale, based on factors such as the frequency of
trades and quotes for the securities, the number of dealers and others wishing
to purchase and sell the securities,
28
<PAGE>
and the nature of the security and the marketplace trades. In all other cases,
however, securities subject to restrictions on resale will be deemed illiquid.
Investing in restricted securities eligible for resale under Rule 144A could
have the effect of increasing the level of illiquidity in the Fund to the extent
that the qualified institutional buyers become uninterested in purchasing such
securities.
SECURITIES LENDING. To increase its income, the Fund may lend its portfolio
securities to financial institutions such as banks and brokers if the loan is
collateralized in accordance with applicable regulatory requirements. The Master
Trust's Board of Trustees has adopted an operating policy that limits the amount
of loans made by the Fund to not more than 30% of the value of the total assets
of the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund an amount equivalent to any dividends or interest paid on such
securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or secured a letter of credit.
Such loans involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, such securities
lending will be made only when, in the Investment Adviser's judgment, the income
to be earned from the loans justifies the attendant risks. Loans are subject to
termination at the option of the Fund or the borrower.
BORROWING. The Fund may borrow money from banks in amounts up to 20% of its
total assets (calculated when the loan is made) only for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, the Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales. All borrowings by the Fund will be
made only to the extent that the value of the Fund's total assets, less its
liabilities other than borrowings, is equal to at least 300% of all borrowings.
If such asset coverage of 300% is not maintained, the Fund will take prompt
action to reduce its borrowings as required by applicable law. Short sales "not
against the box" are considered borrowings for purposes of the percentage
limitations applicable to borrowings.
- --------------------------------------------------------------------------------
PRIOR PERFORMANCE OF INVESTMENT ADVISER
The following table sets forth the Investment Adviser's composite performance
data relating to the historical performance of institutional private accounts
managed by the Investment Adviser, since the date indicated, that have
investment objectives, policies, strategies and risks substantially similar to
those of the Mini Cap Institutional Portfolio. The data is provided to
illustrate the past performance of the Investment Adviser in managing
substantially similar accounts as measured against specified market indices and
does not represent the performance of the Mini Cap Portfolio. Investors should
not consider this performance data as an indication of future performance of the
Mini Cap Institutional Portfolio or of the Investment Adviser.
29
<PAGE>
The Investment Adviser's composite performance data shown below were calculated
in accordance with recommended standards of the Association for Investment
Management and Research ("AIMR"*), retroactively applied to all time periods.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by the Investment Adviser's institutional
private accounts, without provision for federal or state income taxes. Custodial
fees, if any, were not included in the calculation. The Investment Adviser's
composite includes all actual, fee-paying, discretionary institutional private
accounts managed by the Investment Adviser that have investment objectives,
policies, strategies and risks substantially similar to those of the Mini Cap
Portfolio. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in performance
returns. The monthly returns of the Nicholas-Applegate Composite combine the
individual accounts' returns (calculated on a time-weighted rate of return that
is revalued whenever cash flows exceed $500) by asset-weighing each individual
account's asset value as of the beginning of the month. Quarterly and yearly
returns are calculated by geometrically linking the monthly and quarterly
returns, respectively. The yearly returns are computed by geometrically linking
the returns of each quarter within the calendar year.
The institutional private accounts that are included in the Investment Adviser's
composite are not subject to the same types of expenses to which the Mini Cap
Portfolio are subject nor to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Mini Cap Portfolio by the
Investment Company Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the Investment Adviser's composite
could have been adversely affected if the institutional private accounts
included in the composite had been regulated as investment companies under the
federal securities laws.
- ------------------------
* AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
30
<PAGE>
The investment results of the Investment Adviser's composite presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Mini Cap Institutional Portfolio or an individual investing
in such Portfolio. Investors should also be aware that the use of a methodology
different from that used below to calculated performance could result in
different performance data.
<TABLE>
<CAPTION>
MINI CAP PERFORMANCE
----------------------------------------
INVESTMENT ADVISER'S RUSSELL 2000
MINI CAP GROWTH STOCK
YEAR COMPOSITE INDEX(1)
- ------------------------------------------------------------------------------------- ----------------------- ---------------
<S> <C> <C>
1991(2).............................................................................. 28.69% 14.77%
1992................................................................................. 11.58 7.77
1993................................................................................. 7.25 13.36
1994................................................................................. (5.85) (2.43)
1995................................................................................. 55.93 31.06
1996(3).............................................................................. 30.41 11.92
Last year(3)......................................................................... 60.97 26.51
Since inception(3)................................................................... 24.11 15.23
</TABLE>
- ------------------------
(1) The Russell 2000 Growth Stock Index contains those securities in the Russell
2000 Index with a greater-than-average growth orientation. Companies in the
Growth Stock Index generally have higher price-to-book and price-earnings
ratios than the average for all companies in the 2000 Index. The Russell
2000 Index is a widely regarded small-cap index of the 2,000 smallest
securities in the Russell 3000 Index, which comprises the 3,000 largest U.S.
securities as determined by total market capitalization. The Index reflects
the reinvestment of income dividends and capital gains distributions, if
any, but does not reflect fees, brokerage commissions, or other expenses of
investing.
(2) Commencement of investment operations is August 1, 1991.
(3) Through June 30, 1996.
31
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
MINI-CAP GROWTH INSTITUTIONAL PORTFOLIO
600 West Broadway
San Diego, California 92101
(800) 551-8043
STATEMENT OF ADDITIONAL INFORMATION
August 2, 1996
Nicholas-Applegate Mutual Funds (the "Trust") is a diversified, open-end
management investment company currently offering a number of separate series
(each a "Portfolio" and collectively the "Portfolios"). This Statement of
Additional Information contains information regarding one of those Portfolios:
Nicholas-Applegate Mini-Cap Growth Institutional Portfolio (the "Mini-Cap
Portfolio").
This Statement of Additional Information is not a prospectus, but
contains information in addition to and more detailed than that set forth in the
Mini-Cap Portfolio's Prospectus and should be read in conjunction with such
Prospectus. The Prospectus may be obtained without charge by calling or writing
the Trust at the address and phone number given above.
TABLE OF CONTENTS
Page
General Information. . . . . . . . . . . . . . B-2
Investment Objectives and Policies . . . . . . B-2
Investment Restrictions. . . . . . . . . . . . B-21
Principal Holders of Securities. . . . . . . . B-25
Trustees and Principal Officers. . . . . . . . B-25
Investment Adviser . . . . . . . . . . . . . . B-29
Administrator. . . . . . . . . . . . . . . . . B-30
Distributor. . . . . . . . . . . . . . . . . . B-32
Portfolio Transactions and Brokerage . . . . . B-32
Purchase and Redemption of Portfolio Shares. . B-34
Shareholder Services . . . . . . . . . . . . . B-34
Net Asset Value. . . . . . . . . . . . . . . . B-35
Taxes. . . . . . . . . . . . . . . . . . . . . B-37
Performance Information. . . . . . . . . . . . B-43
Custodian, Transfer and Dividend Disbursing
Agent, Independent Accountants and Legal
Counsel . . . . . . . . . . . . . . . .. . . B-44
Miscellaneous. . . . . . . . . . . . . . . . . B-44
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . .. . . A-1
B-1
<PAGE>
GENERAL INFORMATION
The Trust and the Master Trust were organized in December 1992 as
business trusts under the laws of Delaware. The Trust offers shares of numerous
Portfolios with differing sales load, shareholder service plan and distribution
plan arrangements, including Series A Portfolios, Series B Portfolios, Series C
Portfolios, Institutional Portfolios and Qualified Portfolios. This Statement
of Additional Information contains information regarding one Portfolio, the
Mini-Cap Growth Institutional Portfolio.
The various Portfolios of the Trust seek to achieve their respective
investment objectives by investing all of their assets in corresponding series
of the Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified
open-end management investment company organized as a Delaware business trust.
The Master Trust offers shares of fifteen series (each a "Fund" and
collectively the "Funds") to the Trust and other investment companies and
institutional investors, including the Nicholas-Applegate Mini-Cap Growth Fund
(the "Mini-Cap Fund"), in which the Mini-Cap Portfolio invests.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following discussion supplements the discussion of the Mini-Cap
Portfolio's investment objective and policies as set forth in the Portfolio's
Prospectus. As the Mini-Cap Portfolio seeks to achieve its investment objective
by investing all of its assets in the Mini-Cap Fund, which has the same
investment objective as the Portfolio, the following discussion describes the
various investment policies and techniques employed by the Mini-Cap Fund. There
can be no assurance that the investment objective of the Mini-Cap Fund or the
Mini-Cap Portfolio can be achieved.
EQUITY SECURITIES OF SMALL GROWTH COMPANIES
The Mini-Cap Fund invests in equity securities of domestic and foreign
companies, the earnings and stock prices of which are expected by the Master
Trust's Investment Adviser to grow at an above-average rate. Examples of
possible investments include emerging growth companies employing new technology,
cyclical companies, initial public offerings of companies offering high growth
potential, or other corporations offering good potential for high growth in
market value.
CONVERTIBLE SECURITIES AND WARRANTS
The Mini-Cap Fund may invest in convertible securities and warrants. A
convertible security is a fixed income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar non-
convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock.
B-2
<PAGE>
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
OTHER CORPORATE DEBT SECURITIES
The Mini-Cap Fund invests in non-convertible debt securities of foreign
and domestic companies over a cross-section of industries. The debt securities
in which the Fund may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.
RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short,
intermediate, and long-term securities depend on a variety of factors, including
the general condition of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. Debt
securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with short maturities and lower yields. The market prices of
debt securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of such portfolio investments,
and a decline in interest rates will generally increase the value of such
portfolio investments. The ability of the Mini-Cap Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
the debt securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due.
SHORT-TERM INVESTMENTS
The Mini-Cap Fund may invest in any of the following securities and
instruments:
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
The Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the
B-3
<PAGE>
time of purchase have capital, surplus and undivided profits in excess of
$100 million (including assets of both domestic and foreign branches), based
on latest published reports, or less than $100 million if the principal
amount of such bank obligations are fully insured by the U.S. Government.
The Fund's holdings of instruments of foreign banks or financial
institutions may be subject to additional investment risks that are different in
some respects from those incurred by a fund which invests only in debt
obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that the
Fund may acquire.
In addition to purchasing certificates of deposit and bankers
acceptances, to the extent permitted under its investment objective and policies
stated above and in its Prospectus, the Fund may make interest-bearing time or
other interest-bearing deposits in commercial or savings banks. Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. The Fund may invest in certificates of
deposit (interest-bearing time deposits) issued by savings banks or savings and
loan associations that have capital, surplus and undivided profits in excess of
$100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.
COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS. The
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally
have maturities of less than nine months and fixed rates of return, although
such instruments may have maturities of up to one year.
B-4
<PAGE>
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Investment Adviser to be
of comparable quality. These rating symbols are described in Appendix A.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Fund may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
MONEY MARKET FUNDS.
The Fund may under certain circumstances invest a portion of its assets
in money market funds. The Investment Company Act prohibits the Fund from
investing more than 5% of the value of its total assets in any one investment
company, or more than 10% of the value of its total assets in investment
companies as a group, and also restricts its investment in any investment
company to 3% of the voting securities of such investment company. The
Investment Adviser will not impose an advisory fee on assets of the Fund
invested in a money market mutual fund. However, an investment in a money
market mutual fund will involve payment by the Fund of its pro rata share of
advisory and administrative fees charged by such fund.
GOVERNMENT OBLIGATIONS.
The Fund may make short-term investments in U.S. Government obligations.
Such obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
VARIABLE AND FLOATING RATE INSTRUMENTS.
The Fund may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by the Fund will be determined
by the Investment
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Adviser under guidelines established by the Master Trust's Board of Trustees
to be of comparable quality at the time of the purchase and rated instruments
eligible for purchase by the Fund. In making such determinations, the
Investment Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, bank holding and other companies) and will monitor
their financial condition. An active secondary market may not exist with
respect to particular variable or floating rate instruments purchased by the
Fund. The absence of such an active secondary market could make it difficult
for the Fund to dispose of the variable or floating rate instrument involved
in the event of the issuer of the instrument defaulted on its payment
obligation or during periods in which the Fund is not entitled to exercise
its demand rights, and the Fund could, for these or other reasons, suffer a
loss to the extent of the default. Variable and floating rate instruments
may be secured by bank letters of credit.
FOREIGN INVESTMENTS
The Mini-Cap Fund may invest in securities of foreign issuers that are
not publicly traded in the United States. The Fund may also invest in
depository receipts.
The United States government has from time to time imposed restrictions,
through taxation or otherwise, on foreign investments by U.S. entities such as
the Fund. If such restrictions should be reinstituted, it might become
necessary for the Fund to invest substantially all of its assets in United
States securities. In such event, the Board of Trustees of the Trust would
consider alternative arrangements, including reevaluation of the Mini-Cap
Portfolio's investment objective and policies, investment of all of the
Portfolio's assets in another investment company with different investment
objectives and policies than the Fund or hiring on investment adviser to manage
the Portfolio's assets. However, the Portfolio would adopt any revised
investment objective and fundamental policies only after approval by the
shareholders holding a majority (as defined in the Investment Company Act) of
the shares of the Portfolio.
DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") may be
listed on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in the United States dollars; the underlying
security may be denominated in a foreign currency, although the underlying
security may be subject to foreign government taxes which would reduce the yield
on such securities.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily
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dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by
these trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
MARKET CHARACTERISTICS. The Investment Adviser expects that most
foreign securities in which the Fund invests will be purchased in over-the-
counter markets or on exchanges located in the countries in which the principal
offices of the issuers of the various securities are located, if that is the
best available market. Foreign exchanges and markets may be more volatile than
those in the United States. While growing in volume, they usually have
substantially less volume than U.S. markets, and the Fund's portfolio securities
may be less liquid and more volatile than U.S. Government securities. Moreover,
settlement practices for transactions in foreign markets may differ from those
in United States markets, and may include delays beyond periods customary in the
United States. Foreign security trading practices, including those involving
securities settlement where Fund assets may be released prior to receipt of
payment or securities, may expose the Fund to increased risk in the event of a
failed trade or the insolvency of a foreign broker-dealer.
Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of the
Fund's positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest payable on certain of the Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Portfolio's shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction of U.S.
federal income tax purposes for his proportionate share of such foreign taxes
paid by the Fund.
COSTS. The expense ratio of the Fund is likely to be higher than those
of investment companies investing in domestic securities, since the cost of
maintaining the custody of foreign securities is higher.
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In considering whether to invest in the securities of a foreign
company, the Investment Adviser considers such factors as the characteristics
of the particular company, differences between economic trends and the
performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental
and social conditions of the country or countries where the company is
located. The extent to which the Fund will be invested in foreign companies
and countries, and depository receipts will fluctuate from time to time
within the limitations described in the Prospectus, depending on the
Investment Adviser's assessment of prevailing market, economic and other
conditions.
OPTIONS ON SECURITIES AND SECURITIES INDICES
PURCHASING PUT AND CALL OPTIONS. The Mini-Cap Fund is authorized to
purchase covered "put" and "call" options with respect to securities which
are otherwise eligible for purchase by the Fund and with respect to various
stock indices subject to certain restrictions. The Fund will engage in
trading of such derivative securities exclusively for hedging purposes.
If the Fund purchases a put option, the Fund acquires the right to
sell the underlying security at a specified price at any time during the term
of the option (for "American-style" options) or on the option expiration date
(for "European-style" options). Purchasing put options may be used as a
portfolio investment strategy when the Investment Adviser perceives
significant short-term risk but substantial long-term appreciation for the
underlying security. The put option acts as an insurance policy, as it
protects against significant downward price movement while it allows full
participation in any upward movement. If the Fund is holding a stock which
it feels has strong fundamentals, but for some reason may be weak in the near
term, the Fund may purchase a put option on such security, thereby giving
itself the right to sell such security at a certain strike price throughout
the term of the option. Consequently, the Fund will exercise the put only if
the price of such security falls below the strike price of the put. The
difference between the put's strike price and the market price of the
underlying security on the date the Fund exercises the put, less transaction
costs, will be the amount by which the Fund will be able to hedge against a
decline in the underlying security. If during the period of the option the
market price for the underlying security remains at or above the put's strike
price, the put will expire worthless, representing a loss of the price the
Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of
the security will be reduced by the premium paid for the put option less any
amount for which the put may be sold.
If the Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of
the option. The purchase of a call option is a type of insurance policy to
hedge against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period
the market price for the underlying security remains at or below the strike
price of the call option, the option will expire worthless, representing a
loss of the price paid for the option, plus transaction costs. If the call
option has been purchased to hedge a short position of the Fund in the
underlying security and the price of the underlying security thereafter
falls,
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the profit the Fund realizes on the cover of the short position in the
security will be reduced by the premium paid for the call option less any
amount for which such option may be sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Fund generally will purchase only those options for which the
Investment Adviser believes there is an active secondary market to facilitate
closing transactions.
WRITING CALL OPTIONS. The Mini-Cap Fund may write covered call
options. A call option is "covered" if the Fund owns the security underlying
the call or has an absolute right to acquire the security without additional
cash consideration (or, if additional cash consideration is required, cash or
cash equivalents in such amount as are held in a segregated account by the
Custodian). The writer of a call option receives a premium and gives the
purchaser the right to buy the security underlying the option at the exercise
price. The writer has the obligation upon exercise of the option to deliver
the underlying security against payment of the exercise price during the
option period. If the writer of an exchange-traded option wishes to
terminate his obligation, he may effect a "closing purchase transaction."
This is accomplished by buying an option of the same series as the option
previously written. A writer may not effect a closing purchase transaction
after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price, expiration date or both. Also,
effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be used for other
investments of the Fund. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will effect a
closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the
premium paid to purchase the option. The Fund will realize a loss from a
closing transaction if the cost of the closing transaction is more than the
premium received from writing the option or if the proceeds from the closing
transaction are less than the premium paid to purchase the option. However,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss to the
Fund resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
STOCK INDEX OPTIONS. The Fund may also purchase put and call options
with respect to the S&P 500 and other stock indices. Such options may be
purchased as a hedge against changes resulting from market conditions in the
values of securities which are held in the Fund's portfolio or which it
intends to purchase or sell, or when they are economically appropriate for
the reduction of risks inherent in the ongoing management of the Fund.
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The distinctive characteristics of options on stock indices create
certain risks that are not present with stock options generally. Because the
value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will realize a
gain or loss on the purchase or sale of an option on an index depends upon
movements in the level of stock prices in the stock market generally rather
than movements in the price of a particular stock. Accordingly, successful
use by the Fund of options on a stock index would be subject to the
Investment Adviser's ability to predict correctly movements in the direction
of the stock market generally. This requires different skills and techniques
than predicting changes in the price of individual stocks.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading of index options also may be interrupted
in certain circumstances, such as if trading were halted in a substantial
number of stocks included in the index. If this were to occur, the Fund
would not be able to close out options which it had purchased, and if
restrictions on exercise were imposed, the Fund might be unable to exercise
an option it holds, which could result in substantial losses to the Fund. It
is the policy of the Fund to purchase put or call options only with respect
to an index which the Investment Adviser believes includes a sufficient
number of stocks to minimize the likelihood of a trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated
with transactions in options on securities and indices. Options may be more
volatile than the underlying instruments and, therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. There are also
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective. In addition, a liquid secondary
market for particular options may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of option of underlying
securities; unusual or unforeseen circumstances may interrupt normal
operations on an exchange; the facilities of an exchange or clearing
corporation may not at all times be adequate to handle current trading
volume; or one or more exchanges could, for economic or other reasons, decide
or be compelled at some future date to discontinue the trading of options (or
a particular class or series of options), in which event the secondary market
on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
The extent to which the Fund may enter into options transactions may be
limited by the Internal Revenue Code requirements for qualification of the
corresponding Portfolio as a regulated investment company. See "Taxes."
In addition, when trading options on foreign exchanges, many of the
projections afforded to participants in United States option exchanges will
not be available. For
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example, there may be no daily price fluctuation limits in such exchanges or
markets, and adverse market movements could therefore continue to an
unlimited extent over a period of time. Although the purchaser of an option
cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the Fund as an option
writer could lose amounts substantially in excess of its initial investment,
due to the margin and collateral requirements typically associated with such
option writing. See "Dealer Options" below.
DEALER OPTIONS. The Mini-Cap Fund will engage in transactions
involving dealer options as well as exchange-traded options. Certain risks
are specific to dealer options. While the Fund might look to a clearing
corporation to exercise exchange-traded options, if the Fund were to purchase
a dealer option it would need to rely on the dealer from which it purchased
the option to perform if the option were exercised. Failure by the dealer to
do so would result in the loss of the premium paid by the Fund as well as
loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market
while dealer options may not. Consequently, the Fund may generally be able
to realize the value of a dealer option it has purchased only by exercising
or reselling the option to the dealer who issued it. Similarly, when the
Fund writes a dealer option, the Fund may generally be able to close out the
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Fund originally wrote the option.
While the Fund will seek to enter into dealer options only with dealers who
will agree to and which are expected to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund will at
any time be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Unless the Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able
to liquidate securities (or other assets) used as cover until the option
expires or is exercised. In the event of insolvency of the other party, the
Fund may be unable to liquidate a dealer option. With respect to options
written by the Fund, the inability to enter into a closing transaction may
result in material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a security it
writes, the Fund may not sell the assets which it has segregated to secure
the position while it is obligated under the option. This requirement may
impair the Fund's ability to sell portfolio securities at a time when such
sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities.
The Fund may treat the cover used for written dealer options as liquid if the
dealer agrees that the Fund may repurchase the dealer option it has written
for a maximum price to be calculated by a predetermined formula. In such
cases, the dealer option would be considered illiquid only to the extent the
maximum purchase price under the formula exceeds the intrinsic value of the
option. Accordingly, the Fund will treat dealer options as subject to the
Fund's limitation on unmarketable securities. If the Commission changes its
position on the liquidity of dealer options, the Fund will change its
treatment of such instruments accordingly.
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FUTURES CONTRACTS AND RELATED OPTIONS
The Mini-Cap Fund may invest in futures contracts and options on
futures contracts as a hedge against changes in market conditions or interest
rates. The Fund will trade in such derivative securities for bona fide
hedging purposes and otherwise in accordance with the rules of the Commodity
Futures Trading Commission ("CFTC"). The Fund will segregate liquid assets
in a separate account with the Custodian when required to do so by CFTC
guidelines in order to cover its obligation in connection with futures and
options transactions.
No price is paid or received by the Fund upon the purchase or
sale of a futures contract. When it enters into a domestic futures contract,
the Fund will be required to deposit in a segregated account with its
Custodian an amount of cash or liquid assets equal to approximately 5%
of the contract amount. This amount is known as initial margin. The margin
requirements for foreign futures contracts may be different.
The nature of initial margin in futures transactions is different
from that of margin in securities transactions. Futures contract margin does
not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied. Subsequent payments (called variation margin) to and
from the broker will be made on a daily basis as the price of the underlying
stock index fluctuates, to reflect movements in the price of the contract
making the long and short positions in the futures contract more or less
valuable. For example, when the Fund has purchased a stock index futures
contract and the price of the underlying stock index has risen, that position
will have increased in value and the Fund will receive from the broker a
variation margin payment equal to that increase in value. Conversely, when
the Fund has purchased a stock index futures contract and the price of the
underlying stock index has declined, the position will be less valuable and
the Fund will be required to make a variation margin payment to the broker.
At any time prior to expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is made on closing the position.
Additional cash is paid by or released to the Fund, which realizes a loss or
a gain.
STOCK INDEX FUTURES CONTRACTS. The Mini-Cap Fund may invest in
futures contracts on stock indices. Currently, stock index futures contracts
can be purchased or sold with respect to the S&P 500 Stock Price Index on the
Chicago Mercantile Exchange, the Major Market Index on the Chicago Board of
Trade, the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Foreign financial and stock index futures are traded on foreign exchanges
including the London International Financial Futures Exchange, the Singapore
International Monetary Exchange, the Sydney Futures Exchange Limited and the
Tokyo Stock Exchange.
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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. There are several risks
related to the use of futures as a hedging device. One risk arises because
of the imperfect correlation between movements in the price of the futures
contract and movements in the price of the securities which are the subject
of the hedge. The price of the future may move more or less than the price of
the securities being hedged. If the price of the future moves less than the
price of the securities which are the subject of the hedge, the hedge will
not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position
than if it had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the future. If the price of the future moves more than
the price of the hedged securities, the Fund will experience either a loss or
a gain on the future which will not be completely offset by movements in the
price of the securities which are subject to the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures
contract, the Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the prices of such securities has been greater than the
historical volatility over such time period of the future. Conversely, the
Fund may buy or sell fewer futures contracts if the historical volatility of
the price of the securities being hedged is less than the historical
volatility of the futures contract being used. It is possible that, when the
Fund has sold futures to hedge its portfolio against a decline in the market,
the market may advance while the value of securities held in the Fund's
portfolio may decline. If this occurs, the Fund will lose money on the
future and also experience a decline in value in its portfolio securities.
However, the Investment Adviser believes that over time the value of a
diversified portfolio will tend to move in the same direction as the market
indices upon which the futures are based.
Where futures are purchased to hedge against a possible increase
in the price of securities before the Fund is able to invest its cash (or
cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead. If the Fund then decides not
to invest in securities or options at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the securities being hedged, the price of futures may not correlate perfectly
with movement in the stock index or cash market due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through
offsetting transactions, which could distort the normal relationship between
the index or cash market and futures markets. In addition, the deposit
requirements in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by speculators
in the futures market may also cause temporary price distortions. As a
result of price distortions in the futures market and the imperfect
correlation between movements in the cash market and the price of securities
and movements in the price of futures, a correct forecast of general trends
by the Investment Adviser may still not result in a successful hedging
transaction over a very short time frame.
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Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may
not be possible to close a futures position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin. When futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price
of the securities, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset to losses on a futures
contract.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
a trading session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a price beyond
that limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit
may prevent the liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation
of futures positions and subjecting some futures traders to substantial
losses.
Successful use of futures by the Fund is also subject to the
Investment Adviser's ability to predict correctly movements in the direction
of the market. For example, if the Fund has hedged against the possibility of
a decline in the market adversely affecting stocks held in its portfolio and
stock prices increase instead, the Fund will lose part or all of the benefit
of the increased value of the stocks which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it may be disadvantageous
to do so.
In the event of the bankruptcy of a broker through which the Fund
engages in transactions in futures contracts or options, the Fund could
experience delays and losses in liquidating open positions purchased or sold
through the broker, and incur a loss of all or part of its margin deposits
with the broker.
OPTIONS ON FUTURES CONTRACTS. As described above, the Mini-Cap Fund
may purchase options on the futures contracts they can purchase or sell, as
described above. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period
of the option. Upon exercise, the writer of the option is obligated to pay
the difference between the cash value of the futures contract and the
exercise price. Like the buyer or seller of a futures contract, the holder
or writer of an option has the right to
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terminate its position prior to the scheduled expiration of the option by
selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. There is
no guarantee that such closing transactions can be effected.
Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract will not be
fully reflected in the value of the option. Depending on the pricing of the
option compared to either the futures contract upon which it is based, or
upon the price of the securities being hedged, an option may or may not be
less risky than ownership of the futures contract or such securities. In
general, the market prices of options can be expected to be more volatile
than the market prices on the underlying futures contracts. Compared to the
purchase or sale of futures contracts, however, the purchase of call or put
options on futures contracts may frequently involve less potential risk to
the Fund because the maximum amount at risk is limited to the premium paid
for the options (plus transaction costs).
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. The
Fund will not engage in transactions in futures contracts or related options
for speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which
it intends to purchase and where the transactions are economically
appropriate to the reduction of risks inherent in the ongoing management of
the Fund. The Fund may not purchase or sell futures or purchase related
options if, immediately thereafter, more than 25% of its net assets would be
hedged. The Fund also may not purchase or sell futures or purchase related
options if, immediately thereafter, the sum of the amount of margin deposits
on the Fund's existing futures positions and premiums paid for such options
would exceed 5% of the market value of the Fund's net assets.
Upon the purchase of futures contracts by the Fund, an amount of cash
and cash equivalents, equal to the market value of the futures contracts,
will be deposited in a segregated account with the Custodian or in a margin
account with a broker to collateralize the position and thereby insure that
the use of such futures is unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and may be changed by the Trustees of the Master
Trust if applicable law permits such a change and the change is consistent
with the overall investment objective and policies of the Fund.
The extent to which the Fund may enter into futures and options
transactions may be limited by the Internal Revenue Code requirements for
qualification of the Mini-Cap Portfolio as a regulated investment company.
See "Taxes."
REPURCHASE AGREEMENTS
The Mini-Cap Fund may enter into repurchase agreements with respect to
its portfolio securities. Pursuant to such agreements, the Fund acquires
securities from
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financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Investment Adviser, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon date and price. The repurchase price generally equals the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the underlying portfolio
security). Securities subject to repurchase agreements will be held by the
Custodian or in the Federal Reserve/Treasury Book-Entry System or an
equivalent foreign system. The seller under a repurchase agreement will be
required to maintain the value of the underlying securities at not less than
102% of the repurchase price under the agreement. If the seller defaults on
its repurchase obligation, the Fund holding the repurchase agreement will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities is less than the repurchase price under the agreement. Bankruptcy
or insolvency of such a defaulting seller may cause the Fund's rights with
respect to such securities to be delayed or limited. Repurchase agreements
are considered to be loans under the Investment Company Act.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
The Mini-Cap Fund may purchase securities on a "when-issued," forward
commitment or delayed settlement basis. In this event, the Custodian will
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the Custodian will set aside
portfolio securities to satisfy a purchase commitment. In such a case, the
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of their investment objectives.
Because the Fund will set aside cash or liquid portfolio securities to
satisfy its purchase commitments in the manner described, the Fund's
liquidity and the ability of the Investment Adviser to manage it may be
affected in the event the Fund's forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceeded 15% of the value
of its net assets.
The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy,
however, the Fund may dispose of or renegotiate a commitment after it is
entered into, and may sell securities it has committed to purchase before
those securities are delivered to the Fund on the settlement date. In these
cases the Fund may realize a taxable capital gain or loss. When the Fund
engages in when-issued, forward commitment and delayed settlement
transactions, it relies on the other party to consummate the trade. Failure
of such party to do so may result in the Fund's incurring a loss or missing
an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees
to purchase the securities. The Fund does
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not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date.
BORROWING
The Mini-Cap Fund is authorized to borrow money from time to time for
temporary, extraordinary or emergency purposes or for clearance of
transactions in amounts up to 20% of the value of its total assets at the
time of such borrowings. The use of borrowing by the Fund involves special
risk considerations that may not be associated with other funds having
similar objectives and policies. Since substantially all of the Fund's
assets fluctuate in value, whereas the interest obligation resulting from a
borrowing will be fixed by the terms of the Fund's agreement with its lender,
the asset value per share of the Fund will tend to increase more when its
portfolio securities increase in value and to decrease more when its
portfolio assets decrease in value than would otherwise be the case if the
Fund did not borrow funds. In addition, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions,
the Fund might have to sell portfolio securities to meet interest or
principal payments at a time when fundamental investment considerations would
not favor such sales.
The Trust has entered into a Credit Agreement on behalf of its various
Portfolios with several banks and Chemical Bank, as administrative agent for
the lenders, to borrow up to $50,000,000 from time to time for purposes of
meeting shareholder redemption requests without the necessity of requiring
the Funds to sell portfolio securities, at times when the Investment Adviser
believes such sales are not in the best interests of the Portfolios'
shareholders, in order to provide the Portfolios with cash to meet such
redemption requests. The Credit Agreement expires on April 10, 1997, unless
renewed by the parties.
Under the Credit Agreement, each Portfolio may borrow, repay and
reborrow amounts (collectively, the "Revolving Credit Loans") in increments
of $50,000, provided the Revolving Credit Loans outstanding at any time
aggregate at least $350,000 (the "Credit Facility"). The Trust will pay a
commitment fee at the rate of 0.10% per annum of the average daily unused
portion of the Credit Facility, and may at any time terminate the Credit
Agreement Agreement or reduce the lenders' commitment thereunder in
increments of $2,500,000.
While outstainding, the Revolving Credit Loans will bear interest,
fluctuating daily and payable monthly, at either of the following rates or a
combination thereof, at the Trust's option: (i) at the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, plus 0.625% per annum; or
(ii) the prime rate of interest of Chemical Bank. If, as a result of changes
in applicable laws, regulations or guidelines with respect to the capital
adequacy of any lender, the return on such lender's capital is reduced, the
Trust may be required to adjust the rate of interest to compensate such
lender for such reduction. Each Revolving Credit Loan is payable in thirty
days, and may be prepaid at any time in increments of $100,000 without
premium or penalty. No Portfolio is liable for repayment of a Revolving
Credit Loan to any other Portfolio.
The Credit Agreement contains, among other things, covenants that
require each Portfolio to maintain certain minimum ratios of debt to net
worth; limit the ability of the Trust to incur other indebtedness and create
liens on its assets or guarantee obligations of
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others; merge or consolidate with, or sell its assets to, others; make
material changes in its method of conducting business; make distributions to
shareholders in excess of the requirements of Subchapter M of the Internal
Revenue Code in the event of a default under the Credit Agreement; or make
changes in fundamental investment policies. The Credit Agreement also
contains other terms and conditions customary in such agreements, including
various events of default.
LENDING PORTFOLIO SECURITIES
The Mini-Cap Fund may lend its portfolio securities in an amount not
exceeding 30% of its total assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable
regulations. Under the present regulatory requirements which govern loans of
portfolio securities, the loan collateral must, on each business day, at
least equal the value of the loaned securities and must consist of cash,
letters of credit of domestic banks or domestic branches of foreign banks, or
securities of the U.S. Government or its agencies. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demand by
the Fund if the demand meets the terms of the letter. Such terms and the
issuing bank would have to be satisfactory to the Fund. Any loan might be
secured by any one or more of the three types of collateral. The terms of
the Fund's loans must permit the Fund to reacquire loaned securities on five
days' notice or in time to vote on any serious matter and must meet certain
tests under the Internal Revenue Code.
SHORT SALES
The Investment Adviser's growth equity management approach is aimed
principally at identifying equity securities the earnings and prices of which
it expects to grow at a rate above that of the S&P 500. However, the
Investment Adviser believes that its approach also identifies securities the
prices of which can be expected to decline. Therefore, the Fund is
authorized to make short sales of securities it owns or has the right to
acquire at no added cost through conversion or exchange of other securities
it owns (referred to as short sales "against the box") and to make short
sales of securities which it does not own or has the right to acquire.
In a short sale that is not "against the box," the Fund sells a
security which it does not own, in anticipation of a decline in the market
value of the security. To complete the sale, the Fund must borrow the
security (generally from the broker through which the short sale is made) in
order to make delivery to the buyer. The Fund is then obligated to replace
the security borrowed by purchasing it at the market price at the time of
replacement. The Fund is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Fund
has a short position can range from one day to more than a year. Until the
security is replaced, the proceeds of the short sale are retained by the
broker, and the Fund is required to pay to the broker a negotiated portion of
any dividends or interest which accrue during the period of the loan. To
meet current margin requirements, the Fund is also required to deposit with
the broker additional cash or securities so that the total deposit with the
broker is maintained daily at 150% of the current market value of the
securities sold short (100% of the current market value if a security is held
in the account that is convertible or exchangeable into the security sold
short within 90 days without restriction other than the payment of money).
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<PAGE>
Short sales by the Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of
the securities on the date of the short sale, the Fund's net asset value per
share will tend to increase more when the securities it has sold short
decrease in value, and to decrease more when the securities it has sold short
increase in value, than would otherwise be the case if it had not engaged in
such short sales. The amount of any gain will be decreased, and the amount
of any loss increased, by the amount of any premium, dividends or interest
the Fund may be required to pay in connection with the short sale.
Furthermore, under adverse market conditions the Fund might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.
If the Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds
from the sale. The seller is said to have a short position in the securities
sold until it delivers the securities sold, at which time it receives the
proceeds of the sale. To secure its obligation to deliver securities sold
short, the Fund will deposit in escrow in a separate account with the
Custodian an equal amount of the securities sold short or securities
convertible into or exchangeable for such securities. The Fund can close out
its short position by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities already held by
the Fund, because the Fund might want to continue to receive interest and
dividend payments on securities in its portfolio that are convertible into
the securities sold short.
The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Adviser believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable for
such security. In such case, any future losses in the Fund's long position
would be reduced by a gain in the short position. The extent to which such
gains or losses in the long position are reduced will depend upon the amount
of securities sold short relative to the amount of the securities the Fund
owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the investment values or conversion
premiums of such securities.
The extent to which the Fund may enter into short sales transactions
may be limited by the Internal Revenue Code requirements for qualification of
the Mini-Cap Portfolio as a regulated investment company. See "Taxes."
ILLIQUID SECURITIES
The Mini-Cap Fund may not invest more than 15% of the value of its net
assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Investment Adviser
will monitor the amount of illiquid securities in the Fund's portfolio, under
the supervision of the Master Trust's Board of Trustees, to ensure compliance
with the Fund's investment restrictions.
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<PAGE>
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which
have not been registered under the Securities Act are referred to as private
placement or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio
securities and the Fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemption within seven days. The Fund
might also have to register such restricted securities in order to dispose of
them, resulting in additional expense and delay. Adverse market conditions
could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments. If such securities are subject to
purchase by institutional buyers in accordance with Rule 144A promulgated by
the Commission under the Securities Act, the Investment Adviser may determine
that such securities are not illiquid securities notwithstanding their legal
or contractual restrictions on resale. In all other cases, however,
securities subject to restrictions on resale will be deemed illiquid.
INVESTMENT TECHNIQUES AND PROCESSES
The Investment Adviser's investment techniques and processes, which it
has used in managing institutional portfolios for many years, are described
generally in the Portfolios' prospectuses under "Investment Objectives and
Policies -- Investment Techniques and Processes." In making decisions with
respect to equity securities for the Fund, GROWTH OVER TIME -Registered
Trademark- is the Investment Adviser's underlying goal. It's how the
Investment Adviser built its reputation. Over the past ten years, the
Investment Adviser has built a record as one of the finest performing
investment managers in the United States. It has successfully delivered
growth over time to many institutional investors, pension plans, foundations,
endowments and high net worth individuals. The Investment Adviser's methods
have proven their ability to achieve growth over time through a variety of
investment vehicles.
The Investment Adviser emphasizes growth over time through investment
in securities of companies with earnings growth potential. The Investment
Adviser's style is a "bottum-up" growth approach that focuses on the growth
prospects of individual companies rather than on economic trends. It builds
portfolios stock by stock. The Investment Adviser's decision-making is
guided by three critical questions: Is there positive change? Is it
sustainable? Is it timely? The Investment Adviser uses these three factors
because it focuses on discovering positive developments when they first show
up in an issuer's earnings, but before they are fully reflected in the price
of the issuer's securities. The
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<PAGE>
Investment Adviser is always looking for companies that are driving change
and surpassing analysts' expectations. It seeks to identify companies poised
for rapid growth. The Investment Adviser focuses on recognizing successful
companies, regardless of their capitalizations or whether they are domestic
or foreign.
As indicated in the Mini-Cap Portfolio's Prospectus, the Investment
Adviser's techniques and processes include relationships with an extensive
network of brokerage research firms located throughout the world. These
analysts are often located in the same geographic regions as the companies
they follow, have followed those companies for a number of years, and have
developed excellent sources of information about them. The Investment
Adviser does not employ in-house analysts other than the personnel actually
engaged in managing investments for the Master Trust and the Investment
Adviser's other clients. However, information obtained from a brokerage
research firm is confirmed with other research sources or the Investment
Adviser's computer-assisted quantitative analysis (including "real time"
pricing data) of a substantial universe of potential investments.
As indicated in the Mini-Cap Portfolio's prospectus, the equity
investments of the Fund are diversified, as with respect to at least 75% of
the Fund's assets the Fund may not invest more than 5% of its total assets in
the equity securities of any one issuer. The equity securities of each
issuer that are included in the investment portfolio of the Fund are
purchased by the Investment Adviser in approximately equal amounts, and the
Investment Adviser attempts to stay fully invested within the applicable
percentage limitations set forth in the prospectus. In addition, for each
issuer whose securities are added to an investment portfolio, the Investment
Adviser sells the securities of one of the issuers currently included in the
portfolio.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Mini-Cap Portfolio, and the Master Trust,
on behalf of the Mini-Cap Fund have adopted the following fundamental
policies that cannot be changed without the affirmative vote of a majority of
the outstanding shares of the Portfolio or Fund, respectively (as defined in
the Investment Company Act). Whenever the Mini-Cap Portfolio is requested to
vote on a change in the investment restrictions of the Fund, the Trust will
hold a meeting of its shareholders and will cast its vote as instructed by
the shareholders. If the investment restrictions of the Fund are changed,
the Mini-Cap Portfolio may withdraw its investment in the Fund if the Trust's
Board of Trustees determines that withdrawal is in the best interests of the
Portfolio and its shareholders, but only upon shareholder approval. Upon
such withdrawal, the Trust's Board would consider alternative investments,
including investing all of the Mini-Cap Portfolio's assets in another
investment company with the same investment objective, policies and
restrictions as the Portfolio or hiring an investment adviser to manage the
Portfolio's assets in accordance with the investment objectives, policies and
restrictions of the Portfolio described in the Portfolio's Prospectus and in
this Statement of Additional Information.
All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.
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<PAGE>
Neither the Mini-Cap Fund nor the Mini-Cap Portfolio:
1. May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities of such
issuer, except that up to 25% of the Portfolio or the Fund's total assets may
be invested without regard to this restriction and the Portfolio will be
permitted to invest all or a portion of its assets in the Fund or another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Portfolio. This
restriction also does not apply to investments by the Portfolio or the Fund
in securities of the U.S. Government or any of its agencies and
instrumentalities.
2. May purchase more than 10% of the outstanding voting securities,
or of any class of securities, of any one issuer, or purchase the securities
of any issuer for the purpose of exercising control or management, except
that the Portfolio will be permitted to invest all or a portion of its assets
in the Fund or another diversified, open-end management investment company
with substantially the same investment objective, policies and restrictions
as the Portfolio.
3. May invest 25% or more of the market value of its total assets in
the securities of issuers in any one particular industry, except that the
Portfolio will be permitted to invest all or a portion of its assets in the
Fund or another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Portfolio. This restriction does not apply to investments by the Portfolio
or the Fund in securities of the U.S. Government or its agencies and
instrumentalities.
4. May purchase or sell real estate. However, the Portfolio or the
Fund may invest in securities secured by, or issued by companies that invest
in, real estate or interests in real estate.
5. May make loans of money, except that the Portfolio or the Fund may
purchase publicly distributed debt instruments and certificates of deposit
and enter into repurchase agreements. The Portfolio and the Fund each
reserves the authority to make loans of its portfolio securities in an
aggregate amount not exceeding 30% of the value of its total assets.
6. May borrow money on a secured or unsecured basis, except for
temporary, extraordinary or emergency purposes or for the clearance of
transactions in amounts not exceeding 20% of the value of its total assets at
the time of the borrowing, provided that, pursuant to the Investment Company
Act, borrowings will only be made from banks and will be made only to the
extent that the value of the Fund's total assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings (including the
proposed borrowing). If such asset coverage of 300% is not maintained, the
Portfolio or Fund will take prompt action to reduce its borrowings as
required by applicable law.
7. May pledge or in any way transfer as security for indebtedness any
securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Portfolio or
Fund from engaging in options, futures and foreign currency transactions.
B-22
<PAGE>
8. May underwrite securities of other issuers, except insofar as it
may be deemed an underwriter under the Securities Act in selling portfolio
securities.
9. May invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid.
10. May purchase securities on margin, except for initial and
variation margin on options and futures contracts, and except that the
Portfolio or the Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of securities.
11. May invest in securities of other investment companies, except (a)
that the Portfolio may invest all or a portion of its assets in the Fund or
another diversified, open-end management investment company with the same
investment objective policies and restrictions as the Portfolio; (b) in
compliance with the Investment Company Act and applicable state securities
laws, or (c) as part of a merger, consolidation, acquisition or
reorganization involving the Portfolio or Fund.
12. May issue senior securities, except that the Portfolio or the Fund
may borrow money as permitted by restrictions 6 and 7 above. This
restriction shall not prohibit the Portfolio or Fund from engaging in short
sales, options, futures and foreign currency transactions.
13. May enter into transactions for the purpose of arbitrage, or
invest in commodities and commodities contracts, except that the Fund or the
Portfolio may invest in stock index, currency and financial futures contracts
and related options in accordance with any rules of the Commodity Futures
Trading Commission.
14. May purchase or write options on securities, except for hedging
purposes and then only if (i) aggregate premiums on call options purchased by
the Fund do not exceed 5% of its net assets, (ii) aggregate premiums on put
options purchased by the Fund do not exceed 5% of its net assets, (iii) not
more than 25% of the Fund's net assets would be hedged, and (iv) not more
than 25% of the Fund's net assets are used as cover for options written by
the Fund.
OPERATING RESTRICTIONS
As a matter of operating (not fundamental) policy adopted by the Board
of Trustees of the Trust and the Master Trust, neither the Mini-Cap Portfolio
nor the Mini-Cap Fund:
1. May invest in interests in oil, gas or other mineral exploration
or development programs or leases, or real estate limited partnerships,
although the Portfolio or the Fund may invest in the securities of companies
which invest in or sponsor such programs.
2. May purchase any security if as a result the Portfolio or Fund
would then have more than 5% of its total assets (taken at current value)
invested in securities of
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companies (including predecessors) having a record of less than three years
of continuous operation, except (a) that the Portfolio may invest all or a
portion of its assets in the Fund or another diversified, open-end management
investment company with the same investment objective, policies and
restrictions as the Portfolio in compliance with the Investment Company Act
or (b) as part of a merger, consolidation, acquisition or reorganization
involving the Portfolio or Fund.
3. May purchase securities of any issuer if any officer or trustee of
the Portfolio or Fund, or of the Administrator, the Distributor, the
Investment Adviser, or the Sub-Adviser owning more than 1/2 of 1% of the
outstanding securities of such issuer, own in the aggregate more than 5% of
the outstanding securities of such issuer.
4. May lend any securities from its portfolio unless the value of the
collateral received therefor is continuously maintained in an amount not less
than 100% of the value of the loaned securities by marking to market daily.
5. May invest in warrants, valued at the lower of cost or market, in
excess of 5% of the market value of the Portfolio's or Fund's net assets, or
in excess of 2% of the market value of the Portfolio's or Fund's net assets
if such warrants are not listed on the New York Stock Exchange or the
American Stock Exchange, as of the date of investment.
BLUE SKY RESTRICTIONS
In order to permit the sale of shares of a Portfolio in certain
states, the Boards of Trustees of the Trust and the Master Trust may, in
their sole discretion, adopt additional restrictions on investment policies
more restrictive than those described above. Should either of such Boards
determine that any such restrictive policy is no longer in the best interests
of such respective Trust or its investors, the Trust may cease offering
shares of a Portfolio in the state involved and the Boards of Trustees may
revoke such restrictive policy. Moreover, if the states involved no longer
require any such restrictive policy, the Boards of Trustees may, at their
sole discretion, revoke such policy.
The Master Trust has agreed in connection with certain undertakings
given by the Trust to the State of South Dakota, that (i) the Fund will not
invest more than 10% of its total assets in interests in real estate
investments trusts, (ii) the Fund will not invest more than 15% of its total
assets in equity securities of issuers which are not readily marketable, in
securities of issuers which the Portfolio or Fund is restricted from selling
without registration under the Securities Act (other than restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 that have been determined by the Master Trust's Board of Trustees to
be liquid based upon the trading markets for the securities), and securities
of unseasoned issuers referred to in restriction 2 above (these restrictions
will not affect the ability of the Portfolio to invest in securities of the
corresponding Fund or other diversified, open-end management investment
companies with the same investment objectives, policies and restrictions as
the Portfolio), and (iii) the Master Trust will provide adequate notice to
the Trust of changes in such restrictions to enable the Trust to provide at
least 30 days advance notice of such changes to its shareholders.
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The Master Trust has agreed, in connection with certain undertakings
given by the Trust to the State of Ohio, that the Fund will not invest more
than 50% of its total assets in the securities of issuers which together with
any predecessors have a record of less than three years' continuous operation
or securities of issuers which are restricted as to disposition (including
without limitation securities issued pursuant to Rule 144A under the
Securities Act of 1933).
PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1996, the following persons held of record more than 5%
of the outstanding shares of the Mini-Cap Growth Institutional Portfolio:
U.S. National Bank of Oregon, FBO Ford Family Foundation, P.O. Box 3168,
Portland, Oregon 97208 (23.8%); Arthur E. Nicholas, P.O. Box 2169, Del Mar,
California 92014 (10.2%). Charles Schwab & Co. Inc., 101 Montgomery Street,
San Francisco, California (13.4%); First Interstate Bank of Oregon; TTEE
Northwest Natural Gas Retirement Trust, P.O. Box 9300, Calabasas, California
91372 (14.8%); Wake Forrest University, P.O. Box 7334, Winston-Salem, North
Carolina 27109 (21.1%). As of such date, The Trustees and officers of the
Trust, as a group, owned beneficially and of record 0% of the Portfolio. The
Portfolio owns beneficially and of record substantially all of the interests
of the Fund.
TRUSTEES AND PRINCIPAL OFFICERS
TRUST
The names and addresses of the Trustees and principal officers of the
Trust, including their positions and principal occupations during the past
five years, are shown below. Trustees whose names are followed by an
asterisk are "interested persons" of the Trust (as defined by the Investment
Company Act). Unless otherwise indicated, the address of each Trustee and
officer is 600 West Broadway, 30th Floor, San Diego, California 92101.
FRED C. APPLEGATE, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES.
885 La Jolla Corona Court, La Jolla, California. President, Hightower
Management Co., a financial management firm (since January 1992); formerly
President, Nicholas-Applegate Capital Management (from August 1984 to
December 1991). Mr. Applegate's interests in Nicholas-Applegate Capital
Management, Inc., the general partner of the Investment Adviser, were
acquired by Mr. Nicholas in 1991 and 1992.
ARTHUR B. LAFFER, TRUSTEE.*/ 5405 Morehouse Drive, Suite 340, San
Diego, California. Chairman, A.B. Laffer, V.A. Canto & Associates, an
economic consulting firm (since 1979); Chairman, Laffer Advisers
Incorporated, economic consultants (since 1981); Director, Nicholas-Applegate
Fund, Inc. (since 1987); Director, U.S. Filter Corporation (since March 1991)
and MasTec Inc., construction (since 1994); Chairman, Calport Asset
Management, Inc. (since 1992); formerly Distinguished University Professor
and Director, Pepperdine University (from September 1985 to May 1988) and
Professor of Business Economics, University of Southern California (1976 to
1984). Mr. Laffer is considered to be an "interested person" of the Trust
because A.B. Laffer, V.A. Canto & Associates received
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$100,000 in 1994 and $0 in 1995 from the Investment Adviser as compensation
for consulting services provided from time to time to the Investment Adviser.
CHARLES E. YOUNG, TRUSTEE. UCLA, 2147 Murphy Hall, Los Angeles,
California. Chancellor, UCLA (since 1968); Trustee, Nicholas-Applegate
Growth Equity Fund; Director, Intel Corp. (since 1974), Academy of Television
Arts and Sciences Foundation (since October 1988), Los Angeles World Affairs
Council (since 1977) and Town Hall of California (since 1982).
JOHN D. WYLIE, PRESIDENT. Partner (since January 1994), Chief
Investment Officer - Investor Services Group (since December 1995), and
Portfolio Manager (since January 1990), Nicholas-Applegate Capital
Management. Mr. Wylie is also the President of the Master Trust.
THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER. Partner (since January
1996) and Chief Financial Officer, Nicholas-Applegate Capital Management
(since January 1993), and Chief Financial Officer, Nicholas-Applegate
Securities (since January 1993); formerly Chief Financial Officer, Aurora
Capital Partners/WSGP Partners L.P., an investment partnership (from November
1988 to January 1993), and Vice President and Controller, Security Pacific
Merchant Banking Group (from November 1986 to November 1988). Mr. Pindelski
is also the Chief Financial Officer of the Master Trust.
PETER J. JOHNSON, VICE PRESIDENT. Partner and Director, Client
Services/Marketing, Nicholas-Applegate Capital Management (since January
1992) and Vice President, Nicholas-Applegate Securities (since December
1995); formerly, Marketing Director, Pacific Financial Asset Management
Company, an investment management firm (from July 1989 to December 1991), and
Senior Marketing Representative, Fidelity Investments Institutional Services
(from August 1987 to July 1989). Mr. Johnson is also the Vice President of
the Master Trust.
E. BLAKE MOORE, JR., SECRETARY. General Counsel and Secretary,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities
(since 1993); formerly Attorney, Luce, Forward, Hamilton and Scripps (from
1989 to 1993). Mr. Moore is also the Secretary of the Master Trust.
Each Trustee of the Trust who is not an officer or affiliate of the
Trust, the Investment Adviser or the Distributor receives an aggregate annual
fee of $10,000 for services rendered as a Trustee of the Trust, and $1,000
for each meeting attended. Each Trustee is also reimbursed for out-of-pocket
expenses incurred as a Trustee.
The following table sets forth the aggregate compensation paid by the
Trust for the fiscal year ended March 31, 1996, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Trust's board and that of all other funds in
the "Trust complex" (as defined in Schedule 14A under the Securities Exchange
Act of 1934):
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<PAGE>
<TABLE>
<CAPTION>
Total
Pension or Estimated Compensation
Aggregate Retirement Benefits Annual from Trust and
Compensation Accrued as Part of Benefits Upon Trust Complex
Name from Trust Trust Expenses Retirement Paid to Trustee
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred C. Applegate $15,000 None N/A $29,000 (45*)
Arthur B. Laffer $15,500 None N/A $31,500 (45*)
Charles E. Young $15,000 None N/A $31,500 (45*)
</TABLE>
* Indicates total number of funds in Trust complex, including the Portfolio.
MASTER TRUST
The names and addresses of the Trustees and principal officers of the
Master Trust, including their positions and principal occupations during the
past five years, are shown below. The positions and principal occupations of
the officers during the past five years, are set forth above. Trustees whose
names are followed by an asterisk are "interested persons" of the Trust (as
defined by the Investment Company Act). Unless otherwise indicated, the
address of each Trustee and officer is 600 West Broadway, 30th Floor, San
Diego, California 92101.
ARTHUR E. NICHOLAS, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES.*/
DANN V. ANGELOFF, TRUSTEE. 727 West Seventh Street, Los Angeles,
California. President, The Angeloff Company, corporate financial advisers
(since 1976); Trustee, Nicholas-Applegate Fund, Inc. (since 1987); Trustee
(1979 to 1987) and University Counselor to the President (since 1987),
University of Southern California; Director, Public Storage, Inc., a real
estate investment trust (since 1980), Storage Properties, a real estate
investment trust (since 1989), Datametrics Corporation, a provider of
computer peripherals and communications products (since 1993), SEDA Specialty
Packaging, Inc. (since 1993) and Bonded Motors, Inc., an automotive engine
remanufacturer (since 1996).
WALTER E. AUCH, TRUSTEE. 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Geotech Communications, Inc., a mobile radio
communications company (since 1987); Fort Dearborn Fund (since 1987), Brinson
Funds (since 1994), Smith Barney Trak Fund (since 1992), registered
investment companies; Pimco, L.P., an investment manager (since 1994); and
Banyan Realty Fund (since 1987), Banyan Strategic Land Fund (since 1987),
Banyan Strategic Land Fund II (since 1988), and Banyan Mortgage Fund (since
1988), real estate investment trusts. Formerly Chairman and Chief Executive
Officer, Chicago Board Options Exchange (1979 to 1986) and Senior Executive
Vice President, Director and Member of the Executive Committee, PaineWebber,
Inc. (until 1979).
THEODORE J. COBURN, TRUSTEE. 17 Cotswold Road, Brookline,
Massachusetts. Partner, Brown Coburn & Co., an investment banking firm
(since 1991) and student, Harvard Graduate School of Education (since
September 1991); Director, Nicholas-Applegate Fund, Inc. (since 1987),
Emerging Germany Fund (since 1991), Premier Radio
B-27
<PAGE>
Networks (since 1991); Sage Analytics International (since 1991), Tonights
Feature Ltd. (since 1995). Formerly Managing Director of Global Equity
Transactions Group and member of Board of Directors, Prudential Securities
(from 1986 to June 1991).
DARLENE DEREMER, TRUSTEE.*/ 155 South Street, Wrentham,
Massachusetts. President and Founder, DeRemer Associates, a marketing
consultant for the financial services industry (since 1987); formerly Vice
President and Director, Asset Management Division, State Street Bank and
Trust Company (from 1982 to 1987), and Vice President, T. Rowe Price &
Associates (1979 to 1982); Director, Nicholas-Applegate Strategic
Opportunities Ltd. (since 1994), Nicholas-Applegate Securities International
(since 1994), Jurika & Voyles Fund Group (since 1994) and King's Wood
Montessori School (since 1995); Member of Advisory Board, Financial Women's
Association (since 1995). Ms. DeRemer is considered to be an "interested
person" of the Master Trust under the 1940 Act because DeRemer Associates
received $100,736 in 1995 and $54,247 in 1994 from the Investment Adviser as
compensation for consulting services provided in connection with its
institutional business.
GEORGE F. KEANE, TRUSTEE.*/ 450 Post Road East, Westport,
Connecticut. President Emeritus and Senior Investment Adviser, The Common
Fund, a non-profit investment management organization representing
educational institutions (since 1993), after serving as its President (from
1971 to 1992); Member of Investment Advisory Committee, New York State Common
Retirement Fund (since 1982); Director and Chairman of the Investment
Committee, United Negro College Fund (since 1987); Director, United Educators
Risk Retention Group (since 1989); Director, RCB Trust Company (since 1991);
Director, School, College and University Underwriters Ltd. (since 1986);
Trustee, Fairfield University (since 1993); Director, The Bramwell Funds,
Inc. (since 1994); Chairman of the Board, Trigen Energy Corporation (since
1994); Director, Universal Stainless & Alloy Products, Inc. (since 1994).
Formerly President, Endowment Advisers, Inc. (from August 1987 to December
1992). Mr. Keane is considered to be an "interested person" of the Master
Trust under the 1940 Act because he is a registered representative of a
broker-dealer.
JOHN D. WYLIE, PRESIDENT.
THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER.
PETER J. JOHNSON, VICE PRESIDENT.
E. BLAKE MOORE, JR., SECRETARY.
Each Trustee of the Master Trust who is not an officer or
affiliate of the Master Trust, the Investment Adviser or the Distributor
receives an aggregate annual fee of $10,000 for services rendered as a
Trustee of the Master Trust, and $1,000 for each meeting attended.
Each Trustee is also reimbursed for out-of-pocket expenses incurred as a
Trustee.
The following table sets forth the aggregate compensation paid by the
Master Trust for the fiscal year ended March 31, 1996, to the Trustees who
are not affiliated with
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<PAGE>
the Investment Adviser and the aggregate compensation paid to such Trustees
for service on the Master Trust's board and that of all other funds in the
"Master Trust complex" (as defined in Schedule 14A under the Securities
Exchange Act of 1934):
B-29
<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated from Master
Compensation as Part of Annual Benefits Trust and Master
from Master Master Trust Upon Trust Complex
Name Trust Expenses Retirement Paid to Trustee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dann V. Angeloff $17,000 None N/A $32,500 (13*)
Walter E. Auch $11,500 None N/A $15,000 (12*)
Theodore J. Coburn $16,000 None N/A $29,000 (13*)
Darlene DeRemet 15,000 None N/A $15,000 (12*)
George K. Keane $16,000 None N/A $15,000 (12*)
</TABLE>
* Indicates total number of funds in Master Trust complex, including the Master
Trust Portfolio.
INVESTMENT ADVISER
The Trust has not engaged the services of an investment adviser
because its Portfolios invest all of their assets in corresponding Funds.
The Investment Adviser to the Master Trust is Nicholas-Applegate Capital
Management, a California limited partnership, with offices at 600 West
Broadway, 30th Floor, San Diego, California 92101.
The Investment Adviser was organized in August 1984 to manage
discretionary accounts investing primarily in publicly traded equity
securities and securities convertible into or exercisable for publicly traded
equity securities, with the goal of capital appreciation. Its general
partner is Nicholas-Applegate Capital Management Holdings, L.P., a California
limited partnership, the general partner of which is Nicholas-Applegate
Capital Management Holdings, Inc., a California corporation owned by Mr.
Nicholas.
The Investment Adviser currently has fourteen partners (including Mr.
Nicholas) who manage a staff of approximately 325 employees, including 28
portfolio managers.
Personnel of the Investment Adviser may invest in securities for their
own accounts pursuant to a Code of Ethics that sets forth all partners' and
employees' fiduciary responsibilities regarding the Funds, establishes
procedures for personal investing, and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance, and
participation in initial public offerings is prohibited. In addition,
restrictions on the timing of personal investing in relation to trades by the
Funds and on short-term trading having been adopted.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Master Trust and
the Investment Adviser with respect to the Mini-Cap Fund, the Master Trust
retains the Investment Adviser to manage the Mini-Cap Fund's investment
portfolio, subject to the
B-30
<PAGE>
direction of the Master Trust's Board of Trustees. The Investment Adviser is
authorized to determine which securities are to be bought or sold by the Fund
and in what amounts.
The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by the
Mini-Cap Fund or the Master Trust in connection with the matters to which the
Investment Advisory Agreement relates, except for liability resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of the Investment Adviser's reckless disregard of its
duties and obligations under the Investment Advisory Agreement. The Master
Trust has agreed to indemnify the Investment Adviser against liabilities,
costs and expenses that the Investment Adviser may incur in connection with
any action, suit, investigation or other proceeding arising out of or
otherwise based on any action actually or allegedly taken or omitted to be
taken by the Investment Adviser in connection with the performance of its
duties or obligations under the Investment Advisory Agreement or otherwise as
an investment adviser of the Master Trust. The Investment Adviser is not
entitled to indemnification with respect to any liability to the Master Trust
or its investors by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or of its reckless disregard of
its duties and obligations under the Investment Advisory Agreement.
The amount of the advisory fees earned by the Investment Adviser for
the fiscal year ended March 31, 1996, and the amount of the reduction in fees
as a result of the expense limitations and waivers described below under
"Expense Limitation" were as follows: advisory fees: $97,817; fee
reductions: $40,723.
The Investment Advisory Agreement provides that it will terminate in
the event of its assignment (as defined in the Investment Company Act). The
Investment Advisory Agreement may be terminated with respect to the Mini-Cap
Fund by the Master Trust (by the Board of Trustees of the Master Trust or
vote of a majority of the outstanding voting securities of the Mini-Cap Fund,
as defined in the Investment Company Act) or the Investment Adviser upon not
more than 60 days' written notice, without payment of any penalty. The
Investment Advisory Agreement provides that it will continue in effect with
respect to the Mini-Cap Fund only so long as such continuance is specifically
approved at least annually in conformity with the Investment Company Act.
EXPENSE LIMITATION
Under the Investment Advisory Agreement, the Investment Adviser has
agreed to defer its fees, and to absorb other expenses of the Mini-Cap
Portfolio (including administrative fees and distribution expenses for the
Portfolio, and the Portfolio's allocable share of the operating expenses of
the Fund, but excluding interest, taxes, brokerage commissions and other
costs incurred in connection with portfolio securities transactions,
organizational expenses and other capitalized expenditures and extraordinary
expenses), to ensure that the operating expenses for the Portfolio do not
exceed 1.56% of the average net assets of the Portfolio through March 31, 1997.
ADMINISTRATOR
The Administrator of the Trust is Investment Company Administration
Corporation, 4455 East Camelback Road, Suite 261-E, Phoenix, Arizona 85018.
B-31
<PAGE>
Pursuant to an Administration Agreement with the Trust, the
Administrator is responsible for performing all administrative services
required for the daily business operations of the Trust, subject to the
supervision of the Board of Trustees of the Trust. The Administrator has no
supervisory responsibility over the investment operations of the Portfolios.
The management or administrative services of the Administrator for the Trust
are not exclusive under the terms of the Administration Agreement and the
Administrator is free to, and does, render management and administrative
services to others. Investment Company Administration Corporation also serves
as the Administrator for the Master Trust.
For its services, the Administrator receives under the Administration
Agreement $35,000 for each grouping of five similar portfolios (e.g., Core
Growth Portfolio A, Portfolio B, Portfolio C, Institutional and Qualified
Portfolios), $25,000 for each grouping of three similar portfolios, $20,000
for each grouping of two similar portfolios and $5,000 for one portfolio. As
a result, the Administrator currently receives aggregate compensation at the
rate of $230,000 per year for all of the series of the Trust. Such fees will
be allocated among the series in each grouping based on relative net asset
values. For its services to the Master Trust, the Administrator receives,
pursuant to an Administration Agreement, a monthly fee at the following
annual rates: 0.05% on the first $100 million of aggregate net assets of the
Funds, 0.04% on the next $150 million, 0.03% on the next $300 million, 0.02%
on the next $300 million, and 0.01% on the portion of the aggregate net
assets of the Funds in excess of $850 million. The Administrator will
receive a minimum of $150,000 per year allocated among the Funds based on
average net assets.
In connection with its management of the corporate affairs of the
Trust, the Administrator pays the salaries and expenses of all its personnel
and pays all expenses incurred in connection with managing the ordinary
course of the business of the Trust, other than expenses assumed by the Trust
as described below.
Under the terms of the Administration Agreement, the Trust is
responsible for the payment of the following expenses: (a) the fees and
expenses incurred by the Trust in connection with the management of the
investment and reinvestment of their assets, (b) the fees and expenses of
Trustees and officers of the Trust who are not affiliated with the
Administrator, the Investment Adviser or the Sub-Adviser, (c) out-of-pocket
travel expenses for the officers and Trustees of the Trust and other expenses
of Board of Trustees' meetings, (d) the fees and certain expenses of the
Custodian, (e) the fees and expenses of the Transfer and Dividend Disbursing
Agent that relate to the maintenance of each shareholder account, (f) the
charges and expenses of the Trust's legal counsel and independent
accountants, (g) brokerage commissions and any issue or transfer taxes
chargeable to Trustees and officers of the Trust in connection with
securities transactions, (h) all taxes and corporate fees payable by the
Trust to federal, state and other governmental agencies, (i) the fees of any
trade association of which the Trust may be members, (j) the cost of
maintaining the Trust's existence, taxes and interest, (k) the cost of
fidelity and liability insurance, (l) the fees and expenses involved in
registering and maintaining the registration of the Trust and of its shares
with the Commission and registering the Trust as a broker or dealer and
qualifying their shares under state securities laws, including the
preparation and printing of the Trust's registration statement, prospectuses
and statements of additional information, (m) allocable communication
expenses with respect to investor services and all expenses of shareholders'
and Board of Trustees' meetings and of preparing, printing and mailing
prospectuses and reports to shareholders, (n) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course
of the business of the Trust, and (o) expenses assumed
B-32
<PAGE>
by the Trust pursuant to any plan of distribution adopted in conformity with
Rule 12b-1 under the Investment Company Act.
The Administration Agreement provides that the Administrator will not
be liable for any error of judgment or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from the Administrator's willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties. The
Administration Agreement will terminate automatically if assigned, and may be
terminated without penalty by either the Administrator or the Trust (by the
Board of Trustees of the Trust or vote of a majority of the outstanding
voting securities of the Trust, as defined in the Investment Company Act),
upon 60 days' written notice. The Administration Agreement will continue in
effect only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act.
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway,
30th Floor, San Diego, California 92101, is the principal underwriter and
distributor for the Trust and, in such capacity, is responsible for
distributing shares of the Portfolios. The Distributor is a California
limited partnership organized in 1992 to distribute shares of registered
investment companies. Its general partner is Nicholas-Applegate Capital
Management Holdings, L.P., the general partner of the Investment Adviser.
Pursuant to its Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the
Portfolios, but is not obligated to sell any specified number of shares. The
Distribution Agreement contains provisions with respect to renewal and
termination similar to those in the Investment Advisory Agreement discussed
above. Pursuant to the Distribution Agreement, the Trust has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the Securities Act.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Master Trust's Board of
Trustees, the Investment Adviser is primarily responsible for the execution
of the Mini-Cap Fund's portfolio transactions and the allocation of the
brokerage business. In executing such transactions, the Investment Adviser
will seek to obtain the best price and execution for the Fund, taking into
account such factors as price, size of order, difficulty and risk of
execution and operational facilities of the firm involved. Securities in
which the Fund invest may be traded in the over-the-counter markets, and the
Fund deals directly with the dealers who make markets in such securities
except in those circumstances where better prices and execution are available
elsewhere. Commission rates are established pursuant to negotiation with
brokers or dealers based on the quality or quantity of services provided in
light of generally prevailing rates, and while the Investment Adviser
generally seeks reasonably competitive commission rates, the Fund does not
necessarily pay the lowest commissions available. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Board of Trustees of the Master Trust.
B-33
<PAGE>
The Mini-Cap Fund has no obligation to deal with any broker or group
of brokers in executing transactions in portfolio securities. Subject to
obtaining the best price and execution, brokers who sell shares of the
Portfolios or provide supplemental research, market and statistical
information and other research services and products to the Investment
Adviser may receive orders for transactions by the Fund. Such information,
services and products are those which brokerage houses customarily provide to
institutional investors, and include items such as statistical and economic
data, research reports on particular companies and industries, and computer
software used for research with respect to investment decisions.
Information, services and products so received are in addition to and not in
lieu of the services required to be performed by the Investment Adviser under
the Investment Advisory Agreement, and the expenses of the Investment Adviser
are not necessarily reduced as a result of the receipt of such supplemental
information, services and products. Such information, services and products
may be useful to the Investment Adviser in providing services to clients
other than the Master Trust, and not all such information, services and
products are used by the Investment Adviser in connection with the Fund.
Similarly, such information, services and products provided to the Investment
Adviser by brokers and dealers through whom other clients of the Investment
Adviser effect securities transactions may be useful to the Investment
Adviser in providing services to the Fund. The Investment Adviser is
authorized to pay higher commission on brokerage transactions for the Fund to
brokers in order to secure the information, services and products described
above, subject to review by the Master Trust's Board of Trustees from time to
time as to the extent and continuation of this practice.
Although investment decisions for the Master Trust are made
independently from those of the other accounts managed by the Investment
Adviser, investments of the kind made by the Mini-Cap Fund may often also be
made by such other accounts. When a purchase or sale of the same security is
made at substantially the same time on behalf of the Fund and one or more
other accounts managed by the Investment Adviser, available investments are
allocated in the discretion of the Investment Adviser by such means as, in
its judgment, result in fair treatment. The Investment Adviser aggregates
orders for purchases and sales of securities of the same issuer on the same
day among the Fund and its other managed accounts, and the price paid to or
received by the Fund and those accounts is the average obtained in those
orders. In some cases, such aggregation and allocation procedures may affect
adversely the price paid or received by the Fund or the size of the position
purchased or sold by the Fund.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a
profit to the dealer. In underwritten offerings, securities are purchased at
a fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's commission or discount. On
occasion, certain money market instruments and agency securities may be
purchased directly from the issuer, in which case no commissions or discounts
are paid.
During the fiscal year ended March 31, 1996, the Fund acquired no
securities of its regular brokers or dealers (as defined in Rule 10b-1 under
the Investment Company Act) or their parents. The Fund held no securities of
such brokers or dealers as of March 31, 1996. The aggregate dollar amount of
brokerage commissions paid by the Fund during such fiscal year was $40,185.
B-34
<PAGE>
PURCHASE AND REDEMPTION OF PORTFOLIO SHARES
Shares of the Mini-Cap Portfolio may be purchased and redeemed at
their net asset value without any initial or deferred sales charge. The
price paid for shares of the Portfolio is based on the net asset value per
share, which is calculated once daily at the close of trading (currently 4:00
P.M. New York time) each day the New York Stock Exchange is open. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day. The offering
price is effective for orders received by the Transfer Agent or dealers prior
to the time of determination of net asset value and, in the case of orders
placed with dealers, accepted by the Transfer Agent prior to the close of its
business. The dealer is responsible for promptly transmitting purchase
orders to the Transfer Agent. The Trust reserves the right in its sole
discretion to suspend the continued offering of the Portfolio's shares and to
reject purchase orders in whole or in part when such rejection is in the best
interests of the Trust and the Portfolio.
SHAREHOLDER SERVICES
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Mini-Cap Portfolio, a
Shareholder Investment Account is established for each investor under which
the shares are held for the investor by the Transfer Agent. No certificates
will be issued for shares of the Portfolio.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Mini-Cap
Portfolio at net asset value. An investor may direct the Transfer Agent in
writing not less than five full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the dealer.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, an investor may arrange to have a
fixed amount automatically invested in shares of the Mini-Cap Portfolio on a
monthly or quarterly basis on any day of the month or quarter by authorizing
his or her bank account to be debited to invest specified dollar amounts in
shares of the Portfolio. The investor's bank must be a member of the
Automatic Clearing House System. Participation in the Plan will begin within
30 days after receipt of the account application. If the investor's bank
account cannot be charged due to insufficient funds, a stop-payment order or
closing of the account, the investor's Plan may be terminated and the related
investment reversed. The investor may change the amount of the investment or
discontinue the Plan at any time by writing to the Transfer Agent. Further
information about this program and an application form can be obtained from
the Transfer Agent or the Distributor.
B-35
<PAGE>
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A shareholder in the Mini-Cap Portfolio may elect to cross-reinvest
dividends or dividends and capital gain distributions paid by the Portfolio
into any other Institutional Portfolio (the "receiving Portfolio") subject to
the following conditions: (i) as long as the value of the account in the
receiving Portfolio is below that receiving Portfolio's minimum initial
investment requirement, dividends and capital gain distributions paid by the
receiving Portfolio must be automatically reinvested in the receiving
Portfolio, (ii) there is no cross-reinvestment, and (iii) if this privilege
is discontinued with respect to a particular receiving Portfolio, the value
of the account in that receiving Portfolio must equal or exceed the receiving
Portfolio's minimum initial investment requirement or the receiving Portfolio
will have the right, if the shareholder fails to increase the value of the
account to such minimum within 90 days after being notified of the
deficiency, automatically to redeem the account and send the proceeds to the
shareholder. These cross-reinvestments of dividends and capital gain
distributions will be at net asset value (without a sales charge).
AUTOMATIC WITHDRAWAL
The Transfer Agent arranges for the redemption by the Mini-Cap
Portfolio of sufficient shares, deposited by the shareholder with the
Transfer Agent, to provide the withdrawal payment specified. Withdrawal
payments should not be considered as dividends, yield or income. Automatic
investments may not be made into a shareholder account from which there are
automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends
and distributions and increases in share value will reduce the aggregate
value of the shareholder's account.
REDEMPTION IN KIND
The Trust intends to pay in cash for all shares of the Mini-Cap
Portfolio redeemed, but when the Master Trust makes payment to the Portfolio
in readily marketable investment securities, the Trust reserves the right to
make payment wholly or partly in shares of such securities. In such cases, a
shareholder may incur brokerage costs in converting such securities to cash.
However, the Trust has elected to be governed by the provisions of Rule 18f-1
under the Investment Company Act, pursuant to which it is obligated to pay in
cash all requests for redemptions by any shareholder or record, limited in
amount with respect to each shareholder during any 90-day period to the
lesser of $250,000 or 1% of the net asset value of the Trust at the beginning
of such period.
INSTITUTIONAL PORTFOLIOS
The services offered by the Trust to shareholders of the Institutional
Portfolios can vary, depending on the needs of the qualified retirement plan
or other institutional investor, and should be arranged by contacting the
Trust, the Distributor, the Administrator or the Transfer Agent.
NET ASSET VALUE
The net asset value of a share of the Mini-Cap Portfolio is calculated
by dividing (i) the value of the securities held by the Portfolio (I.E., the
value of its investments in the Mini-Cap Fund), plus any cash or other
assets, minus all liabilities (including accrued
B-36
<PAGE>
estimated expenses on an annual basis), by (ii) the total number of shares of
the Portfolio outstanding. The net asset value of an interest in the
Mini-Cap Fund is calculated in the same manner. The value of the investments
and assets of the Portfolio or the Fund is determined each business day.
Investment securities, including ADRs, that are traded on a domestic
or foreign stock exchange or on the NASDAQ National Market System are valued
at the last sale price as of the close of business on the New York Stock
Exchange (normally 4:00 P.M. New York time) on the day the securities are
being valued, or lacking any sales, at the mean between the closing bid and
asked prices. Securities listed or traded on certain foreign exchanges whose
operations are similar to the United States over-the-counter market are
valued at the price within the limits of the latest available current bid and
asked prices deemed by the Investment Adviser best to reflect fair value. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security by the Investment Adviser. Listed securities that are not traded on
a particular day and other over-the-counter securities are valued at the mean
between the closing bid and asked prices.
In the event that the New York Stock Exchange or the national
securities exchange on which stock or stock options are traded adopt
different trading hours on either a permanent or temporary basis, the Boards
of Trustees of the Trust and the Master Trust will reconsider the time at
which net asset value is computed. In addition, the asset value of the
Mini-Cap Portfolio or the Mini-Cap Fund may be computed as of any time
permitted pursuant to any exemption, order or statement of the Commission or
its staff.
Long-term debt obligations are valued at the mean of representative
quoted bid and asked prices for such securities, or if such prices are not
available, at prices for securities of comparable maturity, quality and type;
however, when the Investment Adviser deems it appropriate, prices obtained
for the day of valuation from a bond pricing service will be used, as
discussed below. Debt securities with maturities of 60 days or less are
valued at amortized cost if their term to maturity from date of purchase is
less than 60 days, or by amortizing, from the sixty-first day prior to
maturity, their value on the sixty-first day prior to maturity if their term
to maturity from date of purchase by the Mini-Cap Portfolio or the Mini-Cap
Fund is more than 60 days, unless this is determined by the Board of Trustees
of the Master Trust not to represent fair value. Repurchase agreements are
valued at cost plus accrued interest.
U.S. Government securities are traded in the over-the-counter market
and are valued at the mean between the last available bid and asked prices,
except that securities with a demand feature exercisable within one to seven
days are valued at par. Such valuations are based on quotations of one or
more dealers that make markets in the securities as obtained from such
dealers, or on the evaluation of a pricing service.
Options, futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale or settlement price as of the close
of such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes
later than 4:00 p.m. New York time, the options or futures traded on it are
valued based on the sale price, or on the mean between the bid and asked
prices, as the case may be, as of 4:00 p.m. New York time.
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Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of
business day in New York. In addition, foreign securities trading may not
take place on all business days in New York, and may occur in various foreign
markets on days which are not business days in New York and on which net
asset value is not calculated. The calculation of net asset value may not
take place contemporaneously with the determination of the prices of
portfolio securities used in such calculation. Events affecting the values
of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be reflected
in the calculation of net asset value unless the Board of Trustees of the
Master Trust deems that the particular event would materially affect net
asset value, in which case an adjustment will be made. Assets or liabilities
initially expressed in terms of foreign currencies are translated prior to
the next determination of the net asset value into U.S. dollars at the spot
exchange rates at 1:00 p.m. New York time or at such other rates as the
Investment Adviser may determine to be appropriate in computing net asset
value.
Securities and assets for which market quotations are not readily
available, or for which the Master Trust's Board of Trustees or persons
designated by the Board determine that the foregoing methods do not
accurately reflect current market value, are valued at fair value as
determined in good faith by or under the direction of the Master Trust's
Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees.
The Master Trust may use a pricing service approved by its Board of
Trustees. Prices provided by such a service represent evaluations of the
mean between current bid and asked market prices, may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such
as institution-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, individual trading characteristics,
indications of value from dealers, and other market data. Such services may
use electronic data processing techniques and/or a matrix system to determine
valuations. The procedures of such services are reviewed periodically by the
officers of the Master Trust under the general supervision and responsibility
of its Board of Trustees, which may replace a service at any time if it
determines that it is in the best interests of the Fund to do so.
TAXES
MASTER TRUST'S TAX STATUS
The Mini-Cap Fund will be treated as a partnership rather than as a
regulated investment company or a corporation under the Internal Revenue Code
(the "Code"). As a partnership under the Code, any interest, dividends and
gains or losses of the Master Trust attributable to the Fund will be deemed
to have been "passed through" to the Trust and other investors in such Fund,
regardless of whether the interest, dividends or gains have been distributed
by the Fund or such losses have been realized and recognized by the Trust and
other investors. Therefore, to the extent the Fund were to accrue but not
distribute any interest, dividends or gains, the Trust and other investors in
the Fund would be deemed to have realized and recognized their proportionate
shares of interest, dividends, gains or losses realized and recognized by the
Fund without receipt of any corresponding distribution. However, the Master
Trust will seek to minimize recognition by investors in the
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Fund of interest, dividends, gains or losses allocable to the Fund without a
corresponding distribution.
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify the Mini-Cap Portfolio as a regulated
investment company under Subchapter M of the Code, and intends that the
Portfolio will remain so qualified.
As a regulated investment company, the Mini-Cap Portfolio will not be
liable for federal income tax on its income and gains provided it distributes
all of its income and gains currently. Qualification as a regulated
investment company under the Code requires, among other things, that the
Portfolio (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale
or other disposition of securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such
securities or currencies; (b) derive less than 30% of its gross income from
the sale or other disposition of stock, securities, options, futures, forward
contracts, certain foreign currencies and certain options, futures, and
forward contracts on foreign currencies held less than three months; (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the Portfolio's assets is represented by
cash, U.S. Government securities and securities of other regulated investment
companies, and other securities (for purposes of this calculation generally
limited, in respect of any one issuer, to an amount not greater than 5% of
the market value of the Portfolio's assets and 10% of the outstanding voting
securities of such issuer) and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government or foreign government securities or the securities of other
regulated investment companies), or two or more issuers which the Trust
controls and which are determined to be engaged in the same or similar trades
or businesses; and (d) distribute at least 90% of its investment company
taxable income (which includes dividends, interest, and net short term
capital gains in excess of net long term capital losses) each taxable year.
The Mini-Cap Portfolio generally will be subject to a nondeductible
excise tax of 4% to the extent that it does not meet certain minimum
distribution requirements as of the end of each calendar year. To avoid the
tax, the Portfolio must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income and net capital gain
(not taking into account any capital gains or losses as an exception) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the twelve month period
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such years.
A distribution will be treated as paid on December 31 of the calendar year
if it is declared by the Portfolio in October, November, or December of that
year to shareholders of record on a date in such a month and paid by the
Portfolio during January of the following year. Such distributions will be
taxable to shareholders (other than those not subject to federal income tax)
in the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To avoid the excise
tax, the Portfolio intends to make timely distributions of its income in
compliance with these requirements and anticipate that it will not be subject
to the excise tax.
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Dividends paid by the Mini-Cap Portfolio from ordinary income, and
distributions of the Portfolio's net realized short-term capital gains, are
taxable to its shareholders as ordinary income. Distributions to corporate
shareholders will be eligible for the 70% dividends received deduction to the
extent that the income of the Portfolio is derived from dividends on common
or preferred stock of domestic corporations. Dividend income earned by the
Portfolio will be eligible for the dividends received deduction only if the
Portfolio and Mini-Cap Fund have satisfied a 46-day holding period
requirement with respect to the underlying portfolio security (91 days in the
case of dividends derived from preferred stock). In addition, a corporate
shareholder must have held its shares in the Portfolio for not less than 46
days (91 days in the case of dividends derived from preferred stock) in order
to claim the dividend received deduction. Not later than 60 days after the
end of its taxable year, the Portfolio will send to its shareholders a
written notice designating the amount of any distributions made during such
year which may be taken into account by its shareholders for purposes of such
deduction provisions of the Code. Net capital gain distributions are not
eligible for the dividends received deduction.
Under the Code, any distributions designated as being made from net
capital gains are taxable to the Mini-Cap Portfolio's shareholders as
long-term capital gains, regardless of the holding period of such
shareholders. Such distributions of net capital gains will be designated by
the Portfolio as a capital gains distribution in a written notice to its
shareholders which accompanies the distribution payment. Any loss on the
sale of shares held for less than six months will be treated as a long-term
capital loss for federal tax purposes to the extent a shareholder receives
net capital gain distributions on such shares. The maximum federal income
tax rate applicable to long-term capital gains is currently 28% for
individual shareholders and 35% for corporate shareholders. Dividends and
distributions are taxable as such whether received in cash or reinvested in
additional shares of the Portfolio.
Any loss realized on a sale, redemption or exchange of shares of the
Mini-Cap Portfolio by a shareholder will be disallowed to the extent the
shares are replaced within a 61-day period (beginning 30 days before the
disposition of shares). Shares purchased pursuant to the reinvestment of a
dividend will constitute a replacement of shares.
A shareholder who acquires shares of the Mini-Cap Portfolio and sells
or otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares
for purposes of calculating gain or loss realized upon a sale or exchange of
shares of the Portfolio if the shareholder acquires shares in the Portfolio
pursuant to a reinvestment right that reduces the sales charges in the
subsequent acquisition of shares.
SPECIAL TAX CONSIDERATIONS
U.S. GOVERNMENT OBLIGATIONS. Income received on direct U.S.
Government obligations is exempt from tax at the state level when received
directly and may be exempt, depending on the state, when received by a
shareholder from a Portfolio provided that certain conditions are satisfied.
Interest received on repurchase agreements collateralized by U.S. Government
obligations normally is not exempt from state taxation. The Trust will
inform shareholders annually of the percentage of income and distributions
derived from direct U.S. Government obligations. Shareholders should consult
their tax advisers to determine whether any portion of the income dividends
received from the Mini-Cap Portfolio is considered tax exempt in their
particular states.
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SECTION 1256 CONTRACTS. Many of the futures contracts and forward
contracts used by the Mini-Cap Fund are "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally credited 60% long-term and 40%
short-term capital gains or losses ("60/40") although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character. Also,
section 1256 contracts held by the Fund at the end of each taxable year (and,
for purposes of the 4% excise tax, on certain other dates as prescribed under
the Code) are "marked to market" with the result that unrealized gains or losses
are treated as though they were realized and the resulting gain or loss is
treated as ordinary or 60/40 gain or loss, depending on the circumstances.
STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the Mini-
Cap Fund may result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by the
Mini-Cap Portfolio. In addition, losses realized by the Portfolio on positions
that are part of a straddle may be deferred under the straddle rules, rather
than being taken into account in calculating the taxable income for the taxable
year in which such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
transactions in options, futures and forward contracts to the Portfolio are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by the Portfolio which is taxed as ordinary income when
distributed to shareholders.
The Mini-Cap Portfolio may make one or more of the elections available
under the Code which are applicable to straddles. If the Portfolio makes any of
the elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because applications of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options, futures,
and forward contracts held less than three months and the qualifying income and
diversification requirements applicable to the Mini-Cap Portfolio's and the
Mini-Cap Fund's assets may limit the extent to which the Fund will be able to
engage in transactions in options, futures contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time the
Mini-Cap Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary
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gain or loss. These gains and losses, referred to under the Code as "section
988" gains or losses, may increase or decrease the amount of the Mini-Cap
Portfolio's investment company taxable income to be distributed to the
shareholders.
FOREIGN TAX. Income received by the Mini-Cap Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. In addition, the Investment Adviser intends to manage the
Fund with the intention of minimizing foreign taxation in cases where it is
deemed prudent to do so. If more than 50% of the value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible to elect to "pass-through" to the Mini-
Cap Portfolio's shareholders the amount of foreign income and similar taxes paid
by the Fund. Each shareholder will be notified within 60 days after the close
of the Mini-Cap Portfolio's taxable year whether the foreign taxes paid by the
Mini-Cap Fund will be "pass-through" for that year.
Generally, a credit for foreign 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, if the pass-through election
is made, the source of the Mini-Cap Fund's income will flow through to
shareholders of the Portfolio. With respect to such election, 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, and to certain
other types of income. Shareholders may be unable to claim a credit for the
full amount of their proportion at share of the foreign taxes paid by the Fund.
The foreign tax credit is modified for purposes of the federal alternative
minimum tax and can be used to offset only 90% of the alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.
SHORT SALES. Generally capital gain or loss realized by the Fund in a
short sale may be long-term or short-term depending on the holding period of the
short position. Under a special rule, however, the capital gain will be short-
term gain if (1) as of the date of the short sale, the Fund owned property for
the short-term holding period that was substantially identical to that which the
Fund used to close the sale or (2) after the short sale and on or before its
closing, the Fund acquired substantially similar property. Similarly, if
property substantially identical to that sold short was held by the Fund for the
long-term holding period as of the date of the short sale, any loss on closing
the short position will be long-term capital loss. These special rules do not
apply to substantially similar property to the extent such property exceeds the
property used by the Fund to close its short position.
ORIGINAL ISSUE DISCOUNT. Some of the debt securities (with a fixed
maturity date of more than one year from the date of issuance) that may be
acquired by the Mini-Cap Fund may be treated as debt securities that are issued
originally at a discount. Generally, the amount of the original issue discount
("OID") is treated as interest income and is included in income over the term of
the debt security, even though payment of that amount is not received until a
later time, usually when the debt security matures. A portion of the OID
includible in income with respect to certain high-yield corporation debt
securities may be treated as a dividend for Federal income tax purposes.
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Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Mini-Cap Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. The Fund may make one or more of the elections applicable to debt
securities having market discount, which could affect the character and timing
the recognition of income.
Some of the debt securities (with a fixed maturity date of one year or
less from the date of issuance) that may be acquired by the Mini-Cap Fund may be
treated as having an acquisition discount, or OID in the case of certain types
of debt securities. Generally, the Fund will be required to include the
acquisition discount, or OID, in income over the term of the debt security, even
though payment of that amount is not received until a later time, usually when
the debt security matures. The Fund may make one or more of the elections
applicable to the debt securities having acquisition discount, or OID, which
could affect the character and timing of recognition of income.
The Mini-Cap Portfolio generally will be required to distribute
dividends to shareholders representing discount on debt securities that is
currently includible in income, even though cash representing such income may
not have been received by the Mini-Cap Fund. Cash to pay such dividends may be
obtained from sales proceeds of securities held by the Fund.
CONTRIBUTION LIMITS. Payments made to the Trust, by the employer
sponsoring a qualified profit-sharing plan (the "plan") which invests in the
Mini-Cap Portfolio, of such plan's pro rata share of the fees charged by the
Investment Adviser for management of the assets of the Portfolio invested in the
Mini-Cap Fund, may be treated as an employer "contribution" to the plan under
Sections 404 and 415 of the Code. Contributions to a qualified retirement plan
are subject to limitations under Sections 404 and 415 of the Code. Generally,
Section 404(a)(3) of the Code limits an employer's contribution to the plan to
an amount not exceeding 15% of the compensation paid to all plan participants
during the year, and Section 415 of the Code limits the total contributions made
by both the employer and the participants. Contributions in excess of these
limits may not be deducted by the employer and may result in an excise tax on
the employer equal to 10% of the non-deductible contributions. In addition, the
plan may become disqualified. Shareholders should consult with their own tax
and retirement plan advisers regarding this issue.
OTHER TAX INFORMATION
The Mini-Cap Portfolio may be required to withhold for U.S. federal
income taxes 31% of all taxable distributions payable to shareholders who fail
to provide the Portfolio with their correct taxpayer identification number or to
make required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal tax liability.
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The Trust may also be subject to state or local taxes in certain other
states where it is deemed to be doing business. Further, in those states which
have income tax laws, the tax treatment of the Trust and of shareholders of the
Mini-Cap Portfolio with respect to distributions by the Portfolio may differ
from federal tax treatment. Distributions to shareholders may be subject to
additional state and local taxes. Shareholders should consult their own tax
advisers regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
The Trust may from time to time advertise the total return for the Mini-
Cap Portfolio. Any performance information should be considered in light of the
Portfolio's and the Mini-Cap Fund's investment objectives and policies,
characteristics and quality of the its portfolio, and the market conditions
during the given time period, and should not be considered to be representative
of what may be achieved in the future.
TOTAL RETURN
The total return for the Portfolio is computed by assuming a
hypothetical initial payment of $1,000. It is assumed that all investments are
made at net asset value (as opposed to market price) and that all of the
dividends and distributions by the Portfolio over the relevant time periods are
invested at net asset value. It is then assumed that, at the end of each
period, the entire amount is redeemed without regard to any redemption fees or
costs. The average annual total return is then determined by calculating the
annual rate required for the initial payment to grow to the amount which would
have been received upon redemption. Total return does not take into account any
federal or state income taxes.
Total return is computed according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the period (or fractional
portion thereof) of a hypothetical $1,000 payment made at the
beginning of the period.
COMPARISON TO INDICES AND RANKINGS
Performance information for the Mini-Cap Portfolio may also be compared
to various unmanaged indices, such as the Standard & Poor's 500 Stock Price
Index, the Dow Jones Industrial Average, and indices prepared by Lipper
Analytical Services. Unmanaged indices (I.E., other than Lipper) generally do
not reflect deductions for administrative and management costs and expenses.
Performance rankings are prepared by a number of mutual fund ranking
entities that are independent of the Trust and its affiliates. These entities
categorize and rank funds by various criteria, including fund type, performance
over a given period of years, total return, standardized yield, variations in
sales charges and risk/reward considerations.
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CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
PNC Bank, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, serves as Custodian for the portfolio
securities and cash of the Portfolio and Fund and in that capacity maintains
certain financial and accounting books and records pursuant to agreements with
the Trust and Master Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington,
Delaware, an affiliate of the Custodian, provides additional accounting services
to the Portfolio and Fund.
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor, North
Quincy, Massachusetts, 02171, serves as the Transfer and Dividend Disbursing
Agent for the Portfolio and Fund. The Transfer Agent provides customary
transfer agency services to the Trust and Master Trust, including the handling
of shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, and related functions. The Dividend
Disbursing Agent provides customary dividend disbursing services to the Trust,
including payment of dividends and distributions and related functions.
The following act as sub-transfer agents for the Portfolio: Financial
Data Services, Inc., 4800 Deer Lake Drive, 2nd Floor, Jacksonville, Florida
32246; and William M. Mercer Plan Participant Services, Inc. 1417 Lake Cook
Road, Deerfield, Illinois 60015.
Ernst & Young, L.L.P., 515 S. Flower Street, Los Angeles, California
90071, serves as the independent accountants for the Trust and Master Trust, and
in that capacity examines the annual financial statements of the Trust and
Master Trust.
Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los Angeles,
California 90071, is legal counsel for the Trust and Master Trust. It also acts
as counsel for the Investment Adviser and Distributor.
MISCELLANEOUS
SHARES OF BENEFICIAL INTEREST
The Trust is currently comprised of 46 series of shares -- eight A
Portfolios, eight B Portfolios, eight C Portfolios, thirteen institutional
Portfolios, one Money Market Portfolio and eight Qualified Portfolios.
VOTING RIGHTS. On any matter submitted to a vote of shareholders of the
Trust, all shares then entitled to vote will be voted by the affected
Portfolio(s) unless otherwise required by the Investment Company Act, in which
case all shares of the Trust will be voted in the aggregate. For example, a
change in the Mini-Cap Portfolio's fundamental investment policies would be
voted upon only by shareholders of that Portfolio, as would the approval of any
advisory or distribution contract for the Portfolio. However, all shares of the
Trust may vote together in the election or selection of Trustees, principal
underwriters and accountants for the Trust.
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Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of the series of
the Trust affected by the matter. Under Rule 18f-2, a series is presumed to be
affected by a matter, unless the interests of each series in the matter are
identical or the matter does not affect any interest of such series. Under Rule
18f-2 the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Portfolio only if approved by a majority of its outstanding shares. However,
the rule also provides that the ratification of independent public accountants,
the approval of principal underwriting contracts and the election of trustees
may be effectively acted upon by the shareholders of the Trust voting without
regard to Portfolio.
As used in the Mini-Cap Portfolio's Prospectus and in this Statement of
Additional Information, the term "majority," when referring to approvals to be
obtained from shareholders of the Portfolio, means the vote of the lesser of (i)
67% of the shares of the Portfolio represented at a meeting if the holders of
more than 50% of the outstanding shares of the Portfolio are present in person
or by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Trust's shares represented at a meeting if the holders of
more than 50% of the Trust's outstanding shares are present in person or by
proxy, or (ii) more than 50% of the Trust's outstanding shares. Shareholders
are entitled to one vote for each full share held and fractional votes for
fractional shares held. Unless otherwise provided by law (for example, by rule
18f-2 discussed above) or by the Trust's Declaration of Trust or Bylaws, the
Trust may take or authorize any action upon the favorable vote of the holders of
more than 50% of the outstanding shares of the Trust.
Whenever a Portfolio or the Trust is requested to vote on a matter with
respect to the Master Trust, the Trust will hold a meeting of its shareholders
and will cast its votes as instructed by such shareholders and, in the case of a
matter affecting only a specific Fund, as instructed by the shareholders of the
corresponding Portfolio(s).
The Trust will dispense with annual meetings of shareholders in any year
in which it is not required to elect Trustees under the Investment Company Act.
However, the Trust undertakes to hold a special meeting of its shareholders for
the purpose of voting on the question of removal of a Trustee or Trustees if
requested in writing by the holders of at least 10% of the Trust's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the Investment Company Act.
Each share of a Portfolio represents an equal proportional interest in
the Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Portfolio
as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Portfolio are
entitled to receive the assets attributable to such Portfolio that are available
for distribution, and a distribution of any general assets not attributable to a
particular Portfolio that are available for distribution in such manner and on
such basis as the Trustees in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and nonassessable by the Trust.
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DECLARATIONS OF TRUST.
In accordance with Delaware law and in connection with the tax treatment
sought by the Master Trust, the Master Trust's Declaration of Trust provides
that its investors will be personally and jointly and severally responsible
(with rights of contribution INTER se in proportion to their respective
ownership interests in the Master Trust) for the Master Trust's liabilities and
obligations in the event that the Master Trust fails to satisfy such liabilities
and obligations. However, to the extent assets are available from the Master
Trust, the Master Trust will indemnify each investor from any claim or liability
to which the investor may become subject solely by reason of his or her having
been an investor to the extent such claim or liability imposes on the investor
an obligation or liability which is greater than his or her proportionate
ownership interest in the Master Trust, and will reimburse the investor for all
legal and other expenses reasonably incurred by him or her in connection with
any such claim or liability.
The Declarations of Trust of both the Trust and Master Trust provide
that obligations of the Trust and the Master Trust are not binding upon their
respective Trustees, officers, employees and agents individually and that the
Trustees, officers, employees and agents will not be liable to the trusts or
their respective investors for any action or failure to act, but nothing in the
Declarations of Trust protect a Trustee, officer, employee or agent against any
liability to the trusts or their respective investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declarations of Trust also provide that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Portfolio or Fund shall be enforceable against the assets and
property of such Portfolio or Fund only (and, in the case of the Fund, its
investors), and not against the assets or property of any other Portfolio or
Fund (or in the case of the Portfolio, the investors therein).
FINANCIAL STATEMENTS.
The Trust's 1996 Annual Report to Shareholders of the Portfolio
accompanies this Statement of Additional Information. The financial statements
in such Annual reports are incorporated in this Statement of Additional
Information by reference. Such financial statements have been audited by the
Fund's independent auditors, Ernst & Young, L.L.P., whose report thereon appears
in such Annual Report and is incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such report given upon
their authority as experts in accounting and auditing. Additional copies of the
Trust's 1996 Annual Report to Shareholders may be obtained at no charge by
writing or telephoning the Trust at the address or number on the front page of
this Statement of Additional Information.
REGISTRATION STATEMENT.
The Registration Statement of the Trust and the Master Trust, including
the Mini-Cap Portfolio's Prospectus, the Statement of Additional Information and
the exhibits filed therewith, may be examined at the office of the Commission in
Washington, D.C. Statements contained in the Portfolio's Prospectus or the
Statement of Additional Information as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the
B-47
<PAGE>
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference.
B-48
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating
symbols of securities.
COMMERCIAL PAPER
The following paragraphs summarize the description for the rating
symbols of commercial paper.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings, which are also applicable to
commercial paper investments permitted to be made by the Master Trust, are
opinions of the ability of issuers to repay punctually their senior debt
obligations which have an original maturity not exceeding one year. Moody's
employs the following designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:
PRIME-1: Issuers (or related supporting institutions) rated PRIME-1
have a superior ability for repayment of short-term promissory obligations.
PRIME-1 repayment ability will often be evidenced by the following
characteristics: (A) leading market positions in well-established
industries; (B) high rates of return on funds employed; (C) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (D) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and (E) well-established access to a range
of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated PRIME-2 (or related supporting institutions)
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above in
the PRIME-1 category but to a lesser degree. Earning trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated PRIME-3 (or related supporting institutions)
have an acceptable ability for repayment of short-term debt obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
Standard & Poor's ratings are a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365
days. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. Ratings are graded into four categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. Issues within
the "A" category are delineated with the numbers 1, 2, and 3 to indicate the
relative degree of safety, as follows:
A-1
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A-1: This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to possess
overwhelming safety characteristics are denoted with a "PLUS" (+) designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C: Issues rated "C" are regarded as having a doubtful capacity for
payment.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally strong credit quality. Commercial paper assigned
this rating is regarded as having the strongest degree of assurance for
timely payment.
F-1: Very strong credit quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2: Good credit quality. Commercial paper assigned this rating has
a satisfactory degree of assurance for timely payment but the margin of
safety is not as great as for issuers assigned F-1+ and F-1 ratings.
F-3: Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near term adverse changes could cause these securities to
be rated below investment grade.
DUFF & PHELPS
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," Duff 1" and "Duff 1-," within the highest
rating category. The following summarizes the rating categories used by Duff
& Phelps for commercial paper:
DUFF 1+ - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
DUFF 1 - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
DUFF 1- - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors.
Risk factors are very small.
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DUFF 2 - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital markets is good.
Risk factors are small.
DUFF 3 - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
DUFF 4 - Debt possesses speculative investment characteristics.
DUFF 5 - Issuer has failed to meet scheduled principal and/or interest
payments.
THOMSON BANKWATCH
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one
year or less which is issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
TBW-1 - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
TBW-3 - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
IBCA
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes
the rating categories used by IBCA for short-term debt ratings:
A1+ - Obligations are supported by the highest capacity for timely
repayment.
A1 - Obligations are supported by a strong capacity for timely
repayment.
A2 - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
A-3
<PAGE>
CORPORATE BONDS
MOODY'S
Moody's corporate bond ratings are opinions of the relative investment
qualities of bonds. Moody's employs nine designations to indicate such
relative qualities, ranging from "AAA" for the highest quality obligations to
"C" for the lowest. Issues are further refined with the designation 1,2, and
3 to indicate the relative ranking within designations. Bonds with the
following Moody's ratings have the following investment qualities:
Aaa: Bonds in this category are judged to be of the highest 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 in this category 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 in this category possess many favorable investment
attributes and are considered to be 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 in this category are considered medium-grade obligations,
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds in this category 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 both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds in this category generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa: Bonds in this category 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 in this category represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcoming.
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C: Bonds in this category 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.
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
Ratings are graded into ten categories, ranging from "AAA" for the highest
quality obligation to "D" for debt in default. Issues are further refined
with a "PLUS" or "MINUS" sign to show relative standing within the
categories. Bonds with the following Standard & Poor's ratings have the
following investment qualities:
AAA: Bonds in this category have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds in this category have a very strong capacity to pay
interest and repay principal and differ from the higher rated issues only in
small degree.
A: Bonds in this category have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB: Bonds in this category have an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
BB: Bonds in this category have less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB-"
rating.
B: Bonds in this category have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The "B"
rating is also used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
CCC: Bonds in this category have currently identifiable vulnerability
to default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, they are
not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied "B" or "B-" rating.
C: This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
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<PAGE>
DUFF & PHELPS
The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:
AAA - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
FITCH INVESTORS SERVICE, INC.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong 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.
A-6
<PAGE>
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D - Bonds that possess one of these
ratings are considered by Fitch to be speculative investments. The ratings
"BB" to "C" represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or
liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes
the rating categories used by IBCA for long-term debt ratings:
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in higher categories.
BB, B, CCC, CC, AND C - Obligations are assigned one of these ratings
where it is considered that speculative characteristics are present. "BB"
represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
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THOMSON BANKWATCH
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
AAA - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
AA - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues
rated in the highest category.
A - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BBB - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BB, B, CCC, AND CC, - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded
as having speculative characteristics regarding the likelihood of timely
payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
D - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
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<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FORM N-1A
PART C: OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements:
Registrant's Schedule of Investments as of March 31, 1996, Statement of
Assets and Liabilities as of March 31, 1996, Statement of Operations for
the fiscal year ended March 31, 1996, Statement of Changes in Net Assets
for the fiscal year ended March 31, 1996, related Notes, and Independent
Auditor's Report dated May 10, 1996, with respect to the Portfolio are
included as part of Registrant's Annual Report to Shareholders for the
fiscal year ended March 31, 1996, incorporated by reference in Part B.
Copies of such financial statements are provided herewith as Exhibit 19.5
for the information of the Commission.
b. Exhibits:
(1.1) Certificate of Trust of Registrant (g).
(1.2) Certificate of Amendment to Certificate of Trust of Registrant (g).
(1.3) Amended and Restated Declaration of Trust of Registrant (g).
(1.4) Certificate of Trustees dated August 6, 1993, establishing Emerging
Growth Portfolio series (g).
(1.5) Certificate of Trustees dated December 15, 1993, establishing
International Growth Portfolio series (g).
(1.6) Amendment No. 2 to Amended and Restated Declaration of Trust (g).
(1.7) Amendment No. 3 to Amended and Restated Declaration of Trust (g).
(1.8) Amendment No. 4 to Amended and Restated Declaration of Trust (g).
(1.9) Amendment No. 5 to Amended and Restated Declaration of Trust (g).
(1.10) Amendment No. 6 to Amended and Restated Declaration of Trust (g).
(1.11) Amendment No. 7 to Amended and Restated Declaration of Trust (g).
(1.12) Form of Amendment No. 8 to Amended and Restated Declaration of
Trust (g).
(1.13) Amendment No. 9 to Amended and Restated Declaration of Trust
(g).
(1.14) Form of Amendment No. 10 to Amended and Restated Declaration of
Trust (b).
(2.1) Amended Bylaws of Registrant (g).
(2.2) Amendment to Section 2.5 of Bylaws of Registrant (g).
(3) None.
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(4) None.
(5) None.
(6.1) Distribution Agreement between Registrant and Nicholas-Applegate
Securities dated as of April 19, 1993 (g).
(6.2) Letter agreement between Registrant and Nicholas-Applegate
Securities dated May 17, 1993, adding certain Institutional
(formerly Qualified) Portfolio series and Emerging Growth Portfolio
series to Distribution Agreement (g).
(6.3) Letter agreement between Registrant and Nicholas-Applegate
Securities dated December 15, 1993, adding International Growth
Portfolio series to Distribution Agreement (g).
(6.4) Letter agreement between Registrant and Nicholas-Applegate
Securities dated April 22, 1994, adding Qualified Portfolio series
to Distribution Agreement (g).
(6.5) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Emerging Countries Growth Portfolio series,
Global Growth & Income Portfolio series and Mini-Cap Growth
Portfolio series to Distribution Agreement (g).
(6.6) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Series B Portfolios to Distribution Agreement
(g).
(6.7) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Fixed Income and Qualified Portfolio series to
Distribution Agreement (g).
(6.8) Form of letter agreement between Registrant and Nicholas-Applegate
Securities, adding Value Institutional Portfolio series to
Distribution Agreement (a).
(6.9) Form of letter agreement between Registrant and Nicholas-Applegate
Securities, adding High Yield Bond and Strategic Income
Institutional Portfolio series to Distribution Agreement (b).
(7) None.
(8.1) Custodian Services Agreement between Registrant and PNC Bank dated
as of April 1, 1993 (g).
(8.2) Letter agreement between Registrant and PNC Bank dated July 19,
1993, adding certain Institutional (formerly Qualified) Portfolio
series to Custodian Services Agreement (g).
(8.3) Letter agreement between Registrant and PNC Bank dated August 20,
1993, adding Emerging Growth Portfolio series to Custodian Services
Agreement (g).
(8.4) Letter agreement between Registrant and PNC Bank dated December 15,
1993, adding International Growth Portfolio series to Custodian
Services Agreement (g).
(8.5) Letter agreement between Registrant and PNC Bank dated April 22,
1994, adding Core Growth Qualified Portfolio series to Custodian
Services Agreement (g).
(8.6) Letter agreement between Registrant and PNC Bank, adding Emerging
Countries Growth Portfolio series, Global Growth & Income Portfolio
series and Mini-Cap Growth Portfolio series to Custodian Services
Agreement (g).
(8.7) Letter agreement between Registrant and PNC Bank, adding Series B
Portfolios to Custodian Services Agreement (g).
C-2
<PAGE>
(8.8) Letter agreement between Registrant and PNC Bank, adding Fixed
Income Portfolio series to Custodian Services Agreement (g).
(8.9) Form of letter agreement between Registrant and PNC Bank adding
Value Institutional Portfolio series to Custodian Services
Agreement (a).
(8.10) Form of letter agreement between Registrant and PNC Bank adding
High Yield Bond and Strategic Income Institutional Portfolio series
to Custodian Services Agreement (b).
(9.1) Administration Agreement between Registrant and Investment Company
Administration Corporation dated as of April 1, 1993 (g).
(9.2) Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company dated as of April 1, 1993 (g).
(9.3) Letter agreement between Registrant and State Street Bank and Trust
Company dated July 19, 1993, adding certain Institutional (formerly
Qualified) Portfolio series to Transfer Agency and Service
Agreement (g).
(9.4) Letter agreement between Registrant and State Street Bank and Trust
Company dated August 20, 1993, adding Emerging Growth Portfolio
Series to Transfer Agency and Service Agreement (g).
(9.5) Letter agreement between Registrant and State Street Bank and Trust
Company dated December 15, 1993, adding International Growth
Portfolio series to Transfer Agency and Service Agreement (g).
(9.6) Letter agreement between Registrant and State Street Bank and Trust
Company dated April 22, 1994, adding Core Growth Qualified
Portfolio series to Transfer Agency and Service Agreement (g).
(9.7) Letter agreement between Registrant and State Street Bank and Trust
Company, adding Emerging Countries Growth Portfolio series, Global
Growth & Income Portfolio series and Mini-Cap Growth Portfolio
series to Transfer Agency and Service Agreement (g).
(9.8) Letter agreement between Registrant and State Street Bank and Trust
Company, adding Series B Portfolios to Transfer Agency and Service
Agreement (g).
(9.9) Form of letter agreement between Registrant and State Street Bank
and Trust Company, adding Fixed Income Portfolio series to Transfer
Agency and Service Agreement (g).
(9.10) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Value Institutional Portfolio series
to Transfer Agency and Service Agreement (a).
(9.11) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding High Yield Bond and Strategic Income
Institutional Portfolio series to Transfer Agency and Service
Agreement (b).
(9.12) Shareholder Service Plan between Registrant and Nicholas-
Applegate Securities (g).
(9.13) License Agreement dated as of December 17, 1992, between
Registrant and Nicholas-Applegate Capital Management (g).
(9.14) Accounting Services Agreement between Registrant and PFPC Inc.
dated as of April 1, 1993 (g).
(9.15) Letter agreement between Registrant and PFPC Inc. dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Accounting Services Agreement (g).
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<PAGE>
(9.16) Letter agreement between Registrant and PFPC Inc. dated August
20, 1993, adding Emerging Growth Portfolio series to Accounting
Services Agreement (g).
(9.17) Letter agreement between Registrant and PFPC Inc. dated
December 15, 1993, adding International Growth Portfolio series to
Accounting Services Agreement (g).
(9.18) Letter agreement between Registrant and PFPC Inc. dated April
22, 1994, adding Core Growth Qualified Portfolio series to
Accounting Services Agreement (g).
(9.19) Letter agreement between Registrant and PFPC Inc., adding
Emerging Countries Growth Portfolio series, Global Growth & Income
Portfolio series and Mini-Cap Growth Portfolio series to Accounting
Services Agreement (g).
(9.20) Letter agreement between Registrant and PFPC Inc., adding
Series B Portfolios to Accounting Services Agreement (g).
(9.21) Letter agreement between Registrant and PFPC Inc., adding Fixed
Income Portfolio series to Accounting Services Agreement (g).
(9.22) Form of letter agreement between Registrant and PFPC, Inc.
adding Value Institutional Portfolio series to Accounting Services
Agreement (a).
(9.23) Form of letter agreement between Registrant and PFPC, Inc.
adding High Yield Bond and Strategic Income Institutional Portfolio
series to Accounting Services Agreement (b).
(9.24) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated September 27, 1993 regarding expense
reimbursements (g).
(9.25) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated December 15, 1993, adding International
Growth Portfolio series to agreement regarding expense
reimbursements (g).
(9.26) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated April 22, 1994, adding Qualified Portfolio
series to agreement regarding expense reimbursements (g).
(9.27) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Emerging Growth Institutional Portfolio
series, Global Growth & Income Portfolio series and Mini-Cap Growth
Portfolio series to agreement regarding expense reimbursements (g).
(9.28) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Series B Portfolios to agreement
regarding expense reimbursement (g).
(9.29) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Qualified and Fixed Income Portfolio
series to agreement regarding expense reimbursement (g).
(9.30) Letter agreement between Registrant and Nicholas-Applegate
Capital Management revising expense reimbursement agreement with
respect to Government Income Portfolios (g).
(9.31) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Value Institutional Portfolio
series to agreement regarding expense reimbursement (a).
(9.32) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding High Yield Bond and Strategic
Income Institutional Portfolio series to agreement regarding
expense reimbursement (b).
C-4
<PAGE>
(9.33) Credit Agreement among Registrant, Chemical Bank and certain
other banks dated April 10, 1996 (g).
(10) Opinion of Counsel (c).
(11) Consent of Ernst & Young L.L.P.
(12) Not applicable.
(13) Investment Letter of initial investor in Registrant dated April
1, 1993 (g).
(14.1) IRA Plan Materials (d).
(14.2) 401(k) Profit-Sharing Plan Materials (d).
(15) Amended Distribution Plan of Registrant (g)
(16) Schedule of Computation of Performance Quotations (c).
(17) Financial Data Schedule.
(18) Not applicable.
(19.1) Limited Powers of Attorney of Trustees (d).
(19.2) Limited Power of Attorney of Walter E. Auch (e).
(19.3) Limited Power of Attorney of John D. Wylie (f).
(19.4) Certified Resolution of Board of Trustees of Registrant
regarding Limited Power of Attorney of John D. Wylie (g).
(19.5) Financial statements of the Portfolio for the fiscal year ended
March 31, 1996 (provided for the information of the Commission
only, pursuant to Rule 303 of Regulation S-T and
Section 601(b)(13) of Regulation S-K).
- ------------------------------
(a) Filed as an Exhibit to Amendment No. 28 to Registrant's Form N-1A
Registration Statement on January 19, 1996 and incorporated herein by
reference.
(b) Filed as an Exhibit to Amendment No. 29 to Registrant's Form N-1A
Registration Statement on May 3, 1996 and incorporated herein by reference.
(c) Filed as an Exhibit to Amendment No. 1 to Registrant's Form N-1A
Registration Statement on March 15, 1993 and incorporated herein by
reference.
(d) Filed as an Exhibit to Amendment No. 12 to Registrant's Form N-1A
Registration Statement on August 1, 1994 and incorporated herein by
reference.
(e) Filed as an Exhibit to Amendment No. 14 to Registrant's Form N-1A
Registration Statement on September 26, 1994 and incorporated herein by
reference.
(f) Filed as an Exhibit to Amendment No. 27 to Registrant's Form N-1A
Registration Statement on January 19, 1996 and incorporated herein by
reference.
C-5
<PAGE>
(g) Filed as an Exhibit to Amendment No. 32 to Registrant's Form N-1A
Registration Statement on June 3, 1996 and incorporated herein by
reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Fred C. Applegate, Arthur B. Laffer and Charles E. Young, members of
the Board of Trustees of Registrant, are also three of the seven members of
the Board of Directors of Nicholas-Applegate Fund, Inc., a registered
investment company. Accordingly, Registrant and Nicholas-Applegate Fund,
Inc. may be deemed to be under common control.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of June 30, 1996, the number of record holders of each series of
Registrant was as follows:
Title of Series Number of Record Holders
--------------- ------------------------
Core Growth Portfolio A 6,344
Emerging Growth Portfolio A 11,148
Income & Growth Portfolio A 1,828
Balanced Growth Portfolio A 533
International Growth Portfolio A 124
Worldwide Growth Portfolio A 1,737
Government Income Portfolio A 112
Emerging Countries Portfolio A 824
Money Market Portfolio 159
Core Growth Portfolio B 1,517
Emerging Growth Portfolio B 639
Income & Growth Portfolio B 212
Balanced Growth Portfolio B 86
International Growth Portfolio B 136
Worldwide Growth Portfolio B 236
Government Income Portfolio B 25
Emerging Countries Portfolio B 639
Core Growth Portfolio C 14,412
Emerging Growth Portfolio C 17,069
Income & Growth Portfolio C 5,188
Balanced Growth Portfolio C 1,333
Worldwide Growth Portfolio C 5,821
International Growth Portfolio C 204
Government Income Portfolio C 304
Emerging Countries Portfolio C 675
Core Growth Institutional Portfolio 178
Emerging Growth Institutional Portfolio 177
Income & Growth Institutional Portfolio 104
Balanced Growth Institutional Portfolio 21
Worldwide Growth Institutional Portfolio 69
International Growth Institutional Portfolio 65
Emerging Countries Institutional Portfolio 104
Mini Cap Growth Institutional Portfolio 108
Fully Discretionary Institutional Fixed Income Portfolio 13
Short-Intermediate Institutional Fixed Income Portfolio 12
Core Growth Qualified Portfolio 50
Income & Growth Qualified Portfolio 10
Balanced Growth Qualified Portfolio 10
Worldwide Growth Qualified Portfolio 10
Government Income Qualified Portfolio 10
C-6
<PAGE>
Emerging Growth Qualified Portfolio 9
International Growth Qualified Portfolio 10
Emerging Countries Qualified Portfolio 7
Item 27. INDEMNIFICATION.
Registrant's trustees, officers, employees and agents against
liabilities incurred by them in connection with the defense or disposition of
any action or proceeding in which they may be involved or with which they may
be threatened, while in office or thereafter, by reason of being or having
been in such office, except with respect to matters as to which it has been
determined that they acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
their office ("Disabling Conduct").
Section 8 of Registrant's Administration Agreement, filed herewith
as Exhibit 9.1, provides for the indemnification of Registrant's
Administrator against all liabilities incurred by it in performing its
obligations under the Agreement, except with respect to matters involving its
Disabling Conduct. Section 9 of Registrant's Distribution Agreement, filed
herewith as Exhibit 6, provides for the indemnification of Registrant's
Distributor against all liabilities incurred by it in performing its
obligations under the Agreement, except with respect to matters involving its
Disabling Conduct. Section 4 of the Shareholder Service Agreement, filed
herewith as Exhibit 9.3, provides for the indemnification of Registrant's
Distributor against all liabilities incurred by it in performing its
obligations under the Agreement, except with respect to matters involving its
Disabling Conduct.
Registrant has obtained from a major insurance carrier a trustees'
and officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Nicholas-Applegate Capital Management, the investment adviser to the
Master Trust, is a California limited partnership, the general partner of
which is Nicholas-Applegate Capital Management, Inc. (the "General Partner").
During the two fiscal years ended December 31, 1995 Nicholas-Applegate
Capital Management has engaged principally in the business of providing
investment services to institutional and other clients. All of the
additional information required by this Item 28 with respect to the
Investment Adviser is set forth in the Form ADV, as amended, of
Nicholas-Applegate Capital Management (File No. 801-21442), which is
incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Nicholas-Applegate Securities does not act as a principal
underwriter, depositor or investment adviser to any investment company other
than Registrant.
(b) Nicholas-Applegate Securities, the Distributor of the shares
of Registrant's Portfolios, is a California limited partnership and its
general partner is Nicholas-Applegate Capital Management Holdings, L.P. (the
"General Partner"). Information is furnished below with respect to the
officers, partners and directors of the General Partner and
C-7
<PAGE>
Nicholas-Applegate Securities. The principal business address of such
persons is 600 West Broadway, 30th Floor, San Diego, California 92101, except
as otherwise indicated below.
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Principal Offices with
Business Address Underwriter Registrant
- ------------------ ----------- ------------
<S> <C> <C>
Arthur E. Nicholas Chairman and President None
Peter J. Johnson Vice President Vice President
Thomas Pindelski Chief Financial Officer Chief Financial Officer
E. Blake Moore, Jr. Secretary Secretary
Todd Spillane Director of Compliance None
</TABLE>
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained either at the offices of the Registrant (600
West Broadway, 30th Floor, San Diego, California 92101); the Investment
Adviser to the Trust and Master Trust, Nicholas-Applegate Capital Management
(600 West Broadway, 30th Floor, San Diego, California 92101); the
Administrator for the Trust and Master Trust, Investment Company
Administration Corporation (4455 East Camelback Road, Suite 261-E, Phoenix,
Arizona 85018); the Custodian, PNC Bank (Airport Business Center,
International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113); or the
Transfer and Dividend Disbursing Agent, State Street Bank & Trust Company (2
Heritage Drive, 7th Floor, North Quincy, Massachusetts 02171).
Item 31. MANAGEMENT SERVICES.
Not Applicable.
Item 32. UNDERTAKINGS.
Registrant hereby undertakes that if it is requested by the holders
of at least 10% of its outstanding shares to call a meeting of shareholders
for the purpose of voting upon the question of removal of a Trustee, it will
do so and will assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on
the 30th day of July, 1996. The undersigned hereby certifies that this
Amendment meets all of the requirements for effectiveness pursuant to Rule
485(b) under the Securities Act of 1933.
NICHOLAS-APPLEGATE MUTUAL FUNDS
By John D. Wylie*
---------------------
John D. Wylie
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
John D. Wylie* Principal Executive Officer July 30, 1996
- ------------------------
John D. Wylie
s/ THOMAS PINDELSKI Principal Financial and July 30, 1996
- ------------------------ Accounting Officer
Thomas Pindelski
Fred C. Applegate* Trustee July 30, 1996
- ------------------------
Fred C. Applegate
Arthur B. Laffer* Trustee July 30, 1996
- ------------------------
Arthur B. Laffer
Charles E. Young* Trustee July 30, 1996
- ------------------------
Charles E. Young
*s/ E. BLAKE MOORE, JR.
- ------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
</TABLE>
C-9
<PAGE>
SIGNATURES
Nicholas-Applegate Investment Trust has duly caused this Amendment
to Registration Statement on Form N-1A of Nicholas-Applegate Mutual Funds to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, State of California, on the 30th day of July, 1996. The
undersigned hereby certifies that this Amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933.
NICHOLAS-APPLEGATE INVESTMENT TRUST
By John D. Wylie*
----------------------
John D. Wylie
President
This Amendment to Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
John D. Wylie* Principal Executive Officer July 30, 1996
- ------------------------
John D. Wylie
s/ THOMAS PINDELSKI Principal Financial July 30, 1996
- ------------------------ and Accounting Officer
Thomas Pindelski
George F. Keane* Trustee July 30, 1996
- ------------------------
George F. Keane
Dann V. Angeloff* Trustee July 30, 1996
- ------------------------
Dann V. Angeloff
Walter E. Auch* Trustee July 30, 1996
- ------------------------
Walter E. Auch
Theodore J. Coburn* Trustee July 30, 1996
- ------------------------
Theodore J. Coburn
Darlene DeRemer* Trustee July 30, 1996
- ------------------------
Darlene DeRemer
Arthur E. Nicholas* Trustee July 30, 1996
- ------------------------
Arthur E. Nicholas
* s/ E. BLAKE MOORE, JR.
- ------------------------
By: E. Blake Moore, Jr.
Attorney in Fact
</TABLE>
C-10
<PAGE>
EXHIBIT INDEX
NICHOLAS-APPLEGATE MUTUAL FUNDS
AMENDMENT NO. 35 TO
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-7428
Exhibit No. Title of Exhibit
----------- ----------------
(1.1) Certificate of Trust of Registrant (g).
(1.2) Certificate of Amendment to Certificate of
Trust of Registrant (g).
(1.3) Amended and Restated Declaration of Trust of
Registrant (g).
(1.4) Certificate of Trustees dated August 6, 1993,
establishing Emerging Growth Portfolio series (g).
(1.5) Certificate of Trustees dated December 15,
1993, establishing International Growth Portfolio
series (g).
(1.6) Amendment No. 2 to Amended and Restated
Declaration of Trust (g).
(1.7) Amendment No. 3 to Amended and Restated
Declaration of Trust (g).
(1.8) Amendment No. 4 to Amended and Restated
Declaration of Trust (g).
(1.9) Amendment No. 5 to Amended and Restated
Declaration of Trust (g).
(1.10) Amendment No. 6 to Amended and Restated
Declaration of Trust (g).
(1.11) Amendment No. 7 to Amended and Restated
Declaration of Trust (g).
(1.12) Form of Amendment No. 8 to Amended and
Restated Declaration of Trust (g).
(1.13) Amendment No. 9 to Amended and Restated
Declaration of Trust (g).
(1.14) Form of Amendment No. 10 to Amended and
Restated Declaration of Trust (b).
(2.1) Amended Bylaws of Registrant (g).
(2.2) Amendment to Section 2.5 of Bylaws of
Registrant (g).
(3) None.
(4) None.
C-11
<PAGE>
Exhibit No. Title of Exhibit
----------- ----------------
(5) None.
(6.1) Distribution Agreement between Registrant and
Nicholas-Applegate Securities dated as of April
19, 1993 (g).
(6.2) Letter agreement between Registrant and
Nicholas-Applegate Securities dated May 17, 1993,
adding certain Institutional (formerly Qualified)
Portfolio series and Emerging Growth Portfolio
series to Distribution Agreement (g).
(6.3) Letter agreement between Registrant and
Nicholas-Applegate Securities dated December 15,
1993, adding International Growth Portfolio series
to Distribution Agreement (g).
(6.4) Letter agreement between Registrant and
Nicholas-Applegate Securities dated April 22,
1994, adding Qualified Portfolio series to
Distribution Agreement (g).
(6.5) Letter agreement between Registrant and
Nicholas-Applegate Securities, adding Emerging
Countries Growth Portfolio series, Global Growth &
Income Portfolio series and Mini-Cap Growth
Portfolio series to Distribution Agreement (g).
(6.6) Letter agreement between Registrant and
Nicholas-Applegate Securities, adding Series B
Portfolios to Distribution Agreement (g).
(6.7) Letter agreement between Registrant and
Nicholas-Applegate Securities, adding Fixed Income
and Qualified Portfolio series to Distribution
Agreement (g).
(6.8) Form of letter agreement between Registrant
and Nicholas-Applegate Securities, adding Value
Institutional Portfolio series to Distribution
Agreement (a).
(6.9) Form of letter agreement between Registrant
and Nicholas-Applegate Securities, adding High
Yield Bond and Strategic Income Institutional
Portfolio series to Distribution Agreement (b).
(7) None.
(8.1) Custodian Services Agreement between
Registrant and PNC Bank dated as of April 1, 1993
(g).
(8.2) Letter agreement between Registrant and PNC
Bank dated July 19, 1993, adding certain
Institutional (formerly Qualified) Portfolio
series to Custodian Services Agreement (g).
(8.3) Letter agreement between Registrant and PNC
Bank dated August 20, 1993, adding Emerging Growth
Portfolio series to Custodian Services Agreement
(g).
C-12
<PAGE>
Exhibit No. Title of Exhibit
----------- ----------------
(8.4) Letter agreement between Registrant and PNC
Bank dated December 15, 1993, adding International
Growth Portfolio series to Custodian Services
Agreement (g).
(8.5) Letter agreement between Registrant and PNC
Bank dated April 22, 1994, adding Core Growth
Qualified Portfolio series to Custodian Services
Agreement (g).
(8.6) Letter agreement between Registrant and PNC
Bank, adding Emerging Countries Growth Portfolio
series, Global Growth & Income Portfolio series
and Mini-Cap Growth Portfolio series to Custodian
Services Agreement (g).
(8.7) Letter agreement between Registrant and PNC
Bank, adding Series B Portfolios to Custodian
Services Agreement (g).
(8.8) Letter agreement between Registrant and PNC
Bank, adding Fixed Income Portfolio series to
Custodian Services Agreement (g).
(8.9) Form of letter agreement between Registrant
and PNC Bank adding Value Institutional Portfolio
series to Custodian Services Agreement (a).
(8.10) Form of letter agreement between Registrant
and PNC Bank adding High Yield Bond and Strategic
Income Institutional Portfolio series to Custodian
Services Agreement (b).
(9.1) Administration Agreement between Registrant
and Investment Company Administration Corporation
dated as of April 1, 1993 (g).
(9.2) Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company
dated as of April 1, 1993 (g).
(9.3) Letter agreement between Registrant and State
Street Bank and Trust Company dated July 19, 1993,
adding certain Institutional (formerly Qualified)
Portfolio series to Transfer Agency and Service
Agreement (g).
(9.4) Letter agreement between Registrant and State
Street Bank and Trust Company dated August 20,
1993, adding Emerging Growth Portfolio Series to
Transfer Agency and Service Agreement (g).
(9.5) Letter agreement between Registrant and State
Street Bank and Trust Company dated December 15,
1993, adding International Growth Portfolio series
to Transfer Agency and Service Agreement (g).
(9.6) Letter agreement between Registrant and State
Street Bank and Trust Company dated April 22,
1994, adding Core Growth Qualified Portfolio
series to Transfer Agency and Service Agreement
(g).
(9.7) Letter agreement between Registrant and State
Street Bank and Trust Company, adding Emerging
Countries Growth Portfolio series,
C-13
<PAGE>
Global Growth & Income Portfolio series and Mini-Cap Growth
Portfolio series to Transfer Agency and Service
Agreement (g).
Exhibit No. Title of Exhibit
----------- ----------------
(9.8) Letter agreement between Registrant and State
Street Bank and Trust Company, adding Series B
Portfolios to Transfer Agency and Service
Agreement (g).
(9.9) Form of letter agreement between Registrant
and State Street Bank and Trust Company, adding
Fixed Income Portfolio series to Transfer Agency
and Service Agreement (g).
(9.10) Form of letter agreement between Registrant
and State Street Bank and Trust Company, adding
Value Institutional Portfolio series to Transfer
Agency and Service Agreement (a).
(9.11) Form of letter agreement between Registrant
and State Street Bank and Trust Company, adding
High Yield Bond and Strategic Income Institutional
Portfolio series to Transfer Agency and Service
Agreement (b).
(9.12) Shareholder Service Plan between Registrant
and Nicholas-Applegate Securities (g).
(9.13) License Agreement dated as of December 17,
1992, between Registrant and Nicholas-Applegate
Capital Management (g).
(9.14) Accounting Services Agreement between
Registrant and PFPC Inc. dated as of April 1, 1993
(g).
(9.15) Letter agreement between Registrant and PFPC
Inc. dated July 19, 1993, adding certain
Institutional (formerly Qualified) Portfolio
series to Accounting Services Agreement (g).
(9.16) Letter agreement between Registrant and PFPC
Inc. dated August 20, 1993, adding Emerging Growth
Portfolio series to Accounting Services Agreement
(g).
(9.17) Letter agreement between Registrant and PFPC
Inc. dated December 15, 1993, adding International
Growth Portfolio series to Accounting Services
Agreement (g).
(9.18) Letter agreement between Registrant and PFPC
Inc. dated April 22, 1994, adding Core Growth
Qualified Portfolio series to Accounting Services
Agreement (g).
(9.19) Letter agreement between Registrant and PFPC
Inc., adding Emerging Countries Growth Portfolio
series, Global Growth & Income Portfolio series
and Mini-Cap Growth Portfolio series to Accounting
Services Agreement (g).
(9.20) Letter agreement between Registrant and PFPC
Inc., adding Series B Portfolios to Accounting
Services Agreement (g).
C-14
<PAGE>
Exhibit No. Title of Exhibit
----------- ----------------
(9.21) Letter agreement between Registrant and PFPC
Inc., adding Fixed Income Portfolio series to
Accounting Services Agreement (g).
(9.22) Form of letter agreement between Registrant
and PFPC, Inc. adding Value Institutional
Portfolio series to Accounting Services Agreement
(a).
(9.23) Form of letter agreement between Registrant
and PFPC, Inc. adding High Yield Bond and
Strategic Income Institutional Portfolio series to
Accounting Services Agreement (b).
(9.24) Letter agreement between Registrant and
Nicholas-Applegate Capital Management dated
September 27, 1993 regarding expense
reimbursements (g).
(9.25) Letter agreement between Registrant and
Nicholas-Applegate Capital Management dated
December 15, 1993, adding International Growth
Portfolio series to agreement regarding expense
reimbursements (g).
(9.26) Letter agreement between Registrant and
Nicholas-Applegate Capital Management dated April
22, 1994, adding Qualified Portfolio series to
agreement regarding expense reimbursements (g).
(9.27) Letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding
Emerging Growth Institutional Portfolio series,
Global Growth & Income Portfolio series and Mini-
Cap Growth Portfolio series to agreement regarding
expense reimbursements (g).
(9.28) Letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding
Series B Portfolios to agreement regarding expense
reimbursement (g).
(9.29) Letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding
Qualified and Fixed Income Portfolio series to
agreement regarding expense reimbursement (g).
(9.30) Letter agreement between Registrant and
Nicholas-Applegate Capital Management revising
expense reimbursement agreement with respect to
Government Income Portfolios (g).
(9.31) Form of letter agreement between Registrant
and Nicholas-Applegate Capital Management, adding
Value Institutional Portfolio series to agreement
regarding expense reimbursement (a).
(9.32) Form of letter agreement between Registrant
and Nicholas-Applegate Capital Management, adding
High Yield Bond and Strategic Income Institutional
Portfolio series to agreement regarding expense
reimbursement (b).
(9.33) Credit Agreement among Registrant, Chemical
Bank and certain other banks dated April 10, 1996
(g).
C-15
<PAGE>
Exhibit No. Title of Exhibit
----------- ----------------
(10) Opinion of Counsel (c).
(11) Consent of Ernst & Young L.L.P.
(12) Not applicable.
(13) Investment Letter of initial investor in
Registrant dated April 1, 1993 (g).
(14.1) IRA Plan Materials (d).
(14.2) 401(k) Profit-Sharing Plan Materials (d).
(15) Amended Distribution Plan of Registrant (g).
(16) Schedule of Computation of Performance Quotations
(c).
(17) Financial Data Schedule.
(18) Not applicable.
(19.1) Limited Powers of Attorney of Trustees (d).
(19.2) Limited Power of Attorney of Walter E. Auch
(e).
(19.3) Limited Power of Attorney of John D. Wylie
(f).
(19.4) Certified Resolution of Board of Trustees of
Registrant regarding Limited Power of Attorney of
John D. Wylie (g).
(19.5) Financial statements of the Portfolio for the
fiscal year ended March 31, 1996 (provided for the
information of the Commission only, pursuant to
Rule 303 of Regulation S-T and Section 601(b)(13)
of Regulation S-K).
__________________________
(a) Filed as an Exhibit to Amendment No. 28 to Registrant's Form N-1A
Registration Statement on January 19, 1996 and incorporated herein by
reference.
(b) Filed as an Exhibit to Amendment No. 29 to Registrant's Form N-1A
Registration Statement on May 3, 1996 and incorporated herein by
reference.
(c) Filed as an Exhibit to Amendment No. 1 to Registrant's Form N-1A
Registration Statement on March 15, 1993 and incorporated herein by
reference.
(d) Filed as an Exhibit to Amendment No. 12 to Registrant's Form N-1A
Registration Statement on August 1, 1994 and incorporated herein by
reference.
C-16
<PAGE>
Exhibit No. Title of Exhibit
----------- ----------------
(e) Filed as an Exhibit to Amendment No. 14 to Registrant's Form N-1A
Registration Statement on September 26, 1994 and incorporated herein
by reference.
(f) Filed as an Exhibit to Amendment No. 27 to Registrant's Form N-1A
Registration Statement on January 19, 1996 and incorporated herein by
reference.
(g) Filed as an Exhibit to Amendment No. 32 to Registrant's Form N-1A
Registration Statement on June 3, 1996 and incorporated herein by
reference.
C-17
<PAGE>
EXHIBIT 11
ERNST & YOUNG LLP - 515 S. Flower Street - Phone: 213 977-3200
Los Angeles, CA 90071
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Additional Information", "Independent Auditors", and "Financial
Statements", and to the use of our report dated May 10, 1996, in
Post-Effective Amendment No. 33 to the Registration Statement and related
Statement of Additional Information of Nicholas-Applegate Mutual Funds.
Los Angeles, California
August 2, 1996
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996
- ------------------------------------------------------------------------
MINI CAP
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS -- 95.4%
- ----------------------------------------------
<TABLE>
<S> <C> <C>
AIRLINES -- 1.9%
Mesaba Holdings, Inc.*..................... 25,100 $ 277,669
Reno Air, Inc.*............................ 15,200 190,000
------------
467,669
------------
APPAREL -- 4.7%
Chaus (Bernard), Inc.*..................... 16,300 73,350
Cole Kenneth Productions, Inc.............. 5,400 96,525
Cutter & Buck, Inc.*....................... 10,900 109,000
Donnkenny, Inc.*........................... 10,500 169,312
Genesco, Inc.*............................. 17,500 83,125
Madden Steven*............................. 6,000 39,000
Marisa Christina, Inc.*.................... 7,500 150,937
Pacific Sunware of California, Inc.*....... 7,300 89,425
Quiksilver, Inc.*.......................... 6,200 196,850
Vans, Inc.*................................ 13,300 184,537
------------
1,192,061
------------
AUTOMOTIVE EQUIPMENT -- 0.7%
Strattec Security Corp.*................... 7,500 123,750
Supreme Industries, Inc. Class A*.......... 6,250 45,312
------------
169,062
------------
BIOTECHNOLOGY -- 5.7%
Cambridge Neuroscience, Inc.*.............. 6,800 81,600
Cryolife, Inc.*............................ 5,600 120,400
Cytel Corp.*............................... 19,200 144,000
Genelabs Technologies, Inc.*............... 33,500 226,125
Guilford Pharmaceuticals*.................. 8,500 190,185
Magainin Pharmaceuticals, Inc.*............ 5,900 61,950
Martek Biosciences Corp.*.................. 2,800 100,800
Matritech, Inc.*........................... 29,600 344,100
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
BIOTECHNOLOGY (CONTINUED)
Oncogene Science, Inc.*.................... 18,500 $ 168,813
------------
1,437,973
------------
BROADCASTING -- 1.8%
Argyle Television, Inc.*................... 6,100 132,675
Multi-Market Radio, Inc. Class A*.......... 9,500 95,000
United Video Satellite Group Class A*...... 11,100 233,100
------------
460,775
------------
BUILDING MATERIALS -- 1.1%
Hexcel Corp.*.............................. 11,900 139,825
Shaw Group, Inc.*.......................... 7,800 135,525
------------
275,350
------------
BUILDING MATERIAL CHAINS -- 0.6%
Orchard Supply Hardware*................... 6,900 163,013
------------
CLOTHING CHAINS -- 0.9%
Buckle, Inc.*.............................. 9,400 239,700
------------
COMPUTERS/OFFICE AUTOMATION -- 0.9%
Brooktrout Technology, Inc.*............... 6,900 238,050
------------
CONTRACT DRILLING -- 0.3%
Unit Corp.*................................ 11,000 63,250
------------
DRUGS/PHARMACEUTICALS -- 2.8%
Curative Technologies, Inc.*............... 9,800 181,300
IBAH, Inc.*................................ 15,500 108,500
IDEC Pharmaceuticals Corp.*................ 9,200 204,700
Inhale Therapeutic Systems*................ 6,200 94,550
Sangstat Medical Corp.*.................... 7,400 119,325
------------
708,375
------------
ELECTRONIC DATA PROCESSING -- 0.7%
Cycare Systems, Inc.*...................... 6,000 171,000
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
ELECTRONIC INSTRUMENTS/DIVERSIFIED -- 1.9%
Checkmate Electronics, Inc.*............... 11,800 $ 153,400
Lecroy Corp.*.............................. 8,500 123,250
Powell Industries, Inc.*................... 11,400 111,150
Robotic Vision Systems, Inc.*.............. 5,300 85,462
------------
473,262
------------
ENTERTAINMENT -- 0.4%
Ambassador International, Inc.*............ 8,700 95,700
------------
ENVIRONMENTAL SERVICES -- 0.7%
Continental Waste Industries, Inc.*........ 17,266 187,768
------------
FINANCE COMPANIES -- 1.8%
Imperial Credit Industries, Inc.*.......... 5,730 140,385
Resource Bancshares Mortgage Group, Inc.*.. 6,560 102,500
Sirrom Capital Corp........................ 9,400 215,025
------------
457,910
------------
GAMBLING -- 0.7%
Penn National Gaming, Inc.*................ 9,400 165,675
------------
HOME FURNISHING -- 0.6%
Bush Industries, Inc. Class A.............. 6,100 154,025
------------
HOMEBUILDING -- 2.6%
Cavalier Homes, Inc........................ 11,300 175,150
Continental Homes Holding Corp............. 11,200 257,600
Crossmann Communities, Inc.*............... 7,500 135,000
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
HOMEBUILDING (CONTINUED)
M / I Schottenstein Homes*................. 9,400 $ 96,350
------------
664,100
------------
HOSPITALS -- 0.7%
Health Management Systems, Inc.*........... 5,950 168,087
------------
INDUSTRIAL ENGINEERING/CONSTRUCTION -- 1.8%
Greenwich Air Services, Inc.*.............. 8,800 374,000
Starrett Corp.............................. 8,000 86,000
------------
460,000
------------
LODGING -- 0.7%
Studio Plus Hotels, Inc.*.................. 6,100 169,275
------------
MACHINERY/EQUIPMENT -- 1.8%
Computational Systems, Inc.*............... 5,600 99,400
LSI Industries, Inc........................ 9,600 172,800
Miller Industries Inc./ Tenn.*............. 5,400 183,600
------------
455,800
------------
MANAGED HEALTH CARE/HMO'S/PPO'S -- 0.7%
Corvel Corp.*.............................. 5,400 189,000
------------
MEDICAL SPECIALTIES -- 0.3%
Impath, Inc................................ 5,200 76,700
------------
MEDICAL SUPPLIES -- 8.7%
AVECOR Cardiovascular, Inc.*............... 8,800 119,900
Capstone Pharmacy Services*................ 18,500 166,500
Conmed Corp.*.............................. 17,150 420,175
Hologic, Inc.*............................. 9,800 222,950
Inamed Corp.*.............................. 10,500 128,625
Kensey Nash Corp.*......................... 9,400 133,950
Lunar Corp.*............................... 5,850 250,087
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
9
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
MINI CAP
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
MEDICAL SUPPLIES (CONTINUED)
Meridian Diagnostics, Inc.*................ 19,100 $ 202,937
Minimed, Inc.*............................. 11,200 201,600
Osteotech, Inc.*........................... 9,000 67,500
Protocol Systems, Inc.*.................... 8,300 140,063
Vitalcom, Inc.*............................ 11,300 151,138
------------
2,205,425
------------
MEDICAL/NURSING/HEALTH SERVICES -- 3.0%
ABR Information Services, Inc.*............ 2,525 117,413
Equimed, Inc.*............................. 15,400 202,125
Pediatric Services of America, Inc.*....... 9,000 228,375
Prime Medical Services, Inc.*.............. 12,500 162,500
Sterling Healthcare Group*................. 3,400 48,450
------------
758,863
------------
MILITARY/DEFENSE TECHNOLOGY -- 0.6%
Tracor, Inc.*.............................. 8,900 155,194
------------
MULTI-LINE INSURERS -- 0.6%
Delphi Financial Group, Inc. Class A*...... 6,100 146,400
------------
OIL/GAS PRODUCTION -- 0.5%
Lomak Petroleum, Inc....................... 11,200 131,600
------------
OILFIELD SERVICES/EQUIPMENT -- 0.7%
Dreco Energy Services LTD, Class A*........ 9,300 186,000
------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 3.5%
National Wireless, Holdings Inc.*.......... 8,100 125,550
On Assignment, Inc.*....................... 5,000 190,000
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
OTHER COMMERCIAL/ INDUSTRIAL SERVICES
(CONTINUED)
PMT Services, Inc.*........................ 10,400 $ 249,600
Right Management Consultants, Inc.*........ 800 23,600
Techforce Corp.*........................... 10,400 109,200
Youth Services International, Inc.*........ 7,600 193,800
------------
891,750
------------
OTHER CONSUMER SERVICES -- 1.2%
Amre, Inc.*................................ 11,200 208,600
TRM Copy Centers Corp.*.................... 8,500 93,500
------------
302,100
------------
OTHER FINANCIAL SERVICES -- 0.5%
Dignity Partners, Inc.*.................... 10,700 125,725
------------
OTHER HEALTH TECHNOLOGY/SERVICES -- 3.0%
Horizon Mental Health Management, Inc.*.... 9,600 202,800
National Dentex Corp.*..................... 5,400 118,125
Transcend Services, Inc.*.................. 22,800 205,200
Veterinary Centers of America, Inc.*....... 8,500 229,500
------------
755,625
------------
OTHER PRODUCERS/MANUFACTURING -- 0.4%
Schnitzer Steel Industries, Inc. Class A... 300 7,838
Vista 2000, Inc.*.......................... 8,200 82,000
------------
89,838
------------
OTHER RETAIL TRADE -- 0.6%
Motorcar Parts............................. 10,200 160,650
------------
OTHER TECHNOLOGY -- 1.5%
Computer Products, Inc.*................... 15,700 211,950
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
10
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
OTHER TECHNOLOGY (CONTINUED)
Renaissance Solutions, Inc.*............... 5,500 $ 159,500
------------
371,450
------------
PRINTING/FORMS -- 0.6%
Norwood Promotional Products*.............. 7,800 161,850
------------
REAL ESTATE BROKERS/SERVICES -- 0.9%
Redwood Trust, Inc......................... 10,700 219,350
------------
RECREATIONAL PRODUCTS -- 0.9%
Galoob Lewis Toys, Inc.*................... 11,200 226,800
------------
RENTAL/LEASING COMPANIES -- 0.4%
Rent Way, Inc.*............................ 11,000 111,375
------------
RESTAURANTS -- 4.4%
Cooker Restaurant Corp..................... 12,700 177,800
Longhorn Steaks, Inc.*..................... 9,000 207,000
Manhattan Bagel, Inc.*..................... 7,300 169,725
Quality Dining, Inc.*...................... 6,100 179,950
Rainforest Cafe, Inc.*..................... 8,300 261,450
Schlotzsky's, Inc.*........................ 10,500 107,625
------------
1,103,550
------------
SAVINGS & LOAN ASSOCIATIONS -- 0.5%
Norwich Financial Corp..................... 8,400 116,550
------------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 1.5%
Emerson Radio Corp.*....................... 23,100 59,194
NU Horizons Electronics Corp.*............. 13,200 179,850
Radisys Corp.*............................. 8,500 136,000
------------
375,044
------------
SOAPS/COSMETICS -- 0.5%
Parlux Fragrances, Inc.*................... 10,000 123,750
------------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
SOFTWARE -- 11.5%
Applied Microsystem Corp.*................. 12,300 $ 115,313
Bachman Information Systems*............... 11,200 93,800
Ciber, Inc.*............................... 4,100 134,275
Cimatron LTD.*............................. 10,000 72,500
Datastream Systems, Inc.*.................. 7,300 158,775
Engineering Animation, Inc.*............... 5,500 114,813
GSE Systems, Inc.*......................... 5,500 79,063
Health Systems Design Corp.*............... 8,300 114,125
IKOS Systems, Inc.*........................ 12,700 212,725
Inference Corp. Class A*................... 7,800 144,300
MDL Information Systems, Inc.*............. 11,200 235,900
Mecon, Inc.*............................... 6,600 130,350
Meridian Data, Inc.*....................... 7,900 81,963
Meta-Software, Inc.*....................... 9,400 157,450
Micrografx, Inc.*.......................... 10,600 137,800
Perceptron, Inc.*.......................... 5,000 129,375
TRO Learning, Inc.*........................ 10,600 144,425
Unison Software, Inc.*..................... 4,700 108,100
Veritas Software Co.*...................... 5,900 191,013
Viasoft, Inc.*............................. 5,800 163,125
Wind River Systems, Inc.*.................. 5,700 175,275
------------
2,894,465
------------
SPECIALTY CHAINS -- 4.5%
Finish Line, Inc., Class A*................ 11,100 188,700
Garden Ridge Corp.*........................ 17,800 814,350
West Marine, Inc.*......................... 3,100 144,150
------------
1,147,200
------------
SPECIALTY INSURERS -- 0.2%
First Commonwealth*........................ 2,200 56,650
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
MINI CAP
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
TELECOMMUNICATIONS EQUIPMENT -- 4.2%
California Amplifier, Inc.*................ 8,200 $ 219,350
Davox Corp.*............................... 8,800 156,200
Microwave Power Devices, Inc.*............. 1,200 9,900
Performance Technologies, Inc.*............ 11,000 127,875
Proxim, Inc.*.............................. 10,800 271,350
Remec, Inc.*............................... 10,500 131,250
Teledata Communications LTD*............... 13,800 146,625
------------
1,062,550
------------
TELEPHONE -- 0.9%
Pricellular Corp. Class A*................. 9,750 130,406
USCI, Inc.*................................ 8,900 84,550
------------
214,956
------------
TRUCKING -- 0.3%
Knight Transportation Inc.*................ 5,600 84,000
------------
WHOLESALE DISTRIBUTION -- 2.5%
Anicom, Inc.*.............................. 10,500 141,750
Central Garden & Pet Co.*.................. 14,300 135,850
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
WHOLESALE DISTRIBUTION (CONTINUED)
Daisytek International Corp.*.............. 5,400 $ 178,200
Nuco2, Inc.*............................... 9,500 165,063
------------
620,863
------------
TOTAL COMMON STOCKS
(Cost $20,942,902)..................................... $ 24,103,153
------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- -----------------------------------------------------------------------
COMMERCIAL PAPER -- 3.1%
- -----------------------------------------------------------------------
Associates Corporation of America 5.43%,
04/01/96 (Cost $771,767)................. $ 772,000 771,767
TOTAL INVESTMENTS -- 98.5%
(Cost $21,714,669)..................................... $ 24,874,920
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.5%............ 389,049
------------
NET ASSETS -- 100.0%..................................... $ 25,263,969
------------
<FN>
- ------------
* Non-income producing security.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
12
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996
- ------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK -- 98.6%
- ----------------------------------------------
<TABLE>
<S> <C> <C>
ADVERTISING -- 0.4%
CKS Group*................................. 65,000 $ 1,657,500
Eagle River Interactive, Inc.*............. 40,000 520,000
-----------
2,177,500
-----------
AEROSPACE -- 0.5%
Hexcel Corp.*.............................. 43,600 512,300
Rohr Industries, Inc.*..................... 90,000 1,620,000
Tracor, Inc.*.............................. 40,000 697,500
-----------
2,829,800
-----------
AGRICULTURE -- 0.5%
Dekalb Genetics Corp. Class B.............. 19,500 1,447,875
Delta & Pine Land Co....................... 30,000 1,668,750
-----------
3,116,625
-----------
AIR FREIGHT/SHIPPING -- 0.3%
Atlas Air, Inc.*........................... 42,600 1,597,500
-----------
AIRLINES -- 2.6%
Alaska Air Group, Inc.*.................... 55,200 1,476,600
America West Airlines, Inc.*............... 125,400 2,680,425
Mesa Airlines, Inc.*....................... 225,000 2,418,750
Midwest Express Holdings, Inc.*............ 40,000 1,500,000
Reno Air, Inc.*............................ 20,000 250,000
Trans World Airlines, Inc.*................ 335,000 6,700,000
-----------
15,025,775
-----------
ALCOHOLIC BEVERAGES -- 0.1%
Mondavi (Robert) Corp.*.................... 21,900 563,925
-----------
APPAREL -- 3.3%
Authentic Fitness Corp..................... 59,500 1,539,562
Cole Kenneth Productions, Inc.*............ 106,000 1,894,750
Donnkenny, Inc.*........................... 99,000 1,596,375
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
APPAREL (CONTINUED)
Marisa Christina, Inc.*.................... 40,400 $ 813,050
Nautica Enterprises, Inc.*................. 108,825 5,196,394
Quiksilver, Inc.*.......................... 46,200 1,466,850
St. John Knits, Inc........................ 24,000 1,617,000
Urban Outfitters, Inc.*.................... 20,000 605,000
Vans, Inc.*................................ 60,000 832,500
Wolverine Worldwide, Inc................... 139,800 3,914,400
-----------
19,475,881
-----------
BIOTECHNOLOGY -- 5.2%
Alteon, Inc.*.............................. 60,000 615,000
Applied Bioscience International, Inc.*.... 80,000 730,000
Arthrocare Corp.*.......................... 27,200 598,400
Biochem Pharma, Inc.*...................... 10,300 422,300
Carrington Laboratories, Inc.*............. 8,500 244,375
Cytel Corp.*............................... 30,000 225,000
Cytyc Corp.*............................... 7,000 117,250
Depotech Corp.*............................ 20,000 490,000
Endovascular Technologies, Inc.*........... 40,000 400,000
Femrx, Inc.*............................... 20,000 195,000
Genome Therapeutics Corp.*................. 37,000 383,875
Gilead Sciences, Inc.*..................... 45,000 1,293,750
IDEXX Laboratories Inc.*................... 29,800 1,251,600
Integra Lifesciences Corp.*................ 23,000 270,250
Interneuron Pharmaceuticals, Inc.*......... 63,400 2,353,725
Martek Biosciences Corp.*.................. 65,800 2,368,800
Matritech, Inc.*........................... 13,000 151,125
Medimmune, Inc.*........................... 55,000 866,250
Mentor Corp................................ 144,200 3,370,675
Neurex Corp.*.............................. 120,000 2,490,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
BIOTECHNOLOGY (CONTINUED)
Neurogen Corp.*............................ 52,000 $ 1,794,000
Nexstar Pharmaceuticals, Inc.*............. 50,000 987,500
Pharmaceutical Product Development,
Inc.*.................................... 9,000 317,250
Protein Design Laboratories, Inc.*......... 72,000 1,773,000
Quintiles Transnational Corp.*............. 48,600 3,159,000
Regeneron Pharmaceuticals, Inc.*........... 40,000 510,000
Sequana Therapeutics, Inc.*................ 8,000 156,000
Sequus Pharmaceuticals, Inc.*.............. 194,100 2,681,006
Theratech, Inc.*........................... 16,400 348,500
-----------
30,563,631
-----------
BROADCASTING -- 2.3%
American Radio Systems Corp.*.............. 59,400 2,004,750
Argyle Television, Inc.*................... 22,000 478,500
Chancellor Broadcasting Corp.*............. 45,000 990,000
Data Broadcasting Corp.*................... 60,000 637,500
E Z Communications, Inc.*.................. 10,000 215,000
Emmis Broadcasting Corp.*.................. 35,100 1,351,350
Evergreen Media Corp.*..................... 69,400 2,498,400
Renaissance Communications Corp.*.......... 68,250 1,697,719
Saga Communications, Inc.*................. 40,050 851,062
SFX Broadcasting, Inc.*.................... 12,000 409,500
United Video Satellite Group, Inc.*........ 36,600 768,600
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
BROADCASTING (CONTINUED)
Westwood One, Inc.*........................ 72,200 $ 1,326,675
Young Broadcasting Inc.*................... 11,400 339,150
-----------
13,568,206
-----------
BUILDING MATERIALS -- 0.2%
NCI Building Systems*...................... 20,000 685,000
Watsco, Inc................................ 10,000 260,000
-----------
945,000
-----------
CATALOG/OUTLET STORES -- 0.2%
The Sports Authority, Inc.*................ 32,800 897,800
-----------
CHEMICALS -- 0.6%
Mississippi Chemical Corp.................. 96,800 1,960,200
OM Group, Inc.............................. 42,000 1,559,250
-----------
3,519,450
-----------
CLOTHING CHAINS -- 0.7%
Charming Shoppes, Inc.*.................... 310,000 1,598,437
Ross Stores, Inc........................... 98,300 2,469,787
-----------
4,068,224
-----------
COAL MINING -- 0.1%
Zeigler Coal Holding Company............... 25,000 362,500
-----------
COMMERCIAL/INDUSTRIAL SERVICES -- 0.8%
BT Office Products Int'l, Inc.*............ 33,000 556,875
Caribiner International, Inc.*............. 7,000 180,250
Ideon Group, Inc........................... 34,000 378,250
Personnel Group Inc.*...................... 30,000 547,500
Physician Support Systems Inc.*............ 23,000 393,875
Pia Merchandising Services, Inc.*.......... 23,300 433,962
Pre Paid Legal Services, Inc.*............. 55,500 825,563
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
18
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
COMMERCIAL/INDUSTRIAL SERVICES (CONTINUED)
Profit Recovery Group, Inc.*............... 15,000 $ 232,500
Protection One Inc.*....................... 78,000 1,150,500
Superior Services, Inc.*................... 9,000 119,250
-----------
4,818,525
-----------
COMPUTERS/OFFICE AUTOMATION -- 4.9%
Auspex Systems, Inc.*...................... 140,300 2,507,862
Brooktrout Technology, Inc.*............... 12,000 414,000
Cognex Corp.*.............................. 117,400 3,008,375
Computer Horizons Corp.*................... 96,300 3,635,325
Computervision Corp.*...................... 54,400 564,400
Data General Corp.*........................ 139,700 2,043,112
Eltron International, Inc.*................ 39,150 1,291,950
IDX Systems Corp.*......................... 8,000 232,000
Microcom, Inc.*............................ 119,900 3,582,012
Micros Systems, Inc.*...................... 67,700 1,692,500
Mylex Corp.*............................... 80,000 1,900,000
Network Appliance, Inc.*................... 7,000 222,250
Safeguard Scientifics, Inc.*............... 58,650 3,438,356
Security Dynamics Technology, Inc.*........ 17,500 927,500
Telxon Corp.*.............................. 151,600 3,221,500
Xeikon NV Sponsored ADR*................... 7,500 145,313
-----------
28,826,455
-----------
CONTAINERS -- 0.2%
Aptargroup, Inc............................ 14,500 601,750
U.S. Can Corp.*............................ 20,000 340,000
-----------
941,750
-----------
CONTRACT DRILLING -- 1.2%
Global Marine, Inc.*....................... 107,000 1,070,000
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
CONTRACT DRILLING (CONTINUED)
Nabors Industries, Inc.*................... 58,300 $ 830,775
Noble Drillings, Corp.*.................... 185,700 2,298,037
Reading & Bates Corp.*..................... 149,100 2,944,725
-----------
7,143,537
-----------
DEPARTMENT/DISCOUNT
STORES -- 0.3%
Carson, Pirie Scott & Co.*................. 34,500 776,250
Proffits, Inc.*............................ 25,200 793,800
-----------
1,570,050
-----------
DRUGS/PHARMACEUTICALS -- 3.3%
Biovail Corp.*............................. 53,000 1,503,875
Columbia Laboratories, Inc.*............... 30,000 356,250
Curative Technologies, Inc.*............... 80,000 1,480,000
Dura Pharmaceuticals, Inc.*................ 104,500 5,185,812
Fuisz Technologies, Inc.*.................. 85,000 2,295,000
IDEC Pharmaceuticals Corp.*................ 64,000 1,424,000
Jones Medical Industries, Inc.............. 18,750 721,875
Matrix Pharmaceutical, Inc.*............... 40,000 925,000
Nabi, Inc.*................................ 129,600 1,709,100
Noven Pharmaceuticals, Inc.*............... 70,000 1,006,250
Pathogenesis Corp.*........................ 40,000 655,000
Sangstat Medical Corp.*.................... 10,000 161,250
Sepracor, Inc.*............................ 125,000 1,828,125
-----------
19,251,537
-----------
ELECTRONIC DATA PROCESSING -- 0.5%
Affiliated Computer Services, Inc.*........ 34,800 1,446,375
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
19
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
ELECTRONIC DATA PROCESSING (CONTINUED)
Envoy Corp.*............................... 63,700 $ 1,496,950
-----------
2,943,325
-----------
ELECTRONIC INSTRUMENTS/DIVERSIFIED -- 2.6%
Belden, Inc................................ 38,800 1,144,600
Checkpoint Systems, Inc.*.................. 224,800 5,591,900
Coherent, Inc.*............................ 96,300 4,092,750
Cyberoptics Corp.*......................... 48,600 1,397,250
Itron, Inc.*............................... 41,000 1,834,750
Robotic Vision Systems, Inc.*.............. 33,200 535,350
Trident International, Inc.*............... 18,000 342,000
-----------
14,938,600
-----------
ENTERTAINMENT -- 0.5%
Family Golf Centers, Inc.*................. 20,000 535,000
Hollywood Entertainment Corp.*............. 40,000 530,000
Premiere Radio Network, Inc.*.............. 26,400 495,000
Regal Cinemas, Inc.*....................... 32,925 1,218,225
-----------
2,778,225
-----------
ENVIRONMENTAL SERVICES
-- 1.8%
Allied Waste Industries, Inc.*............. 40,000 365,000
Continental Waste Industries, Inc.*........ 58,333 634,371
Newpark Resources, Inc.*................... 20,585 612,404
Tetra Technologies, Inc.*.................. 42,300 729,675
United Waste Systems, Inc.*................ 86,600 4,330,000
U.S. Filter Corp.*......................... 47,600 1,332,800
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
ENVIRONMENTAL SERVICES
(CONTINUED)
U.S.A. Waste Services, Inc.*............... 103,700 $ 2,644,350
-----------
10,648,600
-----------
FINANCE COMPANIES -- 1.6%
AmeriCredit Corp.*......................... 99,000 1,373,625
CMAC Investment Corp....................... 42,300 2,389,950
First Merchants Acceptance, Inc.*.......... 16,300 360,637
Imperial Credit Industries, Inc.*.......... 91,800 2,249,100
North American Mortgage Co................. 72,200 1,480,100
Resource Bancshares Mortgage Group, Inc.*.. 11,900 185,937
WestCor., Inc.............................. 56,100 1,037,850
-----------
9,077,199
-----------
FINANCIAL SERVICES -- 0.2%
Cityscape Financial*....................... 25,000 900,000
-----------
GAMBLING -- 0.7%
Grand Casinos, Inc.*....................... 98,200 2,946,000
Sodak Gaming, Inc.*........................ 30,000 712,500
WMS Industries, Inc.*...................... 5,400 93,825
-----------
3,752,325
-----------
HEALTH TECHNOLOGY/SERVICES -- 0.0%
Prime Medical Services, Inc.*.............. 18,000 234,000
-----------
HOME FURNISHINGS -- 0.4%
Bush Industries, Inc. Class A.............. 12,000 303,000
Cort Business Services Corp.*.............. 30,000 540,000
Furniture Brands International, Inc.*...... 20,000 185,000
Renters Choice, Inc.*...................... 80,000 1,390,000
-----------
2,418,000
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
20
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
HOMEBUILDING -- 1.4%
American Homestar Corp.*................... 10,000 $ 198,750
Beazer Homes USA, Inc.*.................... 12,000 210,000
Champion Enterprises, Inc.*................ 39,700 1,136,413
Hovnanian Enterprises, Inc. Class A*....... 20,000 141,250
Kaufman & Broad Home Corp.................. 80,000 1,280,000
NVR, Inc.*................................. 15,000 143,437
Oakwood Homes Corp......................... 37,400 1,855,975
Redman Industries, Inc.*................... 27,800 562,950
Toll Brothers, Inc.*....................... 65,400 1,128,150
United States Home Corp.*.................. 66,100 1,702,075
-----------
8,359,000
-----------
HOSPITALS -- 0.3%
Impath, Inc.*.............................. 9,000 132,750
National Surgery Centers, Inc.*............ 37,000 1,193,250
NCS Healthcare*............................ 8,600 210,700
Renal Care Group, Inc.*.................... 7,000 194,250
Vitalcom, Inc.*............................ 10,300 137,765
-----------
1,868,715
-----------
INDUSTRIAL ENGINEERING/CONSTRUCTION -- 0.5%
Granite Construction, Inc.................. 50,000 1,475,000
Greenwich Air Services, Inc.*.............. 37,000 1,572,500
-----------
3,047,500
-----------
LIFE INSURERS -- 0.3%
American Travellers Corp.*................. 53,000 1,570,125
-----------
LODGING -- 0.8%
Bristol Hotel Company*..................... 40,400 1,100,900
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
LODGING (CONTINUED)
Doubletree Corp.*.......................... 14,300 $ 391,463
Prime Hospitality Corp.*................... 187,500 2,554,688
Studio Plus Hotels, Inc.*.................. 31,500 874,125
-----------
4,921,176
-----------
MACHINERY/EQUIPMENT
-- 1.3%
Computational Systems, Inc.*............... 20,000 355,000
Digitran Systems, Inc.*.................... 14,500 145
Duriron Company, Inc....................... 61,900 1,702,250
Etec Systems, Inc.*........................ 15,000 210,000
Global Industrial Technologies*............ 10,700 256,800
Greenfield Industries, Inc................. 61,500 2,129,438
JLG Industries, Inc........................ 53,500 2,447,625
Miller Industries, Inc./ Tenn.*............ 14,000 476,000
-----------
7,577,258
-----------
MANAGED HEALTHCARE/HMO'S/PPO'S -- 1.8%
CRA Managed Care, Inc.*.................... 19,100 682,825
Health Management Systems, Inc.*........... 139,800 3,949,350
Inphynet Medical Management, Inc.*......... 14,200 253,825
Maxicare Health Plans, Inc.*............... 101,000 2,518,687
Medcath, Inc.*............................. 28,200 824,850
OccuSystems, Inc.*......................... 48,800 1,110,200
Orthodontic Centers of America, Inc.*...... 39,200 1,176,000
-----------
10,515,737
-----------
MEDICAL SPECIALTIES -- 1.0%
Express Scripts, Inc.*..................... 21,600 1,009,800
Visx, Inc.*................................ 134,900 4,923,850
-----------
5,933,650
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
MEDICAL SUPPLIES -- 5.6%
AVECOR Cardiovascular, Inc.*............... 24,100 $ 328,362
Capstone Pharmacy Services*................ 10,000 90,000
Conmed Corp.*.............................. 13,350 327,075
Gulf South Medical Supply, Inc.*........... 51,800 1,955,450
Hologic, Inc.*............................. 74,100 1,685,775
Invacare Corp.............................. 95,000 2,683,750
Iridex Corp.*.............................. 16,000 164,000
Kensey Nash Corp.*......................... 15,600 222,300
Keravision, Inc.*.......................... 40,000 495,000
Lunar Corp.*............................... 30,000 1,282,500
Metra Biosystems, Inc.*.................... 34,000 484,500
Minimed, Inc.*............................. 20,000 360,000
Nellcor Puritan Bennett, Inc.*............. 14,400 927,000
Neuromedical Systems Inc.*................. 115,000 2,501,250
Omnicare, Inc.............................. 94,600 5,096,575
Oncogene Sciences, Inc.*................... 30,000 273,750
Orthologic Corp.*.......................... 40,000 1,015,000
Osteotech, Inc.*........................... 15,000 112,500
Physio-Controls International Corp.*....... 70,900 1,418,000
Quest Medical, Inc.*....................... 55,000 666,875
ResMed, Inc.*.............................. 20,900 276,925
Serologicals Corp.*........................ 15,000 412,500
Steris Corp.*.............................. 74,000 2,220,000
Target Therapeutics, Inc.*................. 84,100 5,098,563
Uromed Corp.*.............................. 49,500 569,250
Vital Signs, Inc........................... 42,700 1,046,150
Vivus, Inc.*............................... 20,000 620,000
-----------
32,333,050
-----------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
MEDICAL/NURSING/HEALTH SERVICES -- 3.4%
ABR Information Services, Inc.*............ 37,125 $ 1,726,312
Arbor Health Care Co.*..................... 40,000 1,060,000
EmCare Holdings, Inc.*..................... 42,300 1,147,388
Grancare, Inc.*............................ 20,000 360,000
Mariner Health Group, Inc.*................ 110,500 1,823,250
Multicare Companies*....................... 42,600 1,208,775
Pediatric Services of America, Inc.*....... 26,900 682,587
Phycor, Inc.*.............................. 73,025 3,213,100
Physician Sales & Services, Inc.*.......... 80,200 1,984,950
Regency Health Services, Inc.*............. 25,000 281,250
Renal Treatment Centers, Inc.*............. 79,800 1,895,250
Rotech Medical Corp.*...................... 112,300 4,155,100
Sterling Healthcare Group*................. 12,000 171,000
-----------
19,708,962
-----------
METALS -- 1.3%
Agnico Eagle Mines, Ltd.................... 129,500 2,314,812
Commonwealth Aluminum Corp................. 100,000 1,775,000
Mueller Industries, Inc.*.................. 84,600 2,992,725
Schnitzer Steel Industries, Inc. Class A... 600 15,675
UNR Industries, Inc........................ 46,600 372,800
-----------
7,471,012
-----------
MILITARY/DEFENSE TECHNOLOGY -- 0.2%
Watkins-Johnson Co......................... 29,300 1,047,475
-----------
MULTI-LINE INSURERS -- 0.3%
Penncorp Financial Group, Inc.............. 54,600 1,719,900
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
22
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
OIL/GAS PRODUCTION -- 0.8%
Barrett Resources Corp.*................... 47,900 $ 1,197,500
Brown (Tom), Inc.*......................... 71,000 1,002,875
Global Natural Resources, Inc.*............ 48,800 646,600
Lomak Petroleum, Inc....................... 18,000 211,500
Newfield Exploration Co.*.................. 20,000 610,000
Nuevo Energy Co.*.......................... 10,000 287,500
Vintage Petroleum, Inc..................... 31,400 639,775
-----------
4,595,750
-----------
OILFIELD SERVICES/EQUIPMENT -- 4.2%
BJ Services Co.*........................... 122,300 4,097,050
Camco International, Inc................... 39,700 1,250,550
Dawson Production Services, Inc.*.......... 15,000 168,750
Energy Venture, Inc.*...................... 15,000 399,375
Falcon Drilling, Inc.*..................... 100,000 2,225,000
Global Industries LTD.*.................... 36,000 756,000
Marine Drilling Company, Inc.*............. 375,000 2,953,125
Oceaneering International, Inc.*........... 99,000 1,348,875
Pool Energy Service Co.*................... 20,200 224,725
Pride Petroleum Services, Inc.*............ 78,400 1,107,400
Seacor Holdings, Inc.*..................... 77,100 2,843,063
Smith International, Inc.*................. 75,100 1,896,275
Tuboscope Vetco International, Corp.*...... 80,000 780,000
Varco International, Inc.*................. 99,700 1,208,863
Weatherford Enterra, Inc.*................. 89,500 3,121,313
-----------
24,380,364
-----------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 1.7%
Accustaff, Inc.*........................... 38,400 969,600
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
OTHER COMMERCIAL/ INDUSTRIAL SERVICES
(CONTINUED)
Copart, Inc.*.............................. 41,100 $ 1,017,225
Corestaff, Inc.*........................... 15,000 457,500
G&K Services, Inc.......................... 16,450 440,038
Learning Tree*............................. 16,000 316,000
Meta Group, Inc.*.......................... 21,000 593,250
National Education Corp.*.................. 110,000 1,292,500
National Wireless Holdings, Inc.*.......... 9,500 147,250
Norrell Corp............................... 21,900 725,437
On Assignment, Inc.*....................... 7,700 292,600
PMT Services, Inc.*........................ 62,100 1,490,400
Robert Half International, Inc.*........... 35,800 1,740,775
Romac International, Inc.*................. 20,000 615,000
-----------
10,097,575
-----------
OTHER CONSUMER DURABLES -- 0.4%
Sola International, Inc.*.................. 80,000 2,490,000
-----------
OTHER CONSUMER NON-DURABLES -- 0.6%
Blyth Industries, Inc.*.................... 54,000 1,795,500
USA Detergents, Inc.*...................... 59,650 1,938,625
-----------
3,734,125
-----------
OTHER CONSUMER SERVICES
-- 1.0%
Amre, Inc.*................................ 50,000 931,250
Apollo Group, Inc. Class A*................ 41,698 1,626,222
Career Horizons, Inc.*..................... 40,000 1,190,000
U.S. Order, Inc.*.......................... 34,000 697,000
Wackenhut Corrections Corp.*............... 28,000 1,092,000
-----------
5,536,472
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
23
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
OTHER FINANCIAL SERVICES
-- 0.1%
WFS Financial, Inc.*....................... 30,000 $ 562,500
-----------
OTHER HEALTH TECHNOLOGY/SERVICES -- 1.3%
Enterprise Systems, Inc.*.................. 7,800 215,475
Horizon Mental Health Management, Inc.*.... 15,600 329,550
Parexel International Corp.*............... 19,400 839,050
Physician Computer Network, Inc.*.......... 200,000 2,725,000
RTW, Inc.*................................. 29,400 1,087,800
Summit Medical Systems, Inc.*.............. 31,000 604,500
Veterinary Centers America, Inc.*.......... 72,000 1,944,000
-----------
7,745,375
-----------
OTHER INSURANCE SERVICES -- 0.1%
Fidelity National Financial, Inc........... 24,860 385,330
First American Financial Corp.............. 11,400 327,750
-----------
713,080
-----------
OTHER PRODUCERS/MANUFACTURING -- 0.7%
BMC Industries, Inc........................ 79,600 1,711,400
Chicago Miniature Lamp, Inc.*.............. 11,400 370,500
Galoob Lewis Toys, Inc.*................... 40,000 810,000
Rexel, Inc.*............................... 30,000 367,500
Wolverine Tube, Inc.*...................... 19,100 775,938
-----------
4,035,338
-----------
OTHER TECHNOLOGY -- 1.0%
Computer Products, Inc.*................... 86,000 1,161,000
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
OTHER TECHNOLOGY (CONTINUED)
Henry (Jack) & Associates, Inc............. 24,100 $ 587,438
Renaissance Solutions, Inc.*............... 23,100 669,900
Technology Solutions Company*.............. 33,000 895,125
Uniphase Corp.*............................ 30,000 1,162,500
3D Systems Corp.*.......................... 66,900 1,404,900
-----------
5,880,863
-----------
OTHER TRANSPORTATION -- 0.1%
United Transnet, Inc.*..................... 20,000 472,500
-----------
PROPERTY-CASUALTY INSURERS -- 1.0%
Allied Group, Inc.......................... 23,000 914,250
Capmac Holdings, Inc....................... 40,000 980,000
HCC Insurance Holdings, Inc.*.............. 20,000 1,097,500
LaSalle Re Holdings Ltd.................... 49,300 1,059,950
US Facilities Corp......................... 24,100 451,875
Vesta Insurance Group, Inc................. 34,950 1,140,244
-----------
5,643,819
-----------
PUBLISHING -- 0.0%
Norwood Promotional Products, Inc.*........ 10,800 224,100
-----------
RAILROADS -- 0.1%
Railtex, Inc.*............................. 32,000 820,000
-----------
REAL ESTATE BROKERS/SERVICES -- 0.6%
Amresco, Inc............................... 122,900 1,797,412
Insignia Financial Group, Inc. Class A*.... 40,000 975,000
NHP, Inc.*................................. 25,000 462,500
Redwood Trust, Inc......................... 19,000 389,500
-----------
3,624,412
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
24
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
REGIONAL BANKS -- 0.1%
Provident Bankshares Corp.................. 22,000 $ 731,500
-----------
REAL ESTATE INVESTMENT TRUSTS -- 0.8%
CWM Mortgage Holdings, Inc................. 140,500 2,265,562
FelCor Suite Hotels, Inc................... 19,100 592,100
Shurgard Storage Centers, Inc. Class A..... 25,100 658,875
Storage USA, Inc........................... 24,300 835,313
-----------
4,351,850
-----------
RESTAURANTS -- 1.5%
Apple South, Inc........................... 77,000 1,886,500
CKE Restaurants, Inc....................... 67,500 1,130,625
Foodmaker, Inc.*........................... 190,000 1,330,000
Longhorn Steaks, Inc.*..................... 30,500 701,500
Manhattan Bagel Company, Inc.*............. 32,300 750,975
Papa John's International, Inc.*........... 18,300 816,637
Quality Dining, Inc.*...................... 16,900 498,550
Rainforest Cafe, Inc.*..................... 20,000 630,000
Showbiz Pizza Time, Inc.*.................. 60,000 1,155,000
-----------
8,899,787
-----------
RETAIL/TRADE -- 0.0%
Genesco Inc.*.............................. 19,000 90,250
Madden Steven, Ltd.*....................... 4,900 31,850
-----------
122,100
-----------
RETAIL/FOOD DISTRIBUTION -- 0.5%
Performance Food Group Co.*................ 17,000 416,500
Richfood Holdings, Inc..................... 98,000 2,762,375
-----------
3,178,875
-----------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
SAVINGS & LOAN ASSOCIATIONS -- 0.8%
Coast Savings Financial, Inc.*............. 90,200 $ 2,818,750
Commercial Federal Corp.................... 43,000 1,671,625
-----------
4,490,375
-----------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 3.0%
C.P. Clare Corp.*.......................... 5,700 111,150
Emerson Radio Corp.*....................... 33,600 86,100
Epic Design Technology, Inc.*.............. 84,600 2,585,587
Flextronics International, LTD.*........... 89,800 2,738,900
IMP, Inc.*................................. 53,000 371,000
Intermagnetics General Corp.*.............. 67,400 1,145,800
Kent Electronics Corp.*.................... 30,000 1,061,250
Level One Communications, Inc.*............ 52,000 1,443,000
NU Horizons Electronics Corp.*............. 20,000 272,500
Radisys Corp.*............................. 9,000 144,000
Sanmina Corp.*............................. 140,000 4,165,000
SDL, Inc.*................................. 55,600 1,668,000
Smart Modular Technologies, Inc.*.......... 26,000 406,250
Wyle Electronics, Inc...................... 40,000 1,385,000
-----------
17,583,537
-----------
SOFTWARE -- 13.0%
Applied Microsystems Corp.*................ 13,000 121,875
Applix, Inc.*.............................. 65,400 2,289,000
Aspen Technology, Inc.*.................... 40,000 1,720,000
Astea International, Inc.*................. 35,000 1,032,500
Atria Software, Inc.*...................... 47,200 2,584,200
Bachman Information Systems*............... 40,000 335,000
BDM International, Inc.*................... 35,000 1,338,750
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
25
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
SOFTWARE (CONTINUED)
Borland International, Inc.*............... 154,000 $ 2,772,000
Business Objects SA Sponsored ADR*......... 58,400 4,964,000
CBT Group PLC Sponsored ADR*............... 40,800 2,998,800
Ciber, Inc.*............................... 16,600 543,650
Clarify, Inc.*............................. 20,000 785,000
Cognos, Inc.*.............................. 76,100 4,318,675
Comshare, Inc.*............................ 20,000 460,000
Continuum, Inc.*........................... 19,600 815,850
Cooper & Chyan Technology, Inc.*........... 35,000 490,000
Cylink Corp.*.............................. 9,000 159,750
Datastream Systems, Inc.*.................. 21,600 469,800
Dataworks Corp.*........................... 35,000 446,250
Dendrite International, Inc.*.............. 31,500 689,063
Engineering Animation, Inc.*............... 8,000 167,000
Fulcrum Technologies, Inc.*................ 12,300 461,250
Harbinger Corp.*........................... 70,500 1,251,375
HCIA, Inc.*................................ 20,000 940,000
Health Systems Design Corp.*............... 7,000 96,250
HNC Software, Inc.*........................ 60,400 4,107,200
IKOS Systems, Inc.*........................ 41,600 696,800
Imnet Systems, Inc.*....................... 30,000 907,500
Indus Group, Inc.*......................... 20,500 399,750
Inference Corp. Class A*................... 4,000 74,000
Integrated Systems, Inc.*.................. 36,400 1,756,300
JDA Software Group, Inc.*.................. 45,000 534,375
Lernout & Hauspie Speech Products NV*...... 35,000 1,128,750
Maxis, Inc.*............................... 23,600 584,100
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
SOFTWARE (CONTINUED)
McAfee Associates, Inc.*................... 42,400 $ 2,321,400
MDL Information Systems, Inc.*............. 24,100 507,606
Mecon, Inc.*............................... 19,000 375,250
Medic Computer Systems, Inc.*.............. 19,100 1,446,825
Meta Tools, Inc.*.......................... 30,000 562,500
Meta-Software, Inc.*....................... 40,000 670,000
National Instruments Corp.*................ 61,000 1,281,000
Novadigm, Inc.*............................ 26,000 393,250
Perceptron, Inc.*.......................... 35,700 923,738
Powercerv Corp.*........................... 42,400 631,362
Premenos Technology Corp.*................. 80,200 1,443,600
Prism Solutions, Inc.*..................... 4,800 127,200
Pure Software, Inc.*....................... 25,000 862,500
Quality Systems, Inc.*..................... 15,000 330,000
Quick Response Services, Inc.*............. 15,000 386,250
Rational Software Corp.*................... 71,800 2,836,100
Saville Systems PLC Sponsored ADR*......... 24,800 468,100
Scopus Technology, Inc.*................... 39,000 585,000
Segue Software*............................ 8,000 168,000
SQA, Inc.*................................. 25,000 681,250
Sterling Software, Inc.*................... 51,500 3,630,750
Structural Dynamics Research Corp.*........ 168,700 5,693,625
TCSI Corp.*................................ 37,700 1,149,850
Techforce Corp.*........................... 20,000 210,000
Triple PNV*................................ 30,000 337,500
Veritas Software Co.*...................... 12,300 398,213
Verity, Inc.*.............................. 40,000 1,350,000
Viasoft, Inc.*............................. 54,900 1,544,063
Visio Corp.*............................... 5,400 151,200
Wind River Systems, Inc.*.................. 20,800 639,600
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
26
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
SOFTWARE (CONTINUED)
Workgroup Technology Corp.*................ 26,500 $ 573,063
Zoran Corp.*............................... 38,600 858,850
7th Level, Inc.*........................... 11,500 116,438
-----------
76,092,896
-----------
SPECIALTY CHAINS -- 2.7%
Duty Free International, Inc............... 56,400 747,300
Garden Ridge Corp.*........................ 12,500 571,875
Inacom Corp.*.............................. 60,000 1,027,500
Just for Feet, Inc.*....................... 72,800 3,030,300
Men's Warehouse, Inc.*..................... 77,700 2,447,550
Orchard Supply Hardware Stores Corp.*...... 40,000 945,000
Party City Corp.*.......................... 8,000 116,000
Petco Animal Supplies, Inc.*............... 21,100 944,225
Pier 1 Imports, Inc........................ 192,700 2,432,837
Regis Corp................................. 14,500 445,875
West Marine, Inc.*......................... 5,000 232,500
Williams-Sonoma, Inc.*..................... 134,200 3,053,050
-----------
15,994,012
-----------
SPECIALTY INSURERS -- 0.2%
Amerin Corp.*.............................. 25,000 681,250
United Dental Care, Inc.*.................. 17,300 670,375
-----------
1,351,625
-----------
TELECOMMUNICATIONS EQUIPMENT -- 5.8%
Aspect Telecommunications Corp.*........... 169,100 7,736,325
Broadband Technologies, Inc.*.............. 20,000 510,000
Cable Design Technologies, Inc.*........... 58,500 2,149,875
California Amplifier, Inc.*................ 50,800 1,358,900
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
TELECOMMUNICATIONS EQUIPMENT (CONTINUED)
Coherent Communications Systems Corp.*..... 38,400 $ 797,400
Comverse Technology, Inc.*................. 40,000 965,000
Davox Corp.*............................... 10,000 177,500
Gilat Satellite Networks Ltd.*............. 64,200 1,556,850
Inter-Tel, Inc.*........................... 35,700 647,062
Intercel, Inc.*............................ 89,400 2,011,500
IPC Information Systems, Inc.*............. 22,200 521,700
Microwave Power Devices, Inc.*............. 2,200 18,150
Natural Microsystems Corp.*................ 40,000 1,200,000
Network Equipment Technologies, Inc.*...... 132,900 4,036,837
Nice-Systems Ltd. Sponsored ADR*........... 26,000 338,000
P Com, Inc.*............................... 51,400 1,034,425
Pairgain Technologies, Inc.*............... 86,100 5,574,975
Premiere Technologies, Inc.*............... 12,000 279,000
Teltrend, Inc.*............................ 33,200 1,510,600
Trescom International, Inc.*............... 64,800 955,800
Westell Technologies, Inc.*................ 20,000 740,000
-----------
34,119,899
-----------
TELEPHONE -- 0.2%
Intermedia Communications of Florida,
Inc.*.................................... 49,800 915,075
Pricellular Corp. Class A*................. 6,375 85,266
-----------
1,000,341
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
27
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCK (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
TOBACCO PRODUCTS -- 0.3%
Mafco Consolidated Group, Inc.*............ 98,800 $ 1,531,400
-----------
TRANSPORTATION -- 0.1%
Avondale Industries, Inc.*................. 35,000 608,125
-----------
TRUCKING -- 0.3%
Landstar System, Inc.*..................... 73,700 1,842,500
Swift Transportation Co.*.................. 10,000 177,500
-----------
2,020,000
-----------
WHOLESALE DISTRIBUTION -- 1.4%
Anicom, Inc.*.............................. 9,000 121,500
Central Garden & Pet Co.*.................. 43,000 408,500
Daisytek International Corp.*.............. 3,800 125,400
GEAC Computer Corp. LTD*................... 41,200 645,638
Tech Data Corp.*........................... 256,000 4,288,000
U.S. Office Products Co.*.................. 81,700 2,532,700
-----------
8,121,738
-----------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
TOTAL COMMON STOCKS
(Cost $415,151,661)................................... $575,781,838
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- ------------------------------------------------------------------------
COMMERCIAL PAPER -- 2.4%
- ------------------------------------------------------------------------
Associates Corporation of America
5.43%, 04/01/96
(Cost $14,134,735)....................... $14,139,000 14,134,735
------------
TOTAL INVESTMENTS -- 101.0%
(Cost $429,286,396)..................................... $589,916,573
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.0%)...........
(5,830,191)
------------
NET ASSETS -- 100.0%...................................... $584,086,382
------------
<FN>
- ------------
* Non-income producing security.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
28
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996
- ------------------------------------------------------------------------
CORE
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS -- 95.0%
- ----------------------------------------------
<TABLE>
<S> <C> <C>
AIRLINES -- 2.0%
Comair Holdings, Inc....................... 101,550 $ 3,528,862
Southwest Airlines Co...................... 160,000 4,740,000
------------
8,268,862
------------
ALCOHOLIC BEVERAGES -- 1.2%
Panamerican Beverages, Inc. Class B........ 125,000 5,046,875
------------
APPAREL -- 4.5%
Gucci Group NV*............................ 170,000 8,160,000
Nike, Inc. Class B......................... 72,300 5,874,375
Tommy Hilfiger Corp.*...................... 110,000 5,046,250
------------
19,080,625
------------
AUTOMOBILES -- 1.2%
Chrysler Corp.............................. 79,500 4,948,875
------------
BIOTECHNOLOGY -- 5.5%
Amgen, Inc.*............................... 93,800 5,452,125
Biochem Pharma, Inc.*...................... 159,500 6,539,500
Biogen, Inc.*.............................. 63,300 3,766,350
Genetics Institute, Inc.*.................. 70,000 4,567,500
IDEXX Laboratories, Inc.*.................. 72,000 3,024,000
------------
23,349,475
------------
BROADCASTING -- 3.6%
British Sky Broadcasting Sponsored ADR
(United Kingdom)......................... 77,200 3,097,650
Infinity Broadcasting Corp. Class A*....... 108,150 4,691,006
Tele-Communications, Inc. Class A* Liberty
Media Group.............................. 101,100 2,666,513
Tele-Communications, Inc. Class A* TCI
Group.................................... 249,900 4,638,769
------------
15,093,938
------------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
CATALOG/OUTLET STORES -- 1.1%
Viking Office Products, Inc.*.............. 85,000 $ 4,728,125
------------
COMPUTERS/OFFICE AUTOMATION -- 7.8%
Ceridian Corp.*............................ 156,300 6,720,900
Cisco Systems, Inc.*....................... 128,000 5,936,000
Computer Sciences Corp.*................... 74,600 5,249,975
Newbridge Networks Corp.*.................. 85,800 4,826,250
Solectron Corp.*........................... 95,000 4,180,000
Sun Microsystems, Inc.*.................... 84,700 3,705,625
3 Com Corp.*............................... 58,400 2,328,700
------------
32,947,450
------------
DEPARTMENT/DISCOUNT STORES -- 1.3%
Kohls Corp.*............................... 85,000 5,386,875
------------
DRUGS/PHARMACEUTICALS -- 1.4%
Elan Corp. PLC ADR*........................ 28,200 1,811,850
Genzyme Corp. -- General Division*......... 14,400 792,000
Watson Pharmaceuticals, Inc.*.............. 77,600 3,104,000
------------
5,707,850
------------
ELECTRONIC DATA PROCESSING -- 1.1%
First Data Corp............................ 66,977 4,721,879
------------
ELECTRONIC INSTRUMENTS/DIVERSIFIED -- 1.4%
Fore Systems, Inc.*........................ 80,000 5,720,000
------------
ENTERTAINMENT -- 0.9%
Viacom, Inc. Class B*...................... 86,500 3,643,813
------------
FINANCE COMPANIES -- 0.5%
Green Tree Financial Corp.................. 61,000 2,096,875
------------
FINANCIAL SERVICES -- 0.1%
Advanta Corp............................... 10,600 551,200
------------
FOOD CHAINS -- 1.8%
Safeway, Inc.*............................. 258,400 7,364,400
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
33
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
CORE
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
GAMBLING -- 4.2%
International Game Technology.............. 350,000 $ 4,768,750
ITT Corp.*................................. 131,200 7,872,000
Mirage Resorts, Inc.*...................... 111,200 4,878,900
------------
17,519,650
------------
HOMEBUILDING -- 0.6%
Pulte Corp................................. 89,800 2,413,375
------------
HOSPITALS -- 2.5%
Columbia HCA Healthcare Corp............... 98,000 5,659,500
Tenet Healthcare Corp.*.................... 225,000 4,725,000
------------
10,384,500
------------
LODGING -- 3.4%
HFS, Inc.*................................. 156,400 7,604,950
Host Marriott Corp.*....................... 237,700 3,208,950
Renaissance Hotel Group*................... 166,000 3,569,000
------------
14,382,900
------------
MANAGED HEALTH CARE/HMO'S/ PPO'S -- 2.6%
Healthsource, Inc.*........................ 160,000 6,200,000
United Healthcare Corp.*................... 74,300 4,569,450
------------
10,769,450
------------
MEDICAL SUPPLIES -- 4.1%
Boston Scientific Corp.*................... 122,700 5,644,200
Medtronic, Inc............................. 34,600 2,063,025
Nellcor Puritan Bennett, Inc.*............. 76,000 4,883,000
Omnicare, Inc.............................. 90,000 4,848,750
------------
17,438,975
------------
OIL/GAS PRODUCTION -- 2.3%
Enron Oil & Gas Co......................... 120,000 3,165,000
Mitchell Energy & Development Class B...... 98,700 1,702,575
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
OIL/GAS PRODUCTION (CONTINUED)
Triton Energy Corp.*....................... 85,000 $ 4,738,750
------------
9,606,325
------------
OILFIELD SERVICES/EQUIPMENT -- 4.2%
BJ Services Co.*........................... 145,000 4,857,500
Ensco International, Inc.*................. 140,000 3,902,500
Tidewater, Inc............................. 92,400 3,511,200
Western Atlas, Inc.*....................... 89,300 5,358,000
------------
17,629,200
------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 5.6%
Accustaff, Inc.*........................... 330,000 8,332,500
Corrections Corp. of America*.............. 115,000 6,555,000
CUC International, Inc.*................... 117,662 3,441,613
MFS Communications, Inc.*.................. 87,000 5,415,750
------------
23,744,863
------------
OTHER CONSUMER SERVICES -- 1.0%
America Online, Inc.*...................... 74,400 4,166,400
------------
OTHER FINANCIAL SERVICES -- 2.6%
Equifax, Inc............................... 232,600 4,681,075
Sunamerica, Inc............................ 127,650 6,430,369
------------
11,111,444
------------
PROPERTY -- CASUALTY INSURERS -- 1.3%
Allstate Corp.............................. 127,700 5,379,362
------------
RECREATION PRODUCTS -- 1.3%
Harley-Davidson, Inc....................... 140,000 5,442,500
------------
SOFTWARE -- 6.9%
Baan Co. NV*............................... 96,000 5,532,000
Cadence Design Systems, Inc.*.............. 200,250 8,836,031
Informix Corp.*............................ 140,000 3,692,500
Oracle Corp.*.............................. 47,050 2,217,231
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
34
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
SOFTWARE (CONTINUED)
Parametric Technology Corp.*............... 117,000 $ 4,577,625
Synopsys, Inc.*............................ 146,100 4,675,200
------------
29,530,587
------------
SPECIALTY CHAINS -- 5.7%
Autozone, Inc.*............................ 160,000 5,420,000
Borders Group, Inc.*....................... 182,600 5,204,100
Gap, Inc................................... 100,000 5,537,500
Micro Warehouse,
Inc.*.................................... 37,000 1,535,500
Staples, Inc.*............................. 323,100 6,583,163
------------
24,280,263
------------
SPECIALTY INSURERS -- 0.7%
MGIC Investment Corp. ..................... 51,300 2,795,850
------------
TELECOMMUNICATIONS EQUIPMENT -- 4.0%
Ascend Communications, Inc.*............... 100,000 5,387,500
Aspect Telecommunications Corp.*........... 125,000 5,718,750
ECI Telecommunications Limited............. 140,000 3,132,500
Glenayre Technologies, Inc.*............... 66,875 2,557,969
------------
16,796,719
------------
TELEPHONE -- 5.3%
LCI International, Inc.*................... 250,400 6,134,800
MCI Communications Corp.................... 160,000 4,840,000
Paging Network, Inc.*...................... 175,300 4,382,500
WorldCom, Inc.*............................ 147,300 6,775,800
------------
22,133,100
------------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
WHOLESALE DISTRIBUTION -- 1.3%
Danka Business Systems PLC Sponsored ADR
(Argentina).............................. 131,300 $ 5,547,425
------------
TOTAL COMMON STOCKS
(Cost $310,976,331).....................................
399,730,005
------------
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------
COMMERCIAL PAPER -- 4.1%
- ------------------------------------------------------------------------
Associates Corporation of America
5.43%, 04/01/96.......................... $ 2,995,000 2,994,097
UBS Finance Delaware, Inc.
5.43%, 04/01/96.......................... 14,267,000 14,262,695
------------
TOTAL COMMERCIAL PAPER
(Cost $17,256,792)......................................
17,256,792
------------
- ------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.9%
- ------------------------------------------------------------------------
J.P. Morgan & Co., Inc. $7,835,000 at
5.35%, (Agreement dated 03/29/96; to be
repurchased at $7,838,493 on 04/01/96;
collateralized by $5,615,000 U. S.
Treasury Notes, 7.50% due 11/15/16)
(Cost $7,835,000)........................ $ 7,835,000 7,835,000
------------
TOTAL INVESTMENTS -- 101.0%
(Cost $336,068,123).....................................
$424,821,797
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.0%)...........
(4,279,194)
------------
NET ASSETS -- 100.0%......................................
$420,542,603
------------
<FN>
- ------------
* Non-income producing security.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
35
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996
- ------------------------------------------------------------------------
INCOME &
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS -- 11.7%
- ----------------------------------------------
<TABLE>
<S> <C> <C>
COMPUTER/OFFICE AUTOMATION -- 3.8%
General Motors Corp. Class E............... 63,048 $ 3,593,736
Seagate
Technology, Inc.*........................ 13,029 713,338
------------
4,307,074
------------
HOSPITALS -- 0.0%
Vencor, Inc.*.............................. 384 13,248
------------
MANAGED HEALTHCARE -- 0.1%
FHP International Corp..................... 2,510 70,280
------------
OTHER CONSUMER DURABLE -- 0.2%
AJL Peps Trust............................. 8,610 191,573
------------
PIPELINES -- 1.3%
Enron Corp................................. 56,105 1,423,664
------------
REAL ESTATE INVESTMENT TRUSTS -- 3.0%
Cali Realty Co............................. 39,920 893,210
Equity Inns, Inc........................... 43,700 557,175
Reckson Associates Realty Corp............. 49,530 1,516,856
Weeks Corp................................. 16,820 420,500
------------
3,387,741
------------
TELECOMMUNICATIONS -- 2.1%
Ericsson Telephone Co. ADR................. 788,900 2,342,047
MFS
Communications, Inc.*.................... 473 29,444
------------
2,371,491
------------
TELEPHONE -- 1.2%
Nortel Inversora SA*....................... 31,200 1,310,400
------------
TOTAL COMMON STOCKS
(Cost $10,302,111)..................................... 13,075,471
------------
- -----------------------------------------------------------------------
CONVERTIBLE PREFERRED
STOCKS -- 12.6%
- -----------------------------------------------------------------------
ELECTRONIC DATA PROCESSING -- 1.0%
Ceridian Corp., 5.50%...................... 11,195 1,080,318
------------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES -- 1.3%
Merrill Lynch & Co., Inc. (STRYPES),
6.50%.................................... 27,930 $ 1,487,273
------------
MEDICAL SUPPLIES -- 0.3%
United States Surgical Corp. Series A,
$2.20.................................... 10,920 356,265
------------
MULTI-LINE INSURERS -- 0.3%
Allstate Corp., 6.75%...................... 9,720 379,080
------------
OIL/GAS PRODUCTION -- 2.9%
Occidental Petroleum Corp., $3.00.......... 23,800 1,490,475
Williams Co................................ 20,595 1,683,641
------------
3,174,116
------------
OTHER CONSUMER SERVICES -- 2.6%
SCI Finance LLC, $3.125.................... 35,270 2,953,863
------------
TELECOMMUNICATIONS -- 1.7%
MFS Communications Company, Inc., 8.0%*.... 34,980 1,928,272
------------
WHOLESALE DISTRIBUTION -- 2.5%
Alco Standard Corp. Series BB, $5.04....... 30,040 2,823,760
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $11,712,396)..................................... 14,182,947
------------
PRINCIPAL
AMOUNT
- -----------------------------------------------------------------------
CONVERTIBLE CORPORATE
BONDS -- 70.5%
- -----------------------------------------------------------------------
ADVERTISING -- 2.9%
Omnicom Group,++
4.50%, 09/01/00.......................... $1,995,000 3,192,000
------------
BROADCASTING -- 0.5%
Comcast Corp.++
3.375%, 09/09/05......................... 560,000 526,400
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
40
<PAGE>
- -------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
CONVERTIBLE CORPORATE
BONDS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
COMPUTERS/OFFICE AUTOMATION -- 8.2%
Applied Magnetics Corp.
7.00%, 03/15/06.......................... $ 650,000 $ 689,000
Conner Peripherals, Inc.
6.50%, 03/01/02.......................... 670,000 759,613
Conner Peripherals, Inc.
6.75%, 03/01/01.......................... 245,000 258,781
Danka Business Systems PLC+
6.75%, 04/01/02.......................... 1,500,000 2,405,625
EMC Corp.
4.25%, 01/01/01.......................... 1,800,000 2,153,250
Safeguard Scientifics
6.00%, 02/15/03.......................... 1,635,000 1,851,638
Telxon Corp.
5.75%, 01/01/03.......................... 1,000,000 1,035,000
------------
9,152,907
------------
DEPARTMENT/DISCOUNT STORES -- 1.1%
Proffitt's, Inc.
4.75%, 11/01/03.......................... 1,315,000 1,268,975
------------
DRUGS/PHARMACEUTICALS -- 10.9%
Cetus Corp.
5.25%, 05/21/02.......................... 1,375,000 1,400,781
Elan International Finance*
0.00%, 10/16/12.......................... 2,485,000 1,727,075
Ivax Corp.
6.50%, 11/15/01.......................... 2,095,000 2,168,325
Nabi, Inc.
6.50%, 02/01/03.......................... 1,020,000 1,155,150
Roche Holdings, Inc.*+ (LYONS)
0.00%, 04/20/10.......................... 2,460,000 1,113,150
Sandoz Capital
2.00%, 10/06/02.......................... 2,370,000 2,642,550
</TABLE>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
DRUGS/PHARMACEUTICALS (CONTINUED)
Sepracor, Inc.+
7.00%, 12/01/02.......................... $ 850,000 $ 869,125
Smithkline Beecham++
0.00%, 12/31/01.......................... 1,400,000 1,107,750
------------
12,183,906
------------
ELECTRONIC DATA PROCESSING -- 3.8%
First Financial Management Corp.
5.00%, 12/15/99.......................... 1,835,000 3,130,969
Automatic Data*
0.00%, 02/20/12.......................... 2,065,000 1,104,775
------------
4,235,744
------------
ELECTRONIC INSTRUMENTS -- 2.7%
ADT Operations, Inc.* (LYONS)
0.00%, 07/06/10.......................... 1,550,000 813,750
Checkpoint Systems
5.25%, 11/01/05.......................... 1,145,000 1,668,981
Checkpoint Systems Euro
5.25%, 11/01/05.......................... 395,000 577,688
------------
3,060,419
------------
ENVIRONMENTAL SERVICES -- 2.7%
U.S. Filter Corp.
6.00%, 09/15/05.......................... 2,150,000 2,620,312
Sanifill, Inc.
5.00%, 03/01/06.......................... 420,000 413,175
------------
3,033,487
------------
FOOD CHAINS -- 2.0%
Starbucks Corp.
4.25%, 11/01/02.......................... 1,975,000 2,184,844
------------
HOME BUILDING -- 1.1%
Continental Homes
6.875%, 11/01/02......................... 1,060,000 1,208,400
------------
HOSPITALS -- 1.6%
Healthsouth Corp.
5.00%, 04/01/01.......................... 435,000 835,200
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
41
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
INCOME &
GROWTH FUND PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
CONVERTIBLE CORPORATE
BONDS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
HOSPITALS (CONTINUED)
PHP Healthcare
6.50%, 12/15/02.......................... $ 900,000 $ 983,250
------------
1,818,450
------------
INSURANCE SERVICES -- 2.3%
American Travellers
6.50%, 10/01/05.......................... 1,065,000 1,566,881
Mutual Risk Management*
0.00%, 10/30/15.......................... 2,560,000 1,036,800
------------
2,603,681
------------
INVESTMENTS -- 0.7%
Aames Financial Corp.
5.50%, 03/15/06.......................... 780,000 810,225
------------
LODGING -- 0.5%
Marriott International*
0.00%, 03/25/11.......................... 1,100,000 583,000
------------
MACHINERY/EQUIPMENT -- 2.9%
Thermo Electron Corp.
4.25%, 01/01/03.......................... 2,605,000 3,242,300
MANAGED HEALTHCARE -- 2.8%
Tenet Healthcare Corp.
6.00%, 12/01/05.......................... 1,305,000 1,448,550
Healthsource, Inc.+
5.00%, 03/01/03.......................... 1,610,000 1,666,350
------------
3,114,900
------------
MEDICAL/NURSING/HEALTH SERVICES -- 1.5%
Phycor, Inc.
4.50%, 02/15/03.......................... 1,640,000 1,640,000
------------
OIL/GAS PRODUCTION -- 2.6%
Noble Affiliates, Inc.
4.25%, 11/01/03.......................... 2,120,000 2,183,600
</TABLE>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
OIL/GAS PRODUCTION (CONTINUED)
Pride Petroleum
Services, Inc.
6.25%, 02/15/06.......................... $ 520,000 $ 676,000
------------
2,859,600
------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 3.1%
Career Horizons+
7.00%, 11/01/02.......................... 520,000 949,650
Olsten Corp.
4.875%, 05/15/03......................... 880,000 1,218,800
Youth Services International
7.00%, 02/01/06.......................... 1,000,000 1,330,000
------------
3,498,450
------------
OTHER PRODUCTION/MANUFACTURING -- 1.2%
ALFA S.A. Convertible Debenture+
8.00%, 09/15/00.......................... 1,400,000 1,394,750
------------
PIPELINES -- 0.9%
SFP Pipeline Holdings, Inc.*++
0.00%, 08/15/10.......................... 740,000 984,200
------------
PUBLISHING -- 2.3%
News America Holdings* 0.00%, 03/11/13..... 5,270,000 2,575,712
------------
REGIONAL BANKS -- 1.9%
Fifth Third Bancorp
4.25%, 01/15/98.......................... 1,550,000 2,123,500
------------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 2.8%
3Com Corp.
10.25%, 11/01/01......................... 955,000 1,353,713
Analog Devices
3.50%, 12/01/00.......................... 1,260,000 1,499,400
Emerson Radio
8.50%, 08/15/02.......................... 284,000 238,560
------------
3,091,673
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
42
<PAGE>
- -------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
CONVERTIBLE CORPORATE
BONDS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
SPECIALTY CHAINS -- 2.1%
Staples Inc.+
4.50%, 10/01/00.......................... $2,099,000 $ 2,329,890
------------
SOAPS/COSMETICS -- 0.6%
Alberto Culver Corp.
5.50%, 06/30/05.......................... 215,000 267,675
Alberto Culver Corp., Euro.
5.50%, 06/30/05.......................... 285,000 362,663
------------
630,338
------------
TELECOMMUNICATIONS EQUIPMENT -- 1.7%
Motorola, Inc.* (LYONS)
0.00%, 09/27/13.......................... 2,555,000 1,897,087
------------
TELEPHONE -- 2.6%
LDDS
Communications, Inc.
5.00%, 08/15/03.......................... 1,435,000 1,793,750
U.S. West, Inc.*
0.00%, 06/25/11.......................... 3,255,000 1,131,112
------------
2,924,862
------------
WHOLESALE DISTRIBUTION -- 0.5%
U.S. Office Products
5.50%, 02/01/01.......................... 480,000 588,000
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $69,736,419)..................................... 78,757,700
------------
</TABLE>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
COMMERCIAL PAPER -- 4.9%
- -----------------------------------------------------------------------
Associates Corporation of America
5.43%, 04/01/96
(Cost $5,466,350)........................ $5,468,000 $ 5,466,350
------------
- -----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.1%
- -----------------------------------------------------------------------
J.P. Morgan & Co., Inc.....................
$100,000 at 5.35%, (Agreement dated
03/29/96, to be repurchased at $100,045
on 04/01/96; collateralized by $73,000
U.S. Treasury Notes, 10.625% due
08/15/15)
(Cost $100,000)............................ 100,000 100,000
------------
TOTAL INVESTMENTS -- 99.8%
(Cost $97,317,276)..................................... $111,582,468
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2%............
175,468
------------
NET ASSETS -- 100.0%..................................... $111,757,936
------------
</TABLE>
- ------------
* Non-income producing security.
+ Rule 144A restricted security.
++ Variable rate security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
43
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996
- ------------------------------------------------------------------------
BALANCED
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS -- 57.4%
- ----------------------------------------------
<TABLE>
<S> <C> <C>
AIRLINES -- 0.7%
Continental Airlines Holding,
Inc.*............................ 3,100 $ 174,762
-----------
BIOTECHNOLOGY -- 1.3%
Liposome Co., Inc.*................ 7,300 152,387
Medtronic, Inc..................... 2,500 149,062
-----------
301,449
-----------
BUILDING MATERIALS -- 0.7%
Texas Industries, Inc.............. 2,600 165,425
-----------
COMMERCIAL/INDUSTRIAL SERVICES -- 2.2%
Corrections Corp. of America*...... 3,400 193,800
Primark Corp.*..................... 4,000 148,000
Quintiles Transnational Corp.*..... 2,800 182,000
-----------
523,800
-----------
COMPUTERS/OFFICE AUTOMATION -- 3.8%
Adaptec, Inc.*..................... 3,400 164,050
Bay Networks, Inc.*................ 3,150 96,862
Cabletron Systems, Inc.*........... 1,200 79,500
HBO & Company...................... 1,800 169,650
Iomega Corp.*...................... 11,700 299,812
Komag, Inc.*....................... 4,400 106,700
-----------
916,574
-----------
CONSUMER SERVICES -- 0.4%
Robert Half International, Inc.*... 2,100 102,113
-----------
CONTRACT DRILLING -- 2.0%
Reading & Bates Corp.*............. 13,600 268,600
Sonat Offshore Drilling Co......... 3,900 198,900
-----------
467,500
-----------
DEPARTMENT/DISCOUNT STORES -- 0.7%
Ross Stores, Inc................... 7,200 180,900
-----------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
DRUG CHAINS -- 0.2%
Longs Drug Store Corp.............. 900 $ 42,525
-----------
DRUGS/PHARMACEUTICALS
-- 0.8%
Gilead Sciences, Inc.*............. 2,200 63,250
Watson Pharmaceuticals, Inc.*...... 3,300 132,000
-----------
195,250
-----------
ELECTRONIC DATA PROCESSING
-- 0.7%
Seagate Technology, Inc.*.......... 3,000 164,250
-----------
ELECTRONIC INSTRUMENTS/DIVERSIFIED -- 2.3%
BMC Industries, Inc................ 6,500 139,750
C-Cube Microsystems, Inc.*......... 2,300 120,750
Cognex Corp.*...................... 4,400 112,750
Electroglas, Inc.*................. 4,000 61,500
Macromedia, Inc.*.................. 3,000 128,250
-----------
563,000
-----------
ENTERTAINMENT -- 1.2%
Gtech Holding*..................... 4,500 139,500
Regal Cinemas, Inc.*............... 4,100 151,700
-----------
291,200
-----------
FINANCIAL COMPANIES
-- 1.3%
Green Tree Financial Corp.......... 4,700 161,562
Salomon, Inc....................... 4,000 150,000
-----------
311,562
-----------
GAMBLING -- 0.5%
Grand Casinos, Inc.*............... 3,750 112,500
-----------
INSURANCE AGENTS/BROKERS -- 0.7%
Conseco, Inc....................... 2,200 159,225
-----------
INVESTMENT COMPANIES -- 3.8%
Bear Stearns Co.................... 6,100 150,975
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
48
<PAGE>
- -------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES (CONTINUED)
Lehman Brothers Holdings, Inc...... 5,200 $ 139,100
The Money Store, Inc............... 6,500 181,188
Morgan Stanley Group, Inc.......... 2,800 144,900
Student Loan Marketing
Association...................... 1,800 137,700
Sunamerica, Inc.................... 2,900 146,088
-----------
899,951
-----------
LIFE INSURERS -- 1.2%
Penncorp Financial................. 4,000 126,000
Reinsurance Group of America....... 4,300 157,488
-----------
283,488
-----------
LODGING -- 1.3%
HFS, Inc.*......................... 3,400 165,325
Hilton Hotels Corp................. 1,500 141,000
-----------
306,325
-----------
MANAGED HEALTHCARE -- 0.7%
Health Management Associates,
Inc.*............................ 4,600 161,000
-----------
MEDICAL SUPPLIES -- 3.1%
Boston Scientific Corp.*........... 3,900 179,400
IDEXX Laboratories, Inc.*.......... 2,800 117,600
Mentor Corp........................ 5,100 119,212
Nellcor Puritan Bennett, Inc.*..... 2,700 173,475
Target Therapeutics, Inc.*......... 2,700 163,688
-----------
753,375
-----------
MILITARY/DEFENSE TECHNOLOGY -- 0.4%
Harsco Corp........................ 1,400 92,750
-----------
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
MONEY-CENTER BANKS -- 0.4%
North Fork Bancorporation, Inc..... 4,100 $ 97,888
-----------
MULTI-LINE INSURERS -- 1.7%
Fremont General Corp............... 5,350 126,394
Loews Corp......................... 1,800 136,125
Old Republic International Corp.... 4,200 136,500
-----------
399,019
-----------
OILFIELD SERVICES/EQUIPMENT -- 2.1%
Camco International, Inc........... 4,700 148,050
Chesapeake Energy Corp.*........... 3,300 152,625
Tidewater, Inc..................... 5,000 190,000
-----------
490,675
-----------
OIL/GAS PRODUCTION -- 1.8%
Noram Energy Corp.................. 15,400 142,450
Valero Energy Corp................. 5,100 125,588
Williams Companies, Inc............ 3,200 161,200
-----------
429,238
-----------
OTHER FINANCIAL SERVICES -- 1.2%
First USA, Inc..................... 2,600 147,225
MBNA Corp.......................... 4,800 142,200
-----------
289,425
-----------
PUBLISHING -- 1.1%
Gartner Group, Inc.*............... 2,600 158,600
Meredith Corp...................... 2,500 103,125
-----------
261,725
-----------
SAVINGS & LOAN ASSOCIATIONS -- 1.3%
Charter One Financial, Inc......... 4,600 155,250
TCF Financial Corp................. 4,400 159,500
-----------
314,750
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
49
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 -- CONTINUED
- --------------------------------------------------------------------------------
BALANCED
GROWTH FUND NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
COMMON STOCKS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 5.9%
Altera Corp.*...................... 9,400 $ 525,225
Applied Materials,
Inc.*............................ 2,600 90,675
Atmel Corp.*....................... 11,000 280,500
Kent Electronics Corp.*............ 5,000 176,875
Lattice Semiconductor Corp.*....... 2,400 68,100
Maxim Integrated Products, Inc.*... 3,800 117,800
S3, Inc.*.......................... 2,100 25,069
Xilinx, Inc.*...................... 3,600 114,300
-----------
1,398,544
-----------
SOFTWARE -- 5.3%
American Online, Inc.*............. 2,600 145,600
Cadence Design Systems, Inc.*...... 3,400 150,025
Cisco Systems, Inc.*............... 3,200 148,400
Computer Associates International,
Inc.............................. 1,900 136,088
McAfee Associates, Inc.*........... 2,800 153,300
Pairgain Technologies, Inc.*....... 2,700 174,825
Peoplesoft, Inc.*.................. 2,700 155,250
Structural Dynamics Research
Corp.*........................... 5,800 195,750
-----------
1,259,238
-----------
SPECIALTY CHAINS -- 0.6%
Staples, Inc.*..................... 7,200 146,700
-----------
TELECOMMUNICATIONS EQUIPMENT -- 6.0%
Ascend Communications, Inc.*....... 13,600 732,700
Aspect
Telecommunications, Inc.*........ 3,700 169,275
</TABLE>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
TELECOMMUNICATIONS EQUIPMENT
(CONTINUED)
Cascade Communications, Inc.*...... 1,700 $ 152,575
Picturetel Corp.*.................. 3,300 102,300
U.S. Robotics Corp.*............... 2,200 284,350
-----------
1,441,200
-----------
TOTAL COMMON STOCKS
(Cost $10,831,736)................................ 13,697,326
-----------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- --------------------------------------------------------------------
CORPORATE BONDS -- 18.3%
- --------------------------------------------------------------------
CLOTHING CHAINS -- 4.2%
TJX Companies, Inc.
6.625%, 06/15/00................. $1,000,000 $ 990,038
-----------
COMMERCIAL/INDUSTRIAL SERVICES -- 0.8%
Foodmaker, Inc.
9.25%, 03/01/99.................. 200,000 196,506
-----------
ELECTRIC UTILITIES -- 5.2%
Tennessee Valley Authority Note
6.375%, 06/15/05................. 1,250,000 1,234,375
-----------
FINANCIAL SERVICES -- 2.8%
Penncorp Financial Group
9.250%, 12/15/03................. 650,000 656,500
-----------
GAMBLING -- 0.6%
Bally's Grand, Inc.
10.375%, 12/15/03................ 150,000 153,755
-----------
OIL/GAS PRODUCTION -- 0.8%
Mesa Capitol Corp.+
0.000%, 06/30/98................. 200,000 196,010
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
50
<PAGE>
- -------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
CORPORATE BONDS (Continued)
- ----------------------------------------------
<TABLE>
<S> <C> <C>
RETAIL/FOOD DISTRIBUTION -- 0.9%
Doskocil Cos., Inc.
9.75%, 07/15/00.................. $ 200,000 $ 207,760
-----------
SOAPS/COSMETICS -- 0.6%
Revlon Consumer Products Corp.
10.500%, 02/15/03................ 150,000 152,438
-----------
SPECIALTY CHAINS -- 1.2%
CompUSA, Inc.
9.500%, 06/15/00................. 150,000 149,629
Orchard Supply Hardware, Inc.
9.375%, 02/15/02................. 150,000 145,880
-----------
295,509
-----------
TELECOMMUNICATIONS -- 1.2%
Telemundo Group, Inc.
7.000%, 02/15/06................. 75,000 68,159
Winstar Communications*+
0.000%, 10/15/05................. 375,000 216,950
-----------
285,109
-----------
TOTAL CORPORATE BONDS
(Cost $4,359,289)................................. 4,368,000
-----------
</TABLE>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 18.7%
- --------------------------------------------------------------------
U.S. TREASURY BONDS
8.125%, 08/15/21................. $ 690,000 $ 792,327
-----------
U.S. TREASURY NOTES
6.250%, 08/31/00................. 1,000,000 1,004,900
7.500%, 11/15/01................. 1,500,000 1,592,685
7.500%, 05/15/02................. 1,000,000 1,065,290
-----------
3,662,875
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $4,584,907)................................. $ 4,455,202
-----------
- --------------------------------------------------------------------
COMMERCIAL PAPER -- 3.6%
- --------------------------------------------------------------------
Associates Corporation of America
5.43%, 04/01/96
(Cost $853,742).................. 854,000 853,742
-----------
TOTAL INVESTMENTS -- 98.0%
(Cost $20,629,674)................................ $23,374,270
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.0%.......
470,281
-----------
NET ASSETS -- 100.0%................................ $23,844,551
-----------
<FN>
- ------------
* Non-income producing security.
+ Variable rate security.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
51
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
INSTITUTIONAL SERIES PORTFOLIOS+
<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED DISTRIBUTIONS
VALUES AT INVESTMENT AND UNREALIZED FROM NET
BEGINNING INCOME GAINS (LOSSES) INVESTMENT
OF PERIOD (DEFICIT) ON INVESTMENTS INCOME
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
MINI CAP GROWTH
Institutional (For the
period ended
03/31/96)............... $12.50 $(0.05) $ 3.40 --
EMERGING GROWTH
Institutional (For the
year ended 03/31/96).... 11.58 (0.11) 4.45 --
Institutional (For the
year ended 03/31/95).... 11.38 (0.05) 0.95 --
Institutional (For the
period ended
03/31/94)............... 12.50 (0.04) (0.69) --
CORE GROWTH
Institutional (For the
year ended 03/31/96).... 12.62 (0.03) 4.47 --
Institutional (For the
year ended 03/31/95).... 12.68 (0.01) 0.38 --
Institutional (For the
period ended
03/31/94)............... 12.50 (0.01) 0.92 --
INCOME & GROWTH
Institutional (For the
year ended 03/31/96).... 11.86 0.53 2.59 $(0.53)
Institutional (For the
year ended 03/31/95).... 13.39 0.54 (0.85) (0.54)
Institutional (For the
period ended
03/31/94)............... 12.50 0.42 2.12 (0.42)
BALANCED GROWTH
Institutional (For the
year ended 03/31/96).... 12.01 0.37 2.19 (0.37)
Institutional (For the
year ended 03/31/95).... 11.71 0.22 0.30 (0.22)
Institutional (For the
period ended
03/31/94)............... 12.50 0.08 (0.79) (0.08)
</TABLE>
- ------------
+Core Growth and Income & Growth Institutional Portfolios commenced operations
on April 19, 1993. Balanced Growth and Emerging Growth Institutional
Portfolios commenced operations on October 1, 1993. Mini Cap Institutional
Portfolio commenced operations on July 12, 1995.
++Includes expenses allocated from the Master Trust Funds. See Notes to Funds'
Financial Statements for amounts.
*Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
52
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
DISTRIBUTIONS VALUES AT
FROM CAPITAL END OF TOTAL NET ASSETS AT
GAINS PERIOD RETURN END OF PERIOD
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
MINI CAP GROWTH
Institutional (For the
period ended
03/31/96)............... -- $15.85 26.80% $ 25,237,077
EMERGING GROWTH
Institutional (For the
year ended 03/31/96).... $(0.82) 15.10 38.27% 224,077,027
Institutional (For the
year ended 03/31/95).... (0.70) 11.58 8.69% 206,695,605
Institutional (For the
period ended
03/31/94)............... (0.39) 11.38 (6.06%) 165,939,862
CORE GROWTH
Institutional (For the
year ended 03/31/96).... (0.80) 16.26 35.81% 149,969,371
Institutional (For the
year ended 03/31/95).... (0.43) 12.62 3.30% 72,825,771
Institutional (For the
period ended
03/31/94)............... (0.73) 12.68 6.84% 77,947,252
INCOME & GROWTH
Institutional (For the
year ended 03/31/96).... -- 14.45 26.69% 17,239,363
Institutional (For the
year ended 03/31/95).... (0.68) 11.86 (2.02%) 12,506,203
Institutional (For the
period ended
03/31/94)............... (1.23) 13.39 20.18% 18,331,546
BALANCED GROWTH
Institutional (For the
year ended 03/31/96).... -- 14.20 21.45% 625,350
Institutional (For the
year ended 03/31/95).... -- 12.01 4.56% 283,586
Institutional (For the
period ended
03/31/94)............... -- 11.71 (5.66%) 142,745
<CAPTION>
RATIO OF NET RATIO OF NET
ASSETS, AFTER ASSETS, BEFORE ASSETS, AFTER ASSETS, BEFORE
EXPENSE EXPENSE EXPENSE EXPENSE
REIMBURSEMENT++ REIMBURSEMENT++ REIMBURSEMENT++ REIMBURSEMENT++
<S> <C> <C> <C> <C>
- ------------------------------
MINI CAP GROWTH
Institutional (For the
period ended
03/31/96)............... 1.55%* 2.46%* (0.98%)* (1.36%)*
EMERGING GROWTH
Institutional (For the
year ended 03/31/96).... 1.16% 1.20% (0.62%) (0.66%)
Institutional (For the
year ended 03/31/95).... 1.18% 1.24% (0.58%) (0.64%)
Institutional (For the
period ended
03/31/94)............... 1.17%* 1.18%* (0.83%)* (0.84%)*
CORE GROWTH
Institutional (For the
year ended 03/31/96).... 0.98% 1.06% (0.32%) (0.40%)
Institutional (For the
year ended 03/31/95).... 0.99% 1.07% (0.06%) (0.14%)
Institutional (For the
period ended
03/31/94)............... 0.97%* 1.14%* (0.07%)* (0.24%)*
INCOME & GROWTH
Institutional (For the
year ended 03/31/96).... 1.00% 1.53% 3.88% 3.34%
Institutional (For the
year ended 03/31/95).... 1.00% 1.48% 4.28% 3.80%
Institutional (For the
period ended
03/31/94)............... 0.99%* 1.50%* 3.36%* 2.85%*
BALANCED GROWTH
Institutional (For the
year ended 03/31/96).... 1.00% 9.90% 2.74% (5.74%)
Institutional (For the
year ended 03/31/95).... 1.00% 20.66% 2.06% (17.60%)
Institutional (For the
period ended
03/31/94)............... 0.99%* 43.16%* 1.59%* (40.58%)*
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
53
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 1996
- -------------------------------------------------------------------
INSTITUTIONAL SERIES PORTFOLIOS
<TABLE>
<CAPTION>
MINI CAP EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH GROWTH
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------
ASSETS
Investments in Master Trust Fund, at
value*.................................. $25,238,596 $224,104,425 $149,989,288 $17,229,358 $630,681
Receivable for shares of beneficial
interest sold........................... 121,190 940,458 -- -- --
Receivable for investments sold in Master
Trust Fund.............................. 4,112 10,000,715 -- -- --
Due from advisor.......................... 16,389 12,576 14,551 17,286 3,209
Deferred organization costs............... 2,334 5,805 27,661 15,437 --
Prepaid expenses and other assets......... 175 3,571 2,179 275 7
--------------------------------------------------------------
Total assets.......................... 25,382,796 235,067,550 150,033,679 17,262,356 633,897
--------------------------------------------------------------
LIABILITIES:
Payable for investments purchased in
Master Trust Fund....................... 121,190 940,458 -- -- --
Payable for shares of beneficial interest
repurchased............................. 4,112 10,000,715 -- -- --
Dividend payable.......................... -- -- -- 3,118 --
Due to advisor............................ 2,670 -- -- -- --
Accrued expenses.......................... 17,747 49,350 64,308 19,875 8,547
--------------------------------------------------------------
Total liabilities..................... 145,719 10,990,523 64,308 22,993 8,547
--------------------------------------------------------------
NET ASSETS.................................. $25,237,077 $224,077,027 $149,969,371 $17,239,363 $625,350
--------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital........................... $22,215,329 $176,975,998 $125,283,677 $15,971,534 $560,083
Accumulated undistributed net investment
income (deficit)........................ (77,091) (2,914,124) (424,614) 2,962 24
Accumulated undistributed net realized
gains (losses) from security
transactions............................ (56,635) (13,072,987) (2,055,748) (728,277) 19,005
Net unrealized appreciation of
investments............................. 3,155,474 63,088,140 27,166,056 1,993,144 46,238
--------------------------------------------------------------
Net assets............................ $25,237,077 $224,077,027 $149,969,371 $17,239,363 $625,350
--------------------------------------------------------------
Shares of beneficial interest, no par
value, issued and outstanding (unlimited
shares authorized)...................... 1,592,133 14,834,897 9,221,300 1,193,034 44,039
--------------------------------------------------------------
COMPUTATION OF
Net asset value per share of beneficial
interest (Net assets/ Outstanding shares
of beneficial interest)................. $ 15.85 $ 15.10 $ 16.26 $ 14.45 $ 14.20
--------------------------------------------------------------
* Cost of investments in the Master Trust
Fund...................................... $22,212,904 $150,113,085 $113,788,452 $12,384,977 $547,587
--------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
54
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996
- -------------------------------------------------------------------
INSTITUTIONAL SERIES PORTFOLIOS
<TABLE>
<CAPTION>
MINI CAP EMERGING INCOME & BALANCED
GROWTH* GROWTH CORE GROWTH GROWTH GROWTH
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------
INVESTMENT INCOME
Net investment income (deficit) from
Master Trust Fund....................... $ (73,147) $(1,191,864) $ (233,755) $ 536,772 $11,976
----------------------------------------------------------
EXPENSES
Accounting fees......................... 7,280 31,200 31,200 31,200 15,600
Administration fees..................... 3,945 5,001 10,653 3,968 582
Audit & tax services.................... 5,052 7,500 7,503 7,503 6,501
Insurance............................... 147 3,304 1,640 219 9
Legal fees.............................. 1,680 21,008 11,124 1,465 146
Miscellaneous........................... 134 6,973 3,997 1,978 1,652
Organization costs...................... 336 2,331 13,520 7,543 --
Registration fees....................... 8,549 12,079 7,382 2,987 3,407
Shareholder reporting fees.............. 548 64,473 57,097 7,861 1,000
Transfer agent fees..................... 5,318 37,501 28,219 15,416 7,725
Trustees' fee........................... 1,301 8,340 4,033 538 16
----------------------------------------------------------
Total expenses........................ 34,290 199,710 176,368 80,678 36,638
Less: Reimbursement from advisor........ (30,346) (94,447) (76,590) (73,847) (36,423 )
----------------------------------------------------------
Net expenses.......................... 3,944 105,263 99,778 6,831 215
----------------------------------------------------------
Net investment income (deficit)..... (77,091) (1,297,127) (333,533) 529,941 11,761
----------------------------------------------------------
NET REALIZED & UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from security
transactions............................ (56,635) 36,854,224 13,876,018 1,265,964 38,873
Change in net unrealized appreciation of
investments............................. 3,155,474 33,557,773 17,420,211 1,584,928 22,385
----------------------------------------------------------
Net gain on investments............... 3,098,839 70,411,997 31,296,229 2,850,892 61,258
----------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ $3,021,748 $69,114,870 $30,962,696 $3,380,833 $73,019
----------------------------------------------------------
</TABLE>
- ---------------
*Commenced operations on July 12, 1995.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
55
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------
INSTITUTIONAL SERIES PORTFOLIOS
<TABLE>
<CAPTION>
MINI CAP
GROWTH EMERGING GROWTH
------------ --------------------------
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1996+ 1996 1995
<S> <C> <C> <C>
-----------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income
(deficit)............... $ (77,091) $ (1,297,127) $ (1,022,432)
Net realized gain (loss)
from security
transactions............ (56,635) 36,854,224 (19,724,608)
Change in net unrealized
appreciation of
investments............. 3,155,474 33,557,773 37,319,272
-----------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 3,021,748 69,114,870 16,572,232
-----------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*.... -- -- --
Capital gain*............. -- (11,944,149) (10,693,053)
-----------------------------------------
Total distributions..... -- (11,944,149) (10,693,053)
-----------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales....... 22,406,432 21,738,499 30,585,831
Proceeds from shares
issued for distribution
reinvestment............ -- 11,195,132 10,692,951
Cost of shares
repurchased............. (192,103) (72,722,930) (6,402,218)
-----------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 22,214,329 (39,789,299) 34,876,564
-----------------------------------------
Total increase
(decrease) in net
assets................ 25,236,077 17,381,422 40,755,743
NET ASSETS:
BEGINNING OF PERIOD......... 1,000 206,695,605 165,939,862
-----------------------------------------
END OF PERIOD............... $25,237,077 $224,077,027 $206,695,605
-----------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 80 17,845,788 14,576,639
Shares sold................. 1,605,094 1,606,361 2,887,314
Shares issued for
distributions
reinvested................ -- 823,777 1,037,144
Shares repurchased.......... (13,041) (5,441,029) (655,309)
-----------------------------------------
Ending Balance.............. 1,592,133 14,834,897 17,845,788
-----------------------------------------
</TABLE>
- -------------
*See Financial Highlights for per share distribution amounts.
+Commenced operations on July 12, 1995.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
56
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
CORE GROWTH INCOME & GROWTH BALANCED GROWTH
-------------------------- ------------------------ -----------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS
Net investment income
(deficit)............... $ (333,533) $ (44,410) $ 529,941 $ 683,017 $ 11,761 $ 4,775
Net realized gain (loss)
from security
transactions............ 13,876,018 (4,872,966) 1,265,964 (1,779,392) 38,873 (12,200)
Change in net unrealized
appreciation of
investments............. 17,420,211 7,244,252 1,584,928 597,254 22,385 24,548
-----------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 30,962,696 2,326,876 3,380,833 (499,121) 73,019 17,123
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*.... -- -- (528,014) (683,134) (11,756) (4,767)
Capital gain*............. (4,998,748) (2,544,491) -- (768,642) -- --
-----------------------------------------------------------------------------
Total distributions..... (4,998,748) (2,544,491) (528,014) (1,451,776) (11,756) (4,767)
-----------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales....... 59,521,255 23,632,447 4,259,507 1,552,115 330,767 162,027
Proceeds from shares
issued for distribution
reinvestment............ 4,613,020 2,432,896 515,752 1,424,207 11,755 4,766
Cost of shares
repurchased............. (12,954,623) (30,969,209) (2,894,918) (6,850,768) (62,021) (38,308)
-----------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 51,179,652 (4,903,866) 1,880,341 (3,874,446) 280,501 128,485
-----------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 77,143,600 (5,121,481) 4,733,160 (5,825,343) 341,764 140,841
NET ASSETS:
BEGINNING OF PERIOD......... 72,825,771 77,947,252 12,506,203 18,331,546 283,586 142,745
-----------------------------------------------------------------------------
END OF PERIOD............... $149,969,371 $ 72,825,771 $17,239,363 $12,506,203 $625,350 $283,586
-----------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 5,768,800 6,145,675 1,054,784 1,369,540 23,604 12,194
Shares sold................. 3,993,369 1,934,559 315,794 124,529 24,001 14,309
Shares issued for
distributions
reinvested................ 312,747 213,787 38,265 119,942 857 414
Shares repurchased.......... (853,616) (2,525,221) (215,809) (559,227) (4,423) (3,313)
-----------------------------------------------------------------------------
Ending Balance.............. 9,221,300 5,768,800 1,193,034 1,054,784 44,039 23,604
-----------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
57
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Nicholas-Applegate Mutual Funds (the "Trust") is organized as a diversified,
open-end management investment company which offers 43 separate series comprised
of Portfolios A, with an initial sales charge, B, with a back-end sales charge,
C, with a level asset-based sales charge, Institutional, with no load, and
Qualified, with no load (each a "Portfolio" and collectively the "Portfolios").
The Portfolios of the Trust seek to achieve their respective investment
objectives by investing all of their assets in corresponding series of
Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified,
open-end management investment company offering twelve investment vehicles (the
"Funds"). For a description of the investment objectives of each Fund, see Note
A to the accompanying Funds' financial statements.
Pursuant to Rule 24f-2 under the Investment Company Act, the Trust has elected
to register an indefinite number of shares. The Trust commenced operations on
April 19, 1993.
INVESTMENT INCOME
Each Portfolio accrues income, net of expenses, daily on its investment in the
applicable Fund. All of the net investment income (deficit) and realized and
unrealized gains and losses from the security transactions and foreign currency
of the Fund are allocated pro rata among the investors in the Fund at the time
of such determination.
FEDERAL INCOME TAXES
It is the Portfolios' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of their taxable income to their shareholders. Accordingly, no
federal income tax provisions are required if the Portfolios continue to comply
with such requirements.
The Funds are treated as partnerships for federal income tax purposes. Any
interest, dividends and gains or losses of the Funds will be deemed to have been
"passed through" to the Portfolios.
Net investment income and net realized gains for the year (or period where
appropriate) differ for financial statement and tax purposes primarily because
of one or all of the following: deferral of wash-sale losses, passive foreign
investments, unrealized appreciation/depreciation, and capital loss
carryforwards.
The character of distributions made during the year (or period where
appropriate) from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes due to book/tax
differences in the character of income and expense recognition.
DEFERRED ORGANIZATION COSTS
Organization costs incurred by the Trust have been allocated to certain
Portfolios based upon management's best estimate of the costs applicable to each
Portfolio. These costs have been deferred and will be amortized over a period of
60 months from the date the Portfolios commenced operations.
In the event that any of the initial shares are redeemed by the holder during
the period of amortization of the Portfolio's organization costs, the redemption
proceeds will be reduced by any such unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
those shares outstanding at the time of redemption.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
- --------------------------------------------------------------------------------
58
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
ADVISORY AGREEMENTS
The investment adviser to the Master Trust is Nicholas-Applegate Capital
Management ("Nicholas-Applegate" or "Investment Adviser"). The advisory fee is
computed daily for the Funds based upon the percentage of each Fund's average
daily net assets.
EXPENSE LIMITATIONS
Nicholas-Applegate and the Trust have undertaken to limit the Portfolios'
expenses to the following annual levels through March 31, 1997. In subsequent
years, overall operating expenses for each Portfolio will not fall below the
applicable percentage limitation until the Investment Adviser has been fully
reimbursed for fees foregone or expenses paid by the Investment Adviser under
this agreement, as each Portfolio will reimburse the Investment Adviser in
subsequent years when operating expenses (before reimbursement) are less than
the applicable percentage limitation.
<TABLE>
<S> <C>
Mini Cap Growth Institutional
Portfolio............................. 1.56%
Emerging Growth Institutional
Portfolio............................. 1.17%
Core Growth Institutional Portfolio.... 1.00%
Income & Growth Institutional
Portfolio............................. 1.00%
Balanced Growth Institutional
Portfolio............................. 1.00%
</TABLE>
These percentages are based on the average net assets of the Portfolios,
exclusive of interest, taxes, brokerage commissions and other costs incurred in
connection with portfolio securities transactions, capital expenditures, and
extraordinary expenses.
The cumulative unreimbursed amounts paid by Nicholas-Applegate on behalf of
the Portfolios, during the period from inception (respectively) to March 31,
1996, are as follows:
<TABLE>
<S> <C>
Mini Cap Growth Institutional
Portfolio.......................... $30,346
Emerging Growth Institutional
Portfolio.......................... 192,271
Core Growth Institutional
Portfolio.......................... 251,413
Income & Growth Institutional
Portfolio.......................... 216,309
Balanced Growth Institutional
Portfolio.......................... 107,314
</TABLE>
Nicholas-Applegate advanced certain organization costs discussed in Note 1. As
of March 31, 1996, the Mini Cap Institutional Portfolio had $2,670 due to
Nicholas-Applegate for organizational costs advanced.
RELATED PARTIES
Certain officers of the Trust and the Master Trust are also officers of the
Investment Advisor.
3. INVESTMENT TRANSACTIONS
Additions and reductions in the investments in the respective Master Trust
Funds for the fiscal year ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
(000S) (000S)
--------- -----------
<S> <C> <C>
Mini Cap Growth Institutional
Portfolio........................ $ 22,421 $ 208
Emerging Growth Institutional
Portfolio........................ 21,813 73,678
Core Growth Institutional
Portfolio........................ 59,583 13,503
Income & Growth Institutional
Portfolio........................ 4,318 2,986
Balanced Growth Institutional
Portfolio........................ 369 105
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
59
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES FOR NICHOLAS-APPLEGATE INVESTMENT TRUST
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
MINI CAP EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
ASSETS
Investments, at value* $ 24,874,920 $ 589,916,573 $ 424,821,797 $ 111,582,468 $ 23,374,270
Cash....................................... 822 6,624 104,687 1,068,976 1,215
Receivable for investment securities
sold..................................... 121,190 8,892,675 6,485,822 1,054,430 232,027
Receivable for interests sold.............. 5,416 1,781,237 1,065,892 435,420 105,206
Dividends receivable....................... 591,227 79,939 63,712 111,346 3,164
Interest receivable........................ 233 4,265 8,701 799,241 177,304
Deferred organization costs................ -- 22,962 31,883 15,812 11,280
Other assets............................... 143 8,958 2,990 730 48
-----------------------------------------------------------------------
Total assets........................... 25,593,951 600,713,233 432,585,484 115,068,423 23,904,514
-----------------------------------------------------------------------
LIABILITIES
Payable for investment securities
purchased................................ 284,115 4,605,614 11,360,399 3,052,126 --
Payable for interests repurchased.......... 4,112 11,374,104 303,649 131,446 30,270
Due to advisor............................. -- -- -- 192 --
Accrued expenses........................... 41,755 647,133 378,833 126,723 29,693
-----------------------------------------------------------------------
Total liabilities...................... 329,982 16,626,851 12,042,881 3,310,487 59,963
-----------------------------------------------------------------------
NET ASSETS................................... $ 25,263,969 $ 584,086,382 $ 420,542,603 $ 111,757,936 $ 23,844,551
-----------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital.............................. $ 22,232,904 $ 405,315,616 $ 313,544,763 $ 82,905,884 $ 18,981,131
Accumulated net investment income
(deficit).................................. (73,292) (6,202,213) (683,173) 11,637,836 1,409,039
Accumulated net realized gain (loss)......... (55,894) 24,342,802 18,927,339 2,949,024 709,785
Net unrealized appreciation of investments... 3,160,251 160,630,177 88,753,674 14,265,192 2,744,596
-----------------------------------------------------------------------
Net assets............................. $ 25,263,969 $ 584,086,382 $ 420,542,603 $ 111,757,936 $ 23,844,551
-----------------------------------------------------------------------
- -------------
*Investments, at cost $ 21,714,669 $ 429,286,396 $ 336,068,123 $ 97,317,276 $ 20,629,674
-----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
60
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR NICHOLAS-APPLEGATE INVESTMENT TRUST
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
MINI CAP EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND* FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Dividends................................... $ 13,951 $ 1,179,992 $ 1,114,996 $ 1,152,827 $ 112,176
Interest.................................... 30,882 1,620,601 1,157,351 3,989,027 741,327
--------------------------------------------------------------------
Total income.............................. 44,833 2,800,593 2,272,347 5,141,854 853,503
--------------------------------------------------------------------
Expenses:
Advisory fee................................ 97,817 5,190,853 2,563,061 789,222 169,416
Accounting fee.............................. 17,500 172,731 138,472 76,569 75,000
Administration fee.......................... 2,638 35,001 118,532 36,632 7,859
Audit & tax services........................ 2,489 136,316 93,588 26,856 6,295
Custodian fee............................... 28,682 151,066 64,667 31,624 27,384
Insurance................................... 178 9,983 9,416 2,796 681
Legal fee................................... 118 8,636 8,990 2,913 617
Miscellaneous............................... 3,289 24,391 3,943 10,451 7,746
Organization costs.......................... -- 8,539 15,585 7,730 5,516
Trustees' fee............................... 6,137 8,450 8,450 8,450 8,450
--------------------------------------------------------------------
Total expenses............................ 158,848 5,745,966 3,024,704 993,243 308,964
Less: Reimbursement to (from) advisor..... (40,723) -- -- 6,439 (94,370)
--------------------------------------------------------------------
Net expenses.............................. 118,125 5,745,966 3,024,704 999,682 214,594
--------------------------------------------------------------------
Net investment income (deficit)......... (73,292) (2,945,373) (752,357) 4,142,172 638,909
--------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from security
transactions................................ (55,894) 78,797,996 50,587,998 10,319,301 2,837,068
Change in net unrealized appreciation of
investments................................. 3,160,251 91,635,716 52,583,826 10,732,341 742,010
--------------------------------------------------------------------
Net gain on investments................... 3,104,357 170,433,712 103,171,824 21,051,642 3,579,078
--------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $ 3,031,065 $ 167,488,339 $ 102,419,467 $ 25,193,814 $ 4,217,987
--------------------------------------------------------------------
</TABLE>
- -------------
*Commenced operations on July 12, 1995.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
61
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR NICHOLAS-APPLEGATE INVESTMENT TRUST
<TABLE>
<CAPTION>
MINI CAP
GROWTH FUND EMERGING GROWTH FUND
-------------- -------------------------------
FOR THE PERIOD FOR THE FOR THE
ENDED MARCH YEAR ENDED YEAR ENDED
31, 1996* MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C> <C>
------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income
(deficit)............... $ (73,292) $ (2,945,373) $ (2,224,592)
Net realized gain (loss)
from security
transactions............ (55,894) 78,797,996 (48,388,925)
Change in net unrealized
appreciation of
investments............. 3,160,251 91,635,716 88,372,950
------------------------------------------------
Net increase (decrease)
in net assets from
operations............ 3,031,065 167,488,339 37,759,433
------------------------------------------------
TRANSACTIONS IN INTERESTS:
Contributions by
partners................ 22,441,390 107,044,506 77,212,401
Withdrawals by partners... (208,486) (161,495,614) (57,696,150)
------------------------------------------------
Net increase (decrease) in
net assets from
transactions in
interests............... 22,232,904 (54,451,108) 19,516,251
------------------------------------------------
Total increase
(decrease) in net
assets................ 25,263,969 113,037,231 57,275,684
NET ASSETS:
BEGINNING OF PERIOD......... -- 471,049,151 413,773,467
------------------------------------------------
END OF PERIOD............... $25,263,969 $ 584,086,382 $ 471,049,151
------------------------------------------------
</TABLE>
- -------------
* COMMENCED OPERATIONS ON JULY 12, 1995.
- --------------------------------------------------------------------------------
62
<PAGE>
----------------------------------------------------------------
<TABLE>
<CAPTION>
CORE GROWTH FUND INCOME & GROWTH FUND BALANCED GROWTH FUND
------------------------------- ------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income
(deficit)............... $ (752,357) $ 136,431 $ 4,142,172 $ 5,103,250 $ 638,909 $ 477,083
Net realized gain (loss)
from security
transactions............ 50,587,998 (27,617,865) 10,319,301 (13,408,682) 2,837,068 (1,500,269)
Change in net unrealized
appreciation of
investments............. 52,583,826 36,375,233 10,732,341 5,539,419 742,010 1,850,658
---------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets from
operations............ 102,419,467 8,893,799 25,193,814 (2,766,013) 4,217,987 827,472
---------------------------------------------------------------------------------------------------
TRANSACTIONS IN INTERESTS:
Contributions by
partners................ 113,757,799 76,785,761 15,608,507 32,875,977 4,914,004 4,819,959
Withdrawals by partners... (79,489,585) (91,624,360) (35,130,807) (42,582,471) (7,102,941) (6,527,607)
---------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from
transactions in
interests............... 34,268,214 (14,838,599) (19,522,300) (9,706,494) (2,188,937) (1,707,648)
---------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 136,687,681 (5,944,800) 5,671,514 (12,472,507) 2,029,050 (880,176)
NET ASSETS:
BEGINNING OF PERIOD......... 283,854,922 289,799,722 106,086,422 118,558,929 21,815,501 22,695,677
---------------------------------------------------------------------------------------------------
END OF PERIOD............... $ 420,542,603 $ 283,854,922 $ 111,757,936 $ 106,086,422 $ 23,844,551 $ 21,815,501
---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
63
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUNDS' FINANCIAL STATEMENTS
- -------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified,
open-end management investment company organized as a Delaware business trust,
is comprised of twelve investment vehicles (each a "Fund" and collectively the
"Funds") as of March 31, 1996. Each Fund has up to five Portfolios which have
invested in the respective series of the Master Trust to achieve their
investment objective.
The investment objectives of the Funds are as follows:
Mini Cap Growth Fund seeks to maximize long-term capital appreciation through
investment primarily in equity securities of U.S. companies whose earnings and
stock prices are expected to grow faster than the average rate of companies in
the Standard & Poor's 500 Stock Price Index.
Emerging Growth Fund seeks to maximize long-term capital appreciation through
investment primarily in equity securities of U.S. companies with less than $500
million in market capitalization.
Core Growth Fund seeks to maximize long-term capital appreciation through
investment primarily in U.S. companies, generally over $500 million in total
stock market value.
Income & Growth Fund seeks to maximize total return through investment
primarily in convertible and equity securities of U.S. companies.
Balanced Growth Fund seeks to provide a balance of long-term capital
appreciation and current income by investing approximately 60% of its total
assets in equity and convertible securities of primarily U.S. companies and 40%
of its total assets in debt securities, money market instruments and other
short-term investments.
SECURITIES TRANSACTIONS
Equity securities are valued at the last sale price (for exchange-listed
securities) or the mean between the last bid and asked price (if lacking any
sales and for over-the-counter securities). Debt securities generally are valued
at the mean between the last bid and asked prices. Securities with 60 days or
less remaining to maturity are valued on an amortized cost basis which
approximates market value.
Securities for which market quotations are not readily available are valued at
fair value determined in good faith by or under the direction of the Master
Trust's Board of Trustees.
Securities transactions are recognized on the trade date. Realized gains and
losses from securities transactions are calculated using the first-in, first-out
method. Dividend income is recognized on the ex-dividend date, and interest
income is recorded on the accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities.
FEDERAL INCOME TAXES
The Funds are treated as partnerships for federal income tax purposes. Any
interest, dividends and gains or losses of a Fund will be deemed to have been
"passed through" to the Portfolios.
DEFERRED ORGANIZATION COSTS
Organization costs incurred by the Master Trust have been allocated to the
various Funds based upon management's best estimate of the costs applicable to
each Fund. These costs have been deferred and will be amortized over a period of
60 months from the date the Funds commenced operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and
- --------------------------------------------------------------------------------
64
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUNDS' FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
B. TRANSACTIONS WITH AFFILIATES
ADVISORY AGREEMENTS
The investment adviser to the Master Trust is Nicholas-Applegate Capital
Management ("Nicholas-Applegate"). The advisory fee is computed daily for the
Funds based upon the following percentages of each Fund's average daily net
assets:
<TABLE>
<CAPTION>
FIRST $500 NEXT $500 EXCESS OF
MILLION MILLION $1 BILLION
----------- ----------- -----------
<S> <C> <C> <C>
Mini Cap Growth Fund........ 1.25% 1.25% 1.25%
Emerging Growth............. 1.00% 1.00% 1.00%
Core Growth Fund............ .75% .675% .65%
Income & Growth Fund........ .75% .675% .65%
Balanced Growth Fund........ .75% .675% .65%
</TABLE>
EXPENSE LIMITATIONS
Nicholas-Applegate and the Master Trust have undertaken to limit the Funds'
expenses to certain annual levels through March 31, 1997. In subsequent years,
overall operating expenses for each Fund will not fall below the percentage
limitation until the Investment Adviser has been fully reimbursed for fees
foregone or expenses paid by the Investment Adviser under this agreement, as
each Fund will reimburse the Investment Advisor in subsequent years when
operating expenses (before reimbursement) are less than the applicable
percentage limitation.
The cumulative unreimbursed amounts paid by Nicholas-Applegate on behalf of
the Funds, during the period from inception (respectively) to March 31, 1996,
are as follows:
<TABLE>
<S> <C>
Mini Cap Growth Fund................. $ 40,723
Income & Growth Fund................. 37,500
Balanced Growth Fund................. 244,871
</TABLE>
C. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investment securities, other than
short-term obligations, for the fiscal year ended March 31, 1996, were as
follows (in 000's):
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Mini Cap Growth Fund............ $ 32,553 $ 11,554
Emerging Growth Fund............ 641,224 681,706
Core Growth Fund................ 396,795 369,702
Income & Growth Fund............ 147,316 166,406
Balanced Growth Fund............ 42,668 41,675
</TABLE>
At March 31, 1996, the net unrealized appreciation (depreciation) based on the
cost of investments for Federal income tax purposes was as follows (in 000's):
<TABLE>
<CAPTION>
TAX GROSS GROSS NET
COST OF UNREALIZED UNREALIZED UNREALIZED
INVESTMENTS APPRECIATION DEPRECIATION APPRECIATION
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Mini Cap
Growth
Fund...... $ 21,718 $ 3,507 $ 374 $ 3,133
Emerging
Growth
Fund...... 429,278 170,460 9,901 160,559
Core Growth
Fund...... 336,068 92,929 4,175 88,754
Income &
Growth
Fund...... 97,318 14,508 244 14,264
Balanced
Growth
Fund...... 20,630 3,296 552 2,744
</TABLE>
- --------------------------------------------------------------------------------
65
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUNDS' FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
D. SELECTED RATIO DATA
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
RATIO OF EXPENSES RATIO OF EXPENSES INVESTMENT INCOME INVESTMENT INCOME
TO AVERAGE NET TO AVERAGE NET (DEFICIT) TO (DEFICIT) TO
ASSETS, AFTER ASSETS, BEFORE AVERAGE NET ASSETS, AVERAGE NET ASSETS,
EXPENSE EXPENSE AFTER EXPENSE BEFORE EXPENSE PORTFOLIO
REIMBURSEMENTS REIMBURSEMENTS REIMBURSEMENTS REIMBURSEMENTS TURNOVER
(RECOUPMENT) (RECOUPMENT) (RECOUPMENT) (RECOUPMENT) RATE
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
MINI CAP GROWTH*
For the period ended
03/31/96+.................. 1.50% 2.02% (0.93%) (1.44%) 106.99%
EMERGING GROWTH*
For the year ended
03/31/96................... 1.11% 1.11% (0.57%) (0.57%) 129.59%
For the year ended
03/31/95................... 1.12% 1.11% (0.53%) (0.52%) 100.46%
For the period ended
03/31/94+.................. 1.12% 1.16% (0.80%) (0.84%) 50.51%
CORE GROWTH*
For the year ended
03/31/96................... 0.89% 0.89% (0.22%) (0.22%) 114.48%
For the year ended
03/31/95................... 0.89% 0.89% 0.05% 0.05% 98.09%
For the period ended
03/31/94+.................. 0.92% 0.92% (0.03%) (0.03%) 84.84%
INCOME & GROWTH*
For the year ended
03/31/96................... 0.95% 0.94% 3.94% 3.94% 144.97%
For the year ended
03/31/95................... 0.93% 0.95% 4.37% 4.35% 125.51%
For the period ended
03/31/94+.................. 0.94% 0.97% 3.51% 3.48% 177.52%
BALANCED GROWTH*
For the year ended
03/31/96................... 0.95% 1.37% 2.83% 2.37% 197.19%
For the year ended
03/31/95................... 0.95% 1.33% 2.13% 1.75% 110.40%
For the period ended
03/31/94+.................. 0.94% 1.37% 1.93% 1.50% 85.43%
<CAPTION>
BROKER
COMMISSIONS
PER SHARE
<S> <C>
- -------------------------------
MINI CAP GROWTH*
For the period ended
03/31/96+.................. $ 0.0529
EMERGING GROWTH*
For the year ended
03/31/96................... $ 0.0523
For the year ended
03/31/95................... --
For the period ended
03/31/94+.................. --
CORE GROWTH*
For the year ended
03/31/96................... $ 0.0593
For the year ended
03/31/95................... --
For the period ended
03/31/94+.................. --
INCOME & GROWTH*
For the year ended
03/31/96................... $ 0.0597
For the year ended
03/31/95................... --
For the period ended
03/31/94+.................. --
BALANCED GROWTH*
For the year ended
03/31/96................... $ 0.0594
For the year ended
03/31/95................... --
For the period ended
03/31/94+.................. --
</TABLE>
- ------------
+Annualized
*All Funds commenced operations on April 19, 1993, except Emerging Growth Fund
and Mini Cap Growth Fund which commenced operations on October 1, 1993 and July
12, 1995, respectively.
- --------------------------------------------------------------------------------
66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------
ERNST & YOUNG LLP
515 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
PHONE: 213 977 3200
To the Shareholders and Board of Trustees of
Nicholas-Applegate Mutual Funds
We have audited the accompanying statements of assets and liabilities of the
following portfolios of Nicholas-Applegate Mutual Funds: Mini Cap Growth
Institutional Portfolio, Emerging Growth Institutional Portfolio, Core Growth
Institutional Portfolio, Income & Growth Institutional Portfolio, and Balanced
Growth Institutional Portfolio (hereinafter the "Portfolios"), as of March 31,
1996, and the related statements of operations and changes in net assets and the
financial highlights for the fiscal year then ended. These financial statements
and financial highlights are the responsibility of the Portfolios' management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets and the financial highlights of the Portfolios except Mini Cap Growth
Institutional Portfolio for the fiscal year ended March 31, 1995 and the
financial highlights for the fiscal year ended March 31, 1994 were audited by
other auditors whose report dated May 12, 1995 expressed an unqualified opinion
on those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1996 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
the Portfolios as of March 31, 1996, and the results of their operations,
changes in their net assets and the financial highlights for the fiscal year
then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
May 10, 1996
- --------------------------------------------------------------------------------
67
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------
ERNST & YOUNG LLP
515 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
PHONE: 213 977 3200
To the Shareholders and Board of Trustees of
Nicholas-Applegate Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the following series of Nicholas-Applegate
Investment Trust: Mini Cap Growth Fund, Emerging Growth Fund, Core Growth Fund,
Income & Growth Fund, and Balanced Growth Fund (hereinafter the "Funds"), as of
March 31, 1996, and the related statements of operations and changes in net
assets for the fiscal year then ended. These financial statements are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits. The statements of
changes in net assets of the Funds for the fiscal year ended March 31, 1995
except Mini Cap Growth Fund were audited by other auditors whose report dated
May 12, 1995 expressed an unqualified opinion on those financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1996, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial positions of the Funds as of March 31,
1996, and the results of their operations and changes in their net assets for
the fiscal year then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
May 10, 1996
- --------------------------------------------------------------------------------
68
<TABLE> <S> <C>
<PAGE>
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<NAME> NICHOLAS-APPLEGATE MUTUAL FUNDS
<SERIES>
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<NAME> MINI-CAP GROWTH INSTITUTIONAL PORTFOLIO
<MULTIPLIER> 1
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 22212904
<INVESTMENTS-AT-VALUE> 25238596
<RECEIVABLES> 125302
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18898
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<ACCUM-APPREC-OR-DEPREC> 3155474
<NET-ASSETS> 25237077
<DIVIDEND-INCOME> (73147)
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<OTHER-INCOME> 0
<EXPENSES-NET> 3944
<NET-INVESTMENT-INCOME> (77091)
<REALIZED-GAINS-CURRENT> (56635)
<APPREC-INCREASE-CURRENT> 3155474
<NET-CHANGE-FROM-OPS> 3021748
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1605094
<NUMBER-OF-SHARES-REDEEMED> 13041
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25236077
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34290
<AVERAGE-NET-ASSETS> 10908535
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 3.40
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.85
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>