<PAGE>
As filed with the Securities and Exchange Commission
on December 5, 1997
Registration No. 33-56094
811-7428
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
--
POST-EFFECTIVE AMENDMENT NO. [ ]
--
(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: MICHAEL GLAZER
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 S. FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.
---------------
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24(f) under the Investment
Company Act of 1940. Accordingly, no fee is payable herewith. Registrant
filed the notice required by Rule 24f-2 with respect to its most recent
fiscal year on May 30, 1997.
---------------
It is proposed that this filing shall become effective on
January 5, 1998 pursuant to Rule 488
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Title of Securities Being Registered: Shares of Beneficial Interest.
---------------
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FORM N-14 CROSS REFERENCE SHEET
Part A. Item No Proxy Statement/Prospectus
And Caption Statement Caption
---------------- --------------------------
1. Beginning of Cover Page
Registration Statement
and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis Purpose of Meeting;
Information and Risk Background of the Proposed
Factors Reorganization; Proposal 2.
Approval of the Proposed
Reorganization; Comparison
of the Portfolios and the
Funds; Risk Factors
4. Information About the Cover Page; Purpose of
Transaction Meeting; Background of the
Proposed Reorganization;
Proposal 1. Amendment of
the Declaration of Trust;
Proposal 2. Approval of the
Proposed Reorganization;
Description of the Proposed
Reorganization; Comparison
of the Portfolios and the
Funds
5. Information About the Purpose of Meeting;
Registrant Background of the Proposed
Reorganization; Comparison
of the Portfolios and the
Funds; Further Information
about the Portfolios and
the Funds
6. Information About the Purpose of Meeting;
Company Being Acquired Background of the Proposed
Reorganization; Comparison
of the Portfolios and the
Funds; Further Information
about the Portfolios and
the Funds
7. Voting Information Shares and Voting; Election
of Trustees; Appendix A
8. Interest of Certain Not Applicable
Persons and Experts
9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
<PAGE>
Part B. Item No. Statement of Additional
And Caption Information Caption
----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information Further information
About the Registrant about the Portfolios
and the Funds
13. Additional Information Further information
About the Company Being about the Portfolios
Acquired and the Funds
14. Financial Statements Further information
about the Portfolios
and the Funds
Part C
------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 West Broadway
San Diego, California 92101
January 5, 1998
Dear Shareholder:
A special meeting of shareholders of Nicholas-Applegate Mutual Funds (the
"Trust") will be held to determine important organizational issues affecting
your portfolio. The meeting will begin at 9:00 a.m. local time on February 27,
1998, at the offices of the Trust, 600 West Broadway, 30th Floor, San Diego,
California 92101.
At the meeting shareholders of the Trust will be asked to approve a
reorganization in which the Trust will move from a complex "master-feeder"
structure to a simpler and more economical "multi-class" structure. The
reorganization is administrative in nature and, while it is very important for
the efficient and cost-effective long-term administration of the Trust, it will
not affect the objectives, policies or risks of your investment. You may
benefit, however, from the reduced cost of administering the Trust.
Shareholders will also be asked to elect Trustees to take office when the
reorganization is concluded and to ratify the selection of Ernst & Young L.L.P.
as independent public accountants of the Trust.
The proposals have been carefully reviewed by your Board of Trustees, which
recommends that you approve them. Please read the enclosed materials carefully,
and sign, date and mail the enclosed proxy card(s) promptly in the enclosed
return envelope. Your vote is important for the proper administration of the
Trust.
Thank you for your attention to this matter. If you have any questions on
voting of proxies or the proposal to be considered at the meeting, please call
us toll free at 1-800-551-8045.
John D. Wylie
PRESIDENT
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 WEST BROADWAY
SAN DIEGO, CALIFORNIA 92101
800/ 551-8045
------------------------
COMBINED PROXY STATEMENT AND PROSPECTUS
(FOR ALL PORTFOLIOS EXCEPT GOVERNMENT INCOME PORTFOLIOS)
------------------------
This Combined Proxy Statement and Prospectus, which includes a Notice of
Special Meeting of Shareholders, a Proxy Statement and a form of Proxy, is being
furnished in connection with the special meeting of shareholders of
Nicholas-Applegate Mutual Funds (the "Trust") to be held on February 27, 1998,
and any adjournment thereof (the "Meeting"). It is being furnished to the
shareholders of all portfolios of the Trust other than the Government Income
portfolios (the "Portfolios"). Shareholders of the Government Income portfolios
are being asked to approve its reorganization into other Portfolios, and are
receiving a separate Combined Proxy Statement and Prospectus in connection with
the Meeting.
The various A, B, C, Qualified and Institutional Portfolios of the Trust
currently invest all of their assets in corresponding "master funds" of
Nicholas-Applegate Investment Trust. At the Meeting the shareholders of the
Portfolios will be asked to approve a reorganization in which the Trust will
move from this "master-feeder" structure to a "multi-class" structure. As a
result of the reorganization, each shareholder of an A, B, C, Qualified or
Institutional Portfolio will receive Class A, B, C, Q or I shares of a
corresponding multi-class series of the Trust having the same aggregate net
asset value as the shares of the Portfolio held by such shareholder at the time
of closing of the reorganization. The investment objectives, policies and risks
of each multi-class series will be identical to the investment objectives,
policies and risks of the corresponding Portfolios.
The shareholders of the Trust also will be asked to elect Trustees of the
Trust and to ratify the selection of Ernst & Young L.L.P. as independent
accountants.
The Trust is an open-end, management investment company comprised of a
number of diversified portfolios. This Combined Proxy Statement and Prospectus
sets forth concisely the information that a shareholder of the Portfolios should
know before voting on the proposed Reorganization and related actions. It should
be read and retained for future reference.
The most recent Prospectuses and Statements of Additional Information
relating to each A, B, C, Qualified and Institutional Portfolio of the Trust are
on file with the Securities and Exchange Commission and are incorporated by
reference herein. They are available without charge by writing or calling the
Trust at its address and telephone number above. The Prospectus relating to the
corresponding Class A, B, C, Q or I shares of the Trust to be distributed to the
shareholders pursuant to the reorganization accompanies this document. The
Statements of Additional Information relating to the Class A, B, C, Q or I
shares of the Trust are also incorporated herein by reference and are available
without charge by writing or calling the Trust at its address and telephone
number above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATE:
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 WEST BROADWAY
SAN DIEGO, CALIFORNIA 92101
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1998
(FOR ALL PORTFOLIOS EXCEPT GOVERNMENT INCOME PORTFOLIOS)
------------------------
A Special Meeting of shareholders (the "Meeting") of Nicholas-Applegate
Mutual Funds (the "Trust") will be held at the offices of the Trust, 600 West
Broadway, 30th Floor, San Diego, California 92101 at 9:00 a.m. local time on
February 27, 1998.
For shareholders of all portfolios of the Trust other than the Government
Income Portfolios (the "Portfolios"), the purpose of the Meeting is:
1. For shareholders of the Institutional Portfolios to vote upon an
amendment to the Declaration of Trust of the Trust authorizing the Board
of Trustees of the Trust to create classes of shares of the Institutional
Portfolios, to rename the Institutional Portfolios as the "Funds" and to
designate the existing Institutional Portfolio shares as "Class I" shares
of the Funds.
2. For shareholders of the A, B, C, Qualified and Institutional Portfolios
to vote upon the reorganization (the "Reorganization") of the A, B, C,
Qualified and Institutional Portfolios pursuant to an Agreement and Plan
of Reorganization providing for (i) the receipt by each A, B, C,
Qualified and Institutional Portfolio of its pro rata portion of the
assets of the corresponding series of Nicholas-Applegate Investment
Trust, upon dissolution of such series; (ii) the transfer by the A, B, C
and Qualified Portfolios of such assets to the corresponding Fund of the
Trust in Exchange for Class A, B, C and Q shares of such Fund; (iii) the
receipt by each shareholder of an A, B, C or Qualified Portfolio of Class
A, B, C or Q shares of the corresponding Fund in exchange for shares of
such Portfolio; and (iv) the termination of the A, B, C and Qualified
Portfolios.
3. For all shareholders to elect Trustees of the Trust to hold office until
their successors are elected and qualified.
4. For all shareholders to ratify the selection of Ernst & Young L.L.P. as
independent accountants for the Trust in the Fiscal Year ended March 31,
1998.
Shareholders of record of the Trust at the close of business on December 19,
1997 will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. Each shareholder is requested to sign, date and return the enclosed
proxy card(s) without delay, even if such shareholder now plans to attend the
Meeting. A postage-paid envelope is enclosed for this purpose. Any shareholder
present at the Meeting may vote personally on all matters brought before the
Meeting and in that event such shareholder's proxy will not be used.
E. Blake Moore, Jr.,
SECRETARY
Nicholas-Applegate Mutual Funds
January 5, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.............................................................. 1
SHARES AND VOTING......................................................... 2
BACKGROUND OF THE PROPOSED REORGANIZATION................................. 3
PROPOSAL 1. AMENDMENT OF THE DECLARATION OF TRUST......................... 4
PROPOSAL 2. APPROVAL OF THE PROPOSED REORGANIZATION....................... 5
PROPOSAL 3. ELECTION OF TRUSTEES.......................................... 11
PROPOSAL 4. SELECTION OF INDEPENDENT ACCOUNTANTS.......................... 17
OTHER MATTERS............................................................. 17
NEXT MEETING OF SHAREHOLDERS.............................................. 18
APPENDIX A--SHARES AND 5% SHAREHOLDERS BY SERIES AS OF RECORD DATE
APPENDIX B--AGREEMENT AND PLAN OF REORGANIZATION
</TABLE>
<PAGE>
INTRODUCTION
SOLICITATION OF PROXIES
This Combined Proxy Statement and Prospectus (the "Proxy Statement") is
being furnished to the shareholders of Nicholas-Applegate Mutual Funds (the
"Trust") in connection with the solicitation of proxies by the Board of Trustees
of the Trust for use at a special meeting of shareholders to be held on February
27, 1998, and any adjournment thereof (the "Meeting"). It is being furnished to
the shareholders of all portfolios of the Trust other than the Government Income
portfolios (the "Portfolios"). Shareholder of the Government Income portfolios
are being asked to approve its reorganization into other Portfolios, and are
receiving a separate Combined Proxy Statement and Prospectus in connection with
the Meeting.
The Meeting will be held at the offices of the Trust, 600 West Broadway,
30th Floor, San Diego, California 92101, for the purposes set forth in the
Notice of Special Meeting of Shareholders and more fully described below. This
Proxy Statement and the enclosed form of proxy (the "Proxy") were first mailed
to shareholders of the Portfolios entitled to vote at the Meeting on or about
January 5, 1998.
PURPOSE OF MEETING
The Meeting has been called for the purpose of considering a reorganization
in which the Trust will move from a "master-feeder" structure to a "multi-class"
structure (the "Reorganization"). Currently, the A, B, C, Qualified and
Institutional Portfolios of the Trust, known as "feeder funds," invest all of
their assets in shares of corresponding funds, known as "master funds," of
Nicholas-Applegate Investment Trust (the "Master Trust"). As a result of the
Reorganization the Trust will manage its assets directly rather than through the
Master Trust, and each shareholder of an A, B, C, Qualified or Institutional
Portfolio will receive Class A, B, C, Q or I shares of a corresponding portfolio
of the Trust. The series of the Trust created after August 1, 1997 (the Global
Blue Chip Bond Fund, Emerging Markets Bond Fund, Pacific Rim Fund, Greater China
Fund and Latin America Fund) are not part of the master/feeder structure and
will not be affected by the Reorganization. The Board of Trustees and management
of the Trust believe that the Reorganization will result in substantial
economies for the Trust. The Reorganization will not affect the net asset value
of the shares held by any shareholder; the investment objectives, policies or
risks of any Portfolio; or the basic arrangements for management of the Trust.
Legal counsel has advised the Trust that under the Internal Revenue Code the
Reorganization will not result in taxable income to the Portfolios or their
shareholders. Except for the minor differences described below, shareholders
will notice little difference in the investment represented by their class A, B,
C, Q or I shares as compared to the Portfolio shares they now hold.
To accomplish the Reorganization, the shareholders of the Portfolios will be
asked to vote on two matters. First, the shareholders of the Institutional
Portfolios will be asked to approve an amendment to the Declaration of Trust
authorizing the Board of Trustees to create classes of shares of the
Institutional Portfolios (Proposal 1). As described more fully below, the
Institutional Portfolios will be renamed as the "Funds" and the existing
Institutional Portfolio shares will be designated as "Class I" shares of the
Funds. Second, the shareholders of the A, B, C, Qualified and Institutional
Portfolios will be asked to approve a Reorganization Agreement, pursuant to
which (i) the Portfolios will receive their pro rata portions of the assets of
the corresponding Master Funds upon the dissolution of the Master Trust, (ii)
the A, B, C and Qualified Portfolios will transfer their accounts to the
corresponding Fund in exchange for Class A, B, C and Q shares of such Fund;
(iii) the shareholders of the A, B, C and Qualified Portfolios will receive
shares of corresponding Classes of the Funds in exchange for their current
shares, and (iv) the Portfolios will be terminated (Proposal 2).
All shareholders of the Trust will also be asked to act on two other
matters--the election of Trustees to take office when the Reorganization is
concluded (Proposal 3) and ratification of the selection of Ernst & Young L.L.P.
as independent public accountants to the Trust (Proposal 4).
1
<PAGE>
The following chart summarizes the Proposals on which the shareholders will
be asked to vote:
<TABLE>
<CAPTION>
GLOBAL BLUE CHIP,
EMERGING MARKETS
BOND, PACIFIC RIM,
INSTITUTIONAL A, B, C, AND GREATER CHINA AND
PORTFOLIOS QUALIFIED PORTFOLIOS LATIN AMERICA FUNDS
----------------- ----------------------- -------------------------
<S> <C> <C> <C>
Proposal 1 (Amend Declaration of Trust).................... X
Proposal 2 (Approve Reorganization Agreement).............. X X
Proposal 3 (Elect Trustees)................................ X X X
Proposal 4 (Ratify independent accountants)................ X X X
</TABLE>
Nicholas-Applegate Capital Management (the "Investment Adviser") will bear
50% of the cost of solicitation of proxies, including the cost of printing,
preparing, assembling and mailing the Notice of Meeting, Proxy
Statement/Prospectus and form of Proxy, and the balance will be paid by the
Trust. In addition to solicitations by mail, proxies may be solicited by
officers and regular employees of the Trust and the Investment Adviser by
personal interview, by telephone or by facsimile. Tritech will also be retained
to provide professional proxy solicitation services. The cost of solicitation,
including specified expenses, is not expected to exceed $275,000.
SHARES AND VOTING
The presence in person or by proxy of more than one-third of the outstanding
shares of beneficial interest of the Trust entitled to vote at the Meeting will
constitute a quorum. If a quorum is not present at the Meeting, sufficient votes
in favor of the Proposals set forth in the Notice of Meeting are not received by
the time scheduled for the Meeting, or the holders of shares present in person
or by proxy determine to adjourn the Meeting for any other reason, the
shareholders present in person or by proxy may adjourn the Meeting from time to
time, without notice other than announcement at the Meeting. Any such
adjournment will require the affirmative vote of shareholders holding a majority
of the shares present in person or by proxy at the Meeting. The persons named in
the Proxy will vote in favor of adjournment those shares which they represent if
adjournment is necessary to obtain a quorum or to obtain a favorable vote on any
Proposal. Business may be conducted once a quorum is present and may continue
until adjournment of the Meeting notwithstanding the withdrawal or temporary
absence of sufficient shares to reduce the number present to less than a quorum.
Each shareholder is entitled to one vote for each full share and a
fractional vote for each fractional share outstanding on the books of the Trust
in the name of the shareholder or his or her nominee on the Record Date. The
Record Date and time for determining those entitled to notice of and to vote at
the Meeting has been fixed at the close of business on December 19, 1997.
At the Record Date, the Trust had 62 series of shares and total
shares outstanding, and each series had the number of outstanding shares
indicated in Appendix A. Appendix A also indicates the persons who owned of
record more than 5% of the outstanding shares of each series at the Record Date.
The Trust has no information regarding the beneficial owners of such shares.
Except as indicated in Appendix A, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the outstanding shares of each series
at the Record Date.
All shares represented by each properly signed Proxy received prior to the
Meeting will be voted at the Meeting. If a shareholder specifies how the Proxy
is to be voted on a Proposal to be considered at the Meeting, it will be voted
as specified. If no direction is made on the Proxy, the Proxy will be voted FOR
the proposals described in this Proxy Statement. Shareholders voting to ABSTAIN
on a Proposal will be treated as present for purposes of achieving a quorum and
in determining the votes cast on the Proposal. A properly signed Proxy on which
a broker has indicated that it has no authority to vote on a Proposal on behalf
of the beneficial owner (a "broker non-vote") will be treated as present for
purposes of achieving a quorum but will not be counted in determining the votes
cast on the Proposal.
2
<PAGE>
A Proxy may be revoked by a shareholder at any time prior to its use by
written notice to the Trust, by submission of a later dated Proxy or by voting
in person at the Meeting. If any other matters come before the Meeting, Proxies
will be voted by the persons named in the Proxy in accordance with their best
judgement.
Shareholders of each Institutional Portfolio will vote separately with
respect to Proposal 1. Shareholders of each A, B, C, Qualified and Institutional
Portfolio will vote separately with respect to Proposal 2. All of the
shareholders of the Trust will vote in the aggregate with respect to Proposals 3
and 4.
BACKGROUND OF THE PROPOSED REORGANIZATION
Unlike other mutual funds that acquire their securities directly, the
Portfolios of the Trust created prior to August 1, 1997 invest their assets in
funds of the Master Trust. This two-tier structure is known as a "master/feeder"
structure and it permits one or more feeder funds that have the same investment
objectives but different operating characteristics (such as sales charges,
expenses and investment minimums) to invest in the same master fund.
When the Board of Trustees of the Trust established the master/feeder
structure in 1993, it believed this form of organization would achieve certain
efficiencies of operation and economies of scale. However, since the
establishment of the master/feeder structure, the number of Portfolios organized
by the Trust using that structure has increased significantly, to 57.
Furthermore, regulatory developments have occurred enabling mutual fund
complexes to more easily achieve, through the use of multiple classes of shares,
the benefits at one time expected of the master/feeder approach without the
operating costs and technical complexities of a two-tiered structure.
The purpose of the Reorganization is to eliminate the cost and complexity of
a master/feeder structure that has not yielded and is no longer expected to
yield long-term efficiencies of operation and economies of scale. Management of
the Trust expects the Reorganization to save the Trust approximately $1,000,000
per year in fees currently paid to the company which provides day-to-day
accounting services to the Trust. In addition, the number of tax returns
currently filed annually by the Trust and the Master Trust would be reduced from
129 to 38 and separate audits for the master funds would no longer be necessary,
with an annual savings of approximately $ . Over time the Trust would also
benefit from the fewer number of required SEC filings and other legal and
administrative cost savings.
As Investment Adviser to the Master Trust, Nicholas-Applegate Capital
Management has to date voluntarily agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Trust and the Master
Trust, to the extent necessary to ensure that the expenses for each Portfolio
(other than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses) do not
exceed certain levels. Accordingly, the shareholders of the Trust have in the
past not borne the full cost of the master/feeder structure. However, the Board
of Trustees believes that the Reorganization will benefit the shareholders of
the Trust. Any expenses in excess of the current expense caps may be borne by
the shareholders in the future, as in subsequent years each Portfolio will
reimburse the Investment Adviser when operating expenses (before recoupment) for
the Portfolio are less than the expense cap. Furthermore, although the
Investment Adviser has maintained these expense caps since the Portfolios
commenced operation and has agreed to maintain them through March 31, 1999,
there can be no assurance it will do so indefinitely in the future.
In addition, the proposed Reorganization will permit the Trust to provide
for the automatic conversion of its current Portfolio B shares to Portfolio A
shares seven years after purchase. Although Portfolio B shares may currently be
exchanged voluntarily for the corresponding Portfolio A shares seven years after
purchase, the exchange is treated as a redemption and purchase for tax purposes.
In the proposed multi-class structure, the Trust will be able to provide for
automatic conversion without adverse federal income tax consequences. Such an
exchange is beneficial for long-term shareholders, as Portfolio A shares have
lower annual distribution-related fees than Portfolio B shares.
3
<PAGE>
The proposed Amendment to the Trust's Declaration of Trust (Proposal 1), the
proposed Reorganization (Proposal 2), and the proposed election of Trustees
(Proposal 3) are related parts of a plan to achieve future operating economies.
Neither Proposal 1 nor Proposal 2 will be adopted unless both are approved by
the shareholders. Proposal 3 will not be adopted unless both Proposals 1 and 2
are approved by the shareholders.
PROPOSAL 1. AMENDMENT OF DECLARATION OF TRUST
At the Meeting, shareholders of the Institutional Portfolios will be asked
to approve an amendment to the Trust's Declaration of Trust to permit the Board
of Trustees to create multiple classes of the Institutional Portfolios.
Section 6.1(b) of the Declaration of Trust currently permits the Board of
Trustees to create multiple classes of a Portfolio only if the Portfolio was
organized after August 1, 1997. The proposed amendment would expand this to
include the Institutional Portfolios. The language proposed to be added to the
first sentence of Section 6.1(b) is indicated below by underlining:
The Trustees may, without Holder approval, divide Interests of any
series created after the Effective Date [August 1, 1997], or any
Institutional Portfolio series created prior to the Effective Date, into
two or more classes, Interests of each such class having such
preferences and special or relative rights and privileges (including
conversion rights, if any) as the Trustees may determine.
As described above, upon approval of the proposed amendment, and provided
that Proposal 2 is approved, the Board of Trustees will rename each
Institutional Portfolio of the Trust as a "Fund," will classify the current
shareholders of the Institutional Portfolio as shareholders of the Institutional
Class of the Fund, and will create A, B.C. and Qualified Classes of shares of
the Fund to permit the Reorganization to be implemented.
Approval of the proposed amendment will not have any impact on the
shareholders other than to permit the tax-free conversion of Portfolio B shares
for Portfolio A shares seven years after their purchase. Each share of each
Portfolio currently is entitled to one vote on each matter presented to the
shareholders of the Portfolio--for matters that affect the rights and privileges
of a Portfolio differently from the rights and privileges of other series of the
Trust, the shareholders of the Portfolio vote separately; for matters that
affect the master fund in which the Portfolio invests (such as a change in
fundamental investment restrictions), the shareholders of the Portfolio vote
together with the shareholders of all other Portfolios investing in the
corresponding master fund; and for matters that affect the Trust generally (such
as the election of Trustees), the shareholders of all Portfolios vote together.
Similarly each share of each Class of a Fund will be entitled to one vote on
each matter presented to the shareholders of the Class--for matters that affect
the rights and privileges of a Class differently from the rights and privileges
of other Classes of the Fund, the shareholders of the affected Class will vote
separately; for matters that affect a Fund, the shareholders of each Class will
vote together with the shareholders of all other Classes of the Fund; and for
matters that affect the Trust generally, the shareholders of all Classes of all
Funds will vote together. As in the case for shares of the Portfolios, shares of
the Classes will have no preemptive or subscription rights and no other
conversion rights, and will be freely transferrable.
VOTE REQUIRED
Approval of the proposed amendment requires the affirmative votes of
shareholders holding more than 50% of the outstanding shares of each
Institutional Portfolio voting separately. Approval of this Proposal is
contingent upon approval of Proposal 2. If shareholders of all the Institutional
Portfolios do not approve this Proposal, then the Trust will continue its
current operation under a master/feeder structure until the Board of Trustees
determines what further action, if any, to recommend to the shareholders.
4
<PAGE>
PROPOSAL 2. APPROVAL OF THE PROPOSED REORGANIZATION
At the Meeting, shareholders of the A, B, C, Qualified and Institutional
Portfolios will be asked to approve the proposed Reorganization.
DESCRIPTION OF THE PROPOSED REORGANIZATION
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization will be completed
are set forth in the Agreement and Plan of Reorganization (the "Reorganization
Agreement") attached as Appendix B. The following is a summary of the
Reorganization Agreement.
The Reorganization Agreement provides for the completion of the
Reorganization (the "Closing") in several steps:
First, each Institutional Portfolio will be renamed a "Fund." For example,
the Core Growth Institutional Portfolio will be renamed the Core Growth
Fund.
Second, the Board of Trustees will create multiple Classes of shares of each
Fund. The current Institutional Portfolio shares will be renamed the "Class
I" shares. For example, the shares of the Core Growth Institutional
Portfolio will be renamed the Class I shares of the Core Growth Fund. The
Board of Trustees will also create new Class A, B, C and Q shares of each
Fund.
Third, each master fund will dissolve and distribute its assets in kind
(i.e., in the form of the stocks, bonds and other investments held by the
master fund) to the A, B, C and Qualified Portfolios.
Fourth, the A, B, C and Qualified Portfolios will transfer their assets to
the corresponding Fund. For example, the portfolio assets of Core Growth
Portfolio A will be received from the Core Growth master fund and
transferred to the Core Growth Fund of the Trust. In exchange, Core Growth
Portfolio A will receive a similar number of Class A shares of the Core
Growth Fund. The Class I shares of each Fund will also receive assets in
kind from the corresponding master fund of the Master Trust.
Fifth, each A, B, C and Qualified Portfolio will distribute the Fund shares
it receives to its shareholders, and will dissolve. For example, Core Growth
Portfolio A will distribute the Class A shares of the Core Growth Fund to
its shareholders. Each former shareholder of Core Growth Portfolio A will
then hold Class A shares of the Core Growth Fund with the same net asset
value as his Core Growth Portfolio A shares.
Finally, Nicholas-Applegate Capital Management, which currently acts as
investment adviser to the Master Trust, will enter into an Investment
Advisory Agreement with the Trust on substantially the same terms.
The Closing is subject to various conditions, including approval of the
proposed amendment to the Declaration of Trust (Proposal 1), approval of the
Reorganization by a majority of shares of each A, B, C, Qualified and
Institutional Portfolio, dissolution of the master funds, completion of all
filings with, and receipt of all necessary orders and approvals from, the
Securities and Exchange Commission (the "SEC"), delivery of legal opinions
regarding the Federal tax consequences of the Reorganization, and other
customary corporate and securities matters. Any conditions may be waived by the
Board of Trustees of the Trust if, in its judgment, such waiver will not have a
material adverse effect on the interests of the shareholders. The Reorganization
Agreement may be terminated at any time if the Board of Trustees determines in
good faith that the Reorganization is not in the best interests of its
shareholders.
5
<PAGE>
FEDERAL TAX CONSEQUENCES
The Trust has received an opinion from Paul, Hastings, Janofsky & Walker
LLP, the legal counsel to the Trust, to the effect that under the Internal
Revenue Code the Reorganization will not result in any taxable income to the
Trust or its shareholders. This legal opinion is not binding on the Internal
Revenue Service or any other taxing authority, and the Trust does not intend to
seek a private letter ruling or advisory opinion from the Internal Revenue
Service with respect to the tax effects of the Reorganization.
CHANGE OF FUND NAMES
After the Reorganization is completed, the names of certain of the Funds
will be changed to better reflect their investment objectives and policies, as
follows:
<TABLE>
<S> <C> <C>
The Emerging Growth Fund will become the Small Cap Growth Fund
The Core Growth Fund will become the Mid Cap Growth Fund
The Income & Growth Fund will become the Convertible Fund
The Fully Discretionary Fund will become the High Quality Bond Fund
</TABLE>
COMPARISON OF THE PORTFOLIOS AND THE FUNDS
The Trust is an open-end management investment company currently offering a
number of separate diversified portfolios with differing sales load, shareholder
services plan and distribution plan arrangements. The Trust was organized in
December 1992 as a business trust under the laws of the State of Delaware. If
the Reorganization is approved and completed, shareholders of each Institutional
Portfolio series of the Trust will become Class I shareholders of the same
series (which will be renamed a "Fund"), and shareholders of each A, B, C and
Qualified Portfolio series of the Trust will become shareholders of the similar
Class of the corresponding Fund. The net asset value of the shares of each Class
of a Fund held by a shareholder immediately after the Reorganization will be the
same as the net asset value of the shares of the corresponding Portfolio held by
the shareholder immediately prior to the Reorganization.
A brief comparison of the Portfolios with the new Funds is set forth below:
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objectives, policies and restrictions under which the assets
of the Portfolios presently are managed will not be affected by the proposed
Reorganization, except that, rather than investing all of its investible assets
in a corresponding fund of the Master Trust, each Fund will seek to achieve the
same investment objectives by engaging an investment adviser to directly manage
its assets. The investment objectives, policies and restrictions of the Funds
will be the same as those in effect for the Portfolios and the funds of the
Master Trust immediately prior to the Reorganization.
INVESTMENT ADVISER
The assets of the Master Trust are managed by Nicholas-Applegate Capital
Management (the "Investment Adviser"). The Portfolios currently invest their
assets in the funds of the Master Trust managed by the Investment Adviser, and
the Portfolios do not themselves engage the services of the Investment Adviser
or any other investment manager. Upon completion of the Reorganization, the
Trust will enter into a new investment advisory agreement with the Investment
Adviser on behalf of each Fund, on terms and conditions substantially identical
to the terms and conditions of the current investment advisory agreement between
the Investment Adviser and the Master Trust.
ADMINISTRATIVE SERVICES
Investment Company Administration Corporation ("ICAC") serves as principal
administrator of the Trust and the Master Trust and, pursuant to Administration
Agreements with the Trust and the Master
6
<PAGE>
Trust, is responsible for performing all administrative services required for
the daily business operations of the Trust and the Master Trust, subject to the
supervision of the Board of Trustees of the Trust and the Master Trust. After
the Reorganization, the Master Trust's Administration Agreement will be
terminated and the Trust will enter into a new Administration Agreement on terms
and conditions substantially identical to those applicable to the Portfolios
immediately prior to the Reorganization except for the fee adjustment described
below.
The total fees paid to ICAC by the Portfolios and those master funds for the
fiscal year ended March 31, 1997 were $554,625 (.04% Portfolios' average net
assets). Under its new Administration Agreement with the Trust, ICAC will
receive annual fees from each Fund equal to the Fund's pro rata portion (based
on its net assets compared to the Trust's total net assets) of a fee equal to
0.05% of the first $100 million of the Trust's average net assets, 0.04% of the
next $150 million, 0.03% of the next $300 million, 0.02% of the next $300
million and 0.01% thereafter, subject to a $40,000 annual minimum. If this fee
arrangement had been in effect for the year ended March 31, 1997, the total fees
paid to ICAC by the Portfolios would have been $554,625 (.04% of average net
assets).
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is currently responsible for providing all administrative
services to the Trust which are not provided by ICAC or by the Trust's
distributor, transfer agents, accounting agents, independent accountants and
legal counsel. The Administrative Services Agreement will be amended to add the
Funds as parties on terms and conditions substantially identical to the terms
and conditions applicable to the Portfolios immediately prior to the
Reorganization.
PFPC Inc. currently provides day-to-day accounting services to the Trust and
the Master Trust pursuant to Accounting Services Agreement with the Trust and
the Master Trust. After the Reorganization, the Master Trust's Accounting
Services Agreement will be terminated, and the fee schedule for the Trust's
Accounting Services Agreement will be amended.
Under its current Accounting Services Agreement with the Trust, PFPC
receives annual fees from the Portfolios aggregating $1,046,989 and from each
corresponding master fund equal to $6,250 plus 0.03% of average daily net assets
from $100 million to $250 million, 0.02% of the next $250 million, and 0.15%
thereafter. The total fees paid to PFPC by the Portfolios and those master funds
for the fiscal year ended March 31, 1997 were $2,205,940 (.166% of the
Portfolios' average net assets). Under its new fee schedule with the Trust, PFPC
will receive annual fees from each Fund equal to its pro rata portion (based on
its net assets compared to the Trust's total net assets) of a fee equal to
$6,250 per Fund plus 0.03% of each Fund's average daily net assets from $100
million to $250 million, 0.02% of the next $250 million, and 0.15% over $500
million. If this arrangement had been in effect for the year ended March 31,
1997, the total fees paid to PFPC by the Portfolios would have been $1,284,340
(.10% of average net assets).
DISTRIBUTOR, TRANSFER AGENT AND CUSTODIAN
Nicholas-Applegate Securities serves as the principal underwriter and
distributor for the Trust pursuant to a Distribution Agreement with the Trust.
State Street Bank and Trust Company serves as the transfer agent for the Trust
pursuant to a Transfer Agency and Services Agreement with the Trust. PNC Bank
serves as the custodian for the Trust pursuant to a Custodian Services Agreement
with the Trust. The Distribution Agreement, the Transfer Agency and Service
Agreement and the Custodian Services Agreement will be amended to incorporate
the multi-class Funds on terms and conditions substantially identical to the
terms and conditions applicable to the Portfolios immediately prior to the
Reorganization. The Master Trust has similar arrangements for which it pays
nominal fees, which will be terminated upon completion of the Reorganization.
In addition, securities of many foreign issuers currently owned by the
master funds are held by The Chase Manhattan Bank and certain foreign
sub-custodians, pursuant to a Sub-Custodian Agreement with
7
<PAGE>
the Master Trust and PNC Bank. Upon completion of the Reorganization, the Trust
will enter into a sub-custodian agreement with PNC Bank and The Chase Manhattan
Bank on substantially the same terms.
PRO FORMA EXPENSES
As discussed above, the Board of Trustees believes that the Reorganization
will result in substantial expense savings. The following table indicates the
current total annual operating expenses for each Portfolio as a percentage of
average net assets for the fiscal year ended March 31, 1997 (and, for Portfolios
not then in operation, estimated expenses for their first twelve months of
operation), and the pro forma operating expenses for each corresponding Class
assuming the Reorganization had been implemented on that date. It also indicates
the current expense limitations voluntarily imposed by Nicholas-Applegate
Capital Management through March 31, 1998, which would not be changed by the
Reorganization.
<TABLE>
<CAPTION>
TOTAL ANNUAL PROFORMA CURRENT
OPERATING OPERATING VOLUNTARY
EXPENSES EXPENSES EXPENSE LIMITS
------------ ---------- --------------
<S> <C> <C> <C>
Balanced Growth Portfolio - A.......................................... 3.00% 2.64% 1.60%
Balanced Growth Portfolio - B.......................................... 6.44 5.18 2.25
Balanced Growth Portfolio - C.......................................... 2.83 2.71 2.25
Balanced Growth Portfolio - I.......................................... 7.37 4.00 1.00
Balanced Growth Portfolio - Q.......................................... 126.75 53.56 1.25
Core Growth Portfolio - A.............................................. 1.56 1.53 1.60
Core Growth Portfolio - B.............................................. 2.66 2.57 2.25
Core Growth Portfolio - C.............................................. 2.17 2.16 2.25
Core Growth Portfolio - I.............................................. 1.02 1.01 1.00
Core Growth Portfolio - Q.............................................. 1.84 1.63 1.25
Emerging Countries Portfolio - A....................................... 3.08 2.95 2.25
Emerging Countries Portfolio - B....................................... 3.66 3.47 2.90
Emerging Countries Portfolio - C....................................... 3.12 2.97 2.90
Emerging Countries Portfolio - I....................................... 1.67 1.80 1.65
Emerging Countries Portfolio - Q....................................... 4.20 3.07 1.90
Emerging Growth Portfolio - A.......................................... 1.72 1.71 1.95
Emerging Growth Portfolio - B.......................................... 2.73 2.64 2.60
Emerging Growth Portfolio - C.......................................... 2.35 2.34 2.60
Emerging Growth Portfolio - I.......................................... 1.26 1.25 1.17
Emerging Growth Portfolio - Q.......................................... 10.79 7.46 1.50
Fully Discretionary Fixed Income Fund - I.............................. 3.74 3.25 0.45
High Yield Bond Fund - I............................................... 1.95 1.35 0.75
Income & Growth Portfolio - A.......................................... 1.75 1.68 1.60
Income & Growth Portfolio - B.......................................... 3.19 2.88 2.25
Income & Growth Portfolio - C.......................................... 2.29 2.26 2.25
Income & Growth Portfolio - I.......................................... 1.37 1.25 1.00
Income & Growth Portfolio - Q.......................................... 2.90 2.19 1.25
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
TOTAL ANNUAL PROFORMA CURRENT
OPERATING OPERATING VOLUNTARY
EXPENSES EXPENSES EXPENSE LIMITS
------------ ---------- --------------
<S> <C> <C> <C>
International Core Growth Portfolio - A................................ 4,579.78% 3,405.35% 1.95%
International Core Growth Portfolio - B................................ 16,000.25 14,163.12 2.60
International Core Growth Portfolio - C................................ 25.55 17.21 2.60
International Core Growth Portfolio - I................................ 3.14 2.33 1.40
International Core Growth Portfolio - Q................................ 2,667.07 885.65 1.65
International Small Cap Growth Portfolio - A........................... 3.76 3.00 1.95
International Small Cap Growth Portfolio - B........................... 4.89 4.18 2.60
International Small Cap Growth Portfolio - C........................... 3.95 3.16 2.60
International Small Cap Growth Portfolio - I........................... 1.68 1.62 1.40
International Small Cap Growth Portfolio - Q........................... 151.33 73.99 1.65
Large Cap Growth Portfolio - I......................................... 4.99 3.51 1.00
Mini-Cap Portfolio - I................................................. 1.99 1.92 1.56
Money Market Portfolio................................................. 1.73 1.61 1.10
Short-Intermediate Fixed Income Portfolio - I.......................... 2.86 2.54 0.35
Strategic Income Portfolio - I......................................... 1.66 1.66 0.75
Value Portfolio - I.................................................... 3.34 2.48 1.00
Worldwide Growth Portfolio - A......................................... 2.17 2.08 1.85
Worldwide Growth Portfolio - B......................................... 4.81 4.24 2.50
Worldwide Growth Portfolio - C......................................... 2.61 2.58 2.50
Worldwide Growth Portfolio - I......................................... 3.05 2.20 1.35
Worldwide Growth Portfolio - Q......................................... 34.99 18.40 1.60
Global Growth and Income Portfolio..................................... 4.55 3.36 1.35
Large Cap Growth - A................................................... 3.40 2.76 1.60
Large Cap Growth - B................................................... 3.60 3.14 2.25
Large Cap Growth - C................................................... 3.60 2.90 2.25
Large Cap Growth - Q................................................... 3.90 3.13 1.25
</TABLE>
PURCHASES AND REDEMPTIONS
Following the Reorganization, shareholders of the Portfolios who receive
shares of corresponding Classes of the Funds in the Reorganization will be able
to purchase and redeem shares in the Funds in substantially the same manner and
subject to substantially the same conditions as shares in the Portfolios
presently are purchased and redeemed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Following the Reorganization, the Funds will declare and pay dividends and
calculate and make distributions of net capital gains, if any, in a manner
identical to that of the Portfolios.
9
<PAGE>
The Trust has elected to qualify each Portfolio as a regulated investment
company under Subchapter M of the Code, and intends that each Fund will remain
so qualified. As a regulated investment company, upon consummation of the
Reorganization each Fund will be entitled to the same benefits and subject to
the same tax regulations as the Portfolios immediately prior to the
Reorganization.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser will execute the portfolio transactions and allocate
the brokerage business of the Funds subject to policies established by the Board
of Trustees of the Trust which are substantially identical to those in effect
with respect to the master funds of the Master Trust immediately prior to the
Reorganization.
SHAREHOLDERS' RIGHTS
The rights of shareholders of the Funds are identical in all material
respects to those of shareholders of the Portfolios, except that Class B shares
will convert automatically to Class A shares seven years after purchase. As was
the case before the Reorganization, the shareholders of the Trust will vote in
the aggregate on all matters except those affecting only a particular Fund or
Class, in which case only the shareholders of the affected Fund or Class will
vote. Because the Reorganization will increase the size of the Funds, the voting
power of individual shareholders will be diluted with respect to matters on
which shareholders vote on a Fund-wide basis rather than as an individual Class
basis.
RISK FACTORS
The Funds will have investment objectives, policies and restrictions which
are identical to those of the Portfolios and the corresponding funds of the
Master Trust, except that the Funds will invest their assets directly rather
than through the Master Trust. In addition, the Funds will be administered in
every material respect in a substantially identical manner to the Portfolios.
Consequently, the risks associated with investing in the Funds will be no
different than those associated with investing in the Portfolios.
FURTHER INFORMATION ABOUT THE PORTFOLIOS AND THE FUNDS
Further information about the Portfolios and the Funds is contained in their
current prospectuses and statements of additional information, which are
incorporated herein by reference. Copies of the relevant Fund prospectuses
accompany this Proxy Statement. The Trust will also provide its most recent
annual reports to shareholders with respect to the Portfolios for the year ended
March 31, 1997, and its semiannual reports to shareholders for the six months
ended September 30, 1997, upon request. These documents are available without
charge by writing to the Trust at 600 West Broadway, San Diego, California
92101, or by calling (800) 551-8045.
The Trust is subject to the information requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, and as required by
those Acts file reports, proxy statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Room maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices at 219 South Dearborn Street, Chicago, Illinois 6064 and 75
Park Place, New York, New York. They may also be viewed on the Internet at
www.sec.gov. Copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information Services
of the SEC, Washington, D.C. 20549.
APPROVAL OF THE BOARD OF TRUSTEES
In reviewing the proposed Reorganization, the Board of Trustees of the Trust
inquired into a number of matters and considered the following factors, among
others: (1) the identity of objectives, policies and
10
<PAGE>
restrictions of the Funds with those of the Portfolios; (2) the cash savings
that potentially may be achieved by collapsing the master/feeder structure into
a single, multi-class fund structure through the elimination of duplicate
expenses; (3) the reduced expenses that potentially may result from the
Reorganization; (4) the greater likelihood of asset growth that potentially may
result from a more competitive expense ratio, and the greater economies of scale
that can be achieved from such asset growth; (5) the tax-free nature of the
Reorganization; (6) the benefits to Class B shareholders of the automatic
conversion of their shares after seven years to Class A shares without adverse
federal tax consequences; and (7) the terms and conditions of the Reorganization
Agreement, including the agreement of Nicholas-Applegate Capital Management to
pay 50% of the expenses of the Reorganization.
The Board of Trustees of the Trust approved the Reorganization on August 15,
1997, subject to shareholder approval. The Board of Trustees determined that the
proposed new structure will eliminate the cost and complexity of maintaining the
master/feeder structure and benefit the shareholders of the Portfolios by
reducing the expense ratios of the Portfolios. In addition to that immediate
benefit to existing shareholders, the Board of Trustees believes this more
competitive expense ratio will make investment in shares of the Funds more
attractive to investors, and will increase the opportunity for further asset
growth. Any such asset growth potentially will enable shareholders of the Funds,
to obtain economies of scale by spreading certain expenses over a larger asset
base and, with respect to certain Funds, by potentially reaching an asset
breakpoint in the rate of the investment advisory fee payable to the Investment
Adviser. There can be no assurance, however, that such asset growth and
economies of scale will be realized.
VOTE REQUIRED
Approval of the Reorganization requires the affirmative votes of
shareholders holding more than 50% of the outstanding shares of each of the
Portfolios. Approval of this Proposal is contingent upon approval of Proposal 1.
If the shareholders of all the Portfolios do not approve the proposed
Reorganization, or the Reorganization is not completed for any other reason,
then the Trust will continue its current form of operation until the Board of
Trustees determines what further action, if any, to recommend to the
shareholders.
PROPOSAL 3. ELECTION OF TRUSTEES
At the Meeting, shareholders will be asked to elect Trustees of the Trust to
hold office until their successors are elected.
The Proxy holders intend to vote for the election of the nominees named
below, all of whom are currently Trustees of the Trust or the Master Trust. All
of the nominees have consented to be named and have indicated their intent to
serve if elected. If any nominee is unavailable for any reason, the proxy
holders will consult with the Board of Trustees of the Trust in determining how
to vote the shares represented by them.
The following table indicates, as to each of the nominees for election as a
Trustee, his or her name, position with the Trust or Master Trust, age,
principal occupation during the past five years, other directorships held in
public companies and the number of shares of the Trust beneficially owned at the
Record Date. Unless otherwise indicated and subject to applicable community
property and similar laws, each nominee has sole voting and investment power
with respect to the shares of the Trust beneficially
11
<PAGE>
owned. Trustees whose names are followed by an asterisk are "interested persons"
of the Trust (as defined by the Investment Company Act of 1940, as amended).
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AND
NAME, POSITION AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF SERIES
- ------------------------------- ---------------------------------------------------------------- --------------
<S> <C> <C>
FRED C. APPLEGATE, Private investor (since January 1992); formerly President,
Trustee and Chairman of the Nicholas-Applegate Capital Management (from August 1984 to
Board of Trustees (__) (2) December 1991). Director of Nicholas-Applegate Fund, Inc. (since
1987). 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, Chairman, A.B. Laffer, V.A. Canto & Associates, an economic
Trustee (__)*(3) consulting firm (since 1979); Chairman, Laffer Advisors
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), and Coinmach Laundry Corporation
(since 1996); Chairman, Calport Asset Management, Inc. (since
1992); formerly Distinguished University Professor and Director,
Pepperdine University (from Sept. 1985 to May 1988) and
Professor of Business Economics, University of Southern
California (1976 to 1984).
CHARLES E. YOUNG, Chancellor, UCLA (1968-1997); Director, Nicholas- Applegate
Trustee (__) (2) Fund, Inc. (since 1992); 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).
ARTHUR E. NICHOLAS, Trustee and Chairman of the Board of Trustees of the Master
Trustee (__)* Trust; Managing Partner and Chief Investment Officer,
Nicholas-Applegate Capital Management, since 1984, and
Chairman/President, Nicholas-Applegate Securities.Director and
Chairman of the Board of Directors of Nicholas-Applegate Fund,
Inc., a registered open-end investment company, since 1987.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AND
NAME, POSITION AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF SERIES
- ------------------------------- ---------------------------------------------------------------- --------------
DANN V. ANGELOFF, Trustee of the Master Trust; President, The Angeloff Company,
Trustee (__) corporate financial advisers (since 1976); Director,
Nicholas-Applegate Fund, Inc. (since 1987); Trustee (1979 to
1987) and University Counselor to the President (since 1987),
University of Southern California (since 1987); Director, Public
Storage, Inc., a real estate investment trust (since 1980),
Storage Properties, a real estate investment trust (since 1989),
Datametrics Corporation, a producer of computer peripherals and
communication products (since 1993), SEDA Specialty Packaging,
Inc. (since 1993), and Leslies Poolmart, a distributor of
swimming pool services and products (since 1996).
<S> <C> <C>
WALTER E. AUCH, Trustee of the Master Trust; Director, Geotech Communications,
Trustee (__)*(4) 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 Advisors 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 of the Master Trust; Partner, Brown, Coburn & Co., an
Trustee (__) investment banking firm (since 1991), and research associate,
Harvard Graduate School of Education (since 1996); Director,
Nicholas-Applegate Fund, Inc. (since 1987), Emerging Germany
Fund (since 1991), Moovies, Inc. (since 1995). Formerly Managing
Director of Global Equity Transactions Group, and member of
Board of Directors, Prudential Securities (from 1986 to June
1991).
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AND
NAME, POSITION AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF SERIES
- ------------------------------- ---------------------------------------------------------------- --------------
DARLENE DEREMER, Trustee of the Master Trust; President and Founder, DeRemer
Trustee (--)*(5) Associates, a marketing consultant for the financial services
industry (since 1987); Vice President, PBNG Funds, Inc. (since
1995); 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, Jurika & Voyles Fund Group (since 1994),
Nicholas-Applegate Strategic Opportunities Ltd. (since 1994),
Nicholas-Applegate Securities International (since 1994),and
King's Wood Montessori School (since 1995); Member of Advisory
Board, Financial Women's Association (since 1995).
<S> <C> <C>
GEORGE F. KEANE, Trustee of the Master Trust;President Emeritus and Senior
Trustee (__) 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, Investor Responsibility Research Center (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).
</TABLE>
- ------------------------
(1) Trust Shares beneficially owned by the person or group constitute less than
1% of the Trust's outstanding shares.
(2) Member of the Trust's Audit Committee and Nominating Committee.
(3) Mr. Laffer will be considered to be an "interested person" of the Trust
because A.B. Laffer, V.A. Canto & Associates received substantial
compensation from the Investment Adviser for consulting services provided
from time to time to the Investment Adviser, and because during the last two
fiscal years his son was an employee of the Investment Adviser.
(4) Mr. Auch will be considered to be an "interested person" of the Trust
because he is on the board of a company a subsidiary of which is a
broker-dealer.
(5) Ms. DeRemer will be considered to be an "interested person" of the Trust
because DeRemer Associates received substantial compensation from the
Investment Adviser for consulting services provided in connection with its
institutional business.
14
<PAGE>
The Board of Trustees of the Trust met 4 times during the fiscal year ended
March 31, 1997. All of the Trustees attended at least 75% of the meetings.
The members of the Audit Committee of the Board of Trustees of the Trust,
neither of whom is affiliated with the Investment Advisor, oversee and review
the audit procedures of the Trust and assist the Board in fulfilling its
responsibilities relating to Trust accounting and reporting practices. During
the fiscal year ended March 31, 1997, the Audit Committee held 2 meetings. The
same persons serve as members of the Nominating Committee of the Board of
Trustees, and are responsible for nominating persons to fill vacancies on the
Board. The Nominating Committee did not meet during the fiscal year ended March
31, 1997.
OFFICERS OF THE TRUST
The following table indicates, as to each executive officer of the Trust,
his or her name, position with the Trust, principal occupational during the past
five years, other directorships held in public companies and the number of
shares of the Trust beneficially owned at the Record Date.
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY AND
NAME AND POSITION PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF TRUST
- ----------------------------- ------------------------------------------------------------------ -------------------
<S> <C> <C>
JOHN D. WYLIE President of the Master Trust; Partner (since January 1994), Chief
President Investment Officer--Investor Services Group (since December
1995), and Portfolio Manager (since January 1990),
Nicholas-Applegate Capital Management.
THOMAS PINDELSKI Chief Financial Officer of the Master Trust; Partner (since
Chief Financial Officer 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).
PETER J. JOHNSON Vice President of the Master Trust; Partner and Director-- Client
Vice President 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).
E. BLAKE MOORE, JR. Secretary of the Master Trust; General Counsel and Secretary,
Secretary Nicholas-Applegate Capital Management and Nicholas-Applegate
Securities (since 1993); formerly Attorney, Luce, Forward,
Hamilton & Scripps (from 1989 to 1993).
</TABLE>
- ------------------------
(1) Shares beneficially owned constitute less than 1% of the Trust's outstanding
shares.
16
<PAGE>
REMUNERATION OF TRUSTEES AND OFFICERS
Each Trustee of the Trust and the Master Trust who is not an officer or
affiliate of the Trust, the Investment Adviser or the Distributor receives an
aggregate annual fee of $14,000 for services rendered as a Trustee, and $1,000
for each meeting attended ($2,000 per committee meeting for committee chairmen).
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
and the Master Trust for the fiscal year ended March 31, 1997, 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 or Master 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):
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ANNUAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM TRUST
FROM TRUST OR PART OF TRUST UPON COMPLEX PAID
NAME MASTER TRUST EXPENSES RETIREMENT TO TRUSTEE
- ------------------------------------------------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Fred C. Applegate...................................... $ 10,635 None N/A $ 36,250(47*)
Arthur B. Laffer....................................... $ 9,558 None N/A $ 31,750(47*)
Charles E. Young....................................... $ 9,827 None N/A $ 31,750(47*)
Dann V. Angeloff....................................... $ 10,635 None N/A $ 36,750(16*)
Walter E. Auch......................................... $ 9,827 None N/A $ 18,250(15*)
Theodore J. Coburn..................................... $ 9,827 None N/A $ 34,250(16*)
Darlene DeRemer........................................ $ 9,558 None N/A $ 17,250(15*)
George K. Keane........................................ $ 9,827 None N/A $ 18,250(15*)
</TABLE>
- ------------------------
* Indicates number of funds in Trust complex.
VOTE REQUIRED
A plurality of votes cast at the Meeting, in person or by proxy, will elect
a Trustee. Election of Trustees is contingent upon completion of the
Reorganization. If for any reason the Reorganization is not completed, the
current Trustees of the Trust will remain in office.
PROPOSAL 4. SELECTION OF INDEPENDENT ACCOUNTANTS
At the meeting, shareholders will be asked to ratify the selection by the
Board of Trustees of the Trust of Ernst & Young L.L.P. as the independent
accountants to the Trust for the fiscal year ended March 31, 1997. Ernst & Young
L.L.P. has acted as independent accountants to the Trust since 1996.
VOTE REQUIRED
The affirmative vote of a majority of the shares of the Trust present in
person or by proxy at the Meeting is required to ratify the selection of Ernst &
Young L.L.P. as independent accountants for the Trust. If for any reason this
Proposal is not approved, the Board of Trustees of the Trust will take such
action as they deem appropriate, which may include retention of another
accounting firm or re-proposal of Ernst & Young L.L.P. to the shareholders of
the Trust.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, management has not
been informed of any matters that will be presented for action at the Meeting
other than the Proposals listed in the Notice of Meeting. If other matters are
properly presented to the Meeting for action, the persons named in the Proxy
will vote or refrain from voting in accordance with their best judgment on those
matters.
17
<PAGE>
NEXT MEETING OF SHAREHOLDERS
The Trust is not required to hold annual or other periodic meetings of
shareholders except as required by the Investment Company Act, and does not
intend to do so. The next meeting of shareholders will be held at such time as
the Board of Trustees of the Trust may determine or at such time as may be
legally required. Any shareholder proposal intended to be presented at such
meeting must be received by the Trust at its office a reasonable time prior to
the meeting, as determined by the Board of Trustees, to be included in the
Trust's proxy statement and form of proxy relating to such meeting, and must
satisfy all other federal and state legal requirements.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
18
<PAGE>
APPENDIX A
5% SHAREHOLDERS BY SERIES AS OF RECORD DATE
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made as of
this day of , 199 , by and among Nicholas-Applegate Mutual Funds,
a Delaware business trust (the "Trust") on behalf of the A, B, C and Qualified
Portfolio series of the Trust other than the Government Income A, B, C and
Qualified Portfolios (each a "Portfolio" and, collectively, the "Portfolios"),
and the Trust on behalf of the Institutional Portfolio series of the Trust (each
an "Institutional Portfolio" and, collectively, the "Institutional Portfolios"
or "Funds").
BACKGROUND
WHEREAS, the Portfolios and the Institutional Portfolios are series of the
Trust, a registered open-end management investment company that invests all of
the assets of each Portfolio and Institutional Portfolio in corresponding series
(each such series, a "Master Fund") of Nicholas-Applegate Investment Trust, a
Delaware business trust (the "Master Trust").
WHEREAS, the series of the Master Trust will dissolve and distribute their
assets in kind to the corresponding series of the Trust immediately prior to the
transactions contemplated by this Agreement.
WHEREAS, the parties wish to enter into a plan of reorganization (the
"Plan") which will consist of (i) the change by the Board of Trustees of the
Trust (the "Board of Trustees") of the name of each Institutional Portfolio to
replace the phrase "Institutional Portfolio" with the phrase "Fund", (ii)
creation by the Board of Trustees of an A, B, C and Q Class of shares of each
Fund and designation of the existing Institutional Portfolio shares as the "I
Class" shares of the corresponding Fund, (iii) the transfer of the assets of the
Portfolios to the corresponding Fund in exchange for a similar number of A, B, C
or Q Class shares of the Fund (the "Fund Shares"), (iv) distribution by each of
the Portfolios of the Fund Shares to its shareholders and dissolution of the A,
B, C and Qualified Portfolios, and (v) execution of an Investment Advisory
Agreement between the Trust and Nicholas-Applegate Capital Management (the
"Investment Adviser") with respect to the Funds.
WHEREAS, the Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), has determined that the Plan is in the
best interests of the shareholders of each of the Portfolios and Institutional
Portfolios and that their interests would not be diluted as a result of the
transactions contemplated thereby.
AGREEMENT
NOW THEREFORE, in consideration of the agreements contained in this
Agreement, the parties agree as follows:
ARTICLE 1.
MULTIPLE CLASSES OF SHARES
SECTION A. CREATION OF MULTIPLE CLASSES OF SHARES. Effective on the
Closing Date, as defined in Article IV, the Board of Trustees shall (a) divide
each Institutional Portfolio into five classes of shares designated Class A, B,
C, Q and I shares, and (b) classify the shares of each Institutional Portfolio
outstanding immediately prior to the Closing Date as Class I shares.
SECTION B. CHANGE IN THE NAME OF INSTITUTIONAL PORTFOLIOS. Effective on
the Closing Date, the Board of Trustees shall revise the name of each
Institutional Portfolio to replace the phrase "Institutional Portfolio" with the
phrase "Fund".
B-1
<PAGE>
ARTICLE 2.
TRANSFER OF ASSETS AND LIABILITIES
SECTION A. TRANSFER OF ASSETS/LIABILITIES. Subject to the terms and
conditions set forth herein, on the Closing Date the Trust shall cause the
Portfolios to transfer all of their assets, including all assets received from
the corresponding Master Fund of the Master Trust, to the corresponding Fund,
and shall cause each Fund to assume all of the liabilities of the corresponding
Portfolios. In exchange therefor, the Trust shall cause each Fund to deliver to
each such Portfolio a number of the Fund's Class A, B, C or Q shares, as
applicable, which is equal to (i) the aggregate net asset value of the
corresponding Portfolio determined at the close of business on the day prior to
the Closing Date, divided by (ii) the net asset value per share of the
respective A, B, C or Q Class of shares of the corresponding Institutional
Portfolio outstanding as of the Closing Date.
ARTICLE 3.
SHARES OF THE FUNDS
SECTION A. LIQUIDATION OF A, B, C AND QUALIFIED PORTFOLIOS. Subject to the
terms and conditions set forth herein, on the Closing Date the Trust shall
liquidate each Portfolio and shall distribute pro rata to the shareholders of
record of each Portfolio, determined as of the Closing Date, the Fund Shares
received by such Portfolio pursuant to Section 2.1.
SECTION B. ISSUANCE OF SHARE CERTIFICATES. Each Portfolio shall accomplish
the liquidation and distribution provided for herein by opening accounts on the
books of the corresponding Fund in the names of its shareholders and
transferring the Fund Shares credited to the account of the Portfolio on the
books of the Fund. As promptly as practicable after the Closing, each holder of
any outstanding certificate evidencing shares of a Portfolio or Institutional
Portfolio shall be entitled to surrender the same to the Trust's transfer agent
and request in exchange therefor a certificate or certificates representing the
number of shares of beneficial interest of the Class into which the shares of
beneficial interest theretofore represented by the certificate or certificates
so surrendered shall have been converted. Certificates for fractional shares of
beneficial interests of a Fund shall not be issued, but shall be continued to be
carried by the Funds for the open account of such shareholder. Until so
surrendered, each outstanding certificate which, prior to the Closing,
represented shares of beneficial interest of a Portfolio or Institutional
Portfolio, shall be deemed for all purposes to evidence ownership of the number
of shares of the Class of shares of beneficial interest of the Fund into which
the shares of beneficial interest of such Portfolio or Institutional Portfolio
have been converted.
SECTION C. TIME AND DATE OF VALUATION. The number of shares to be issued
by each Fund to each Portfolio shall be computed as of 4:00 p.m. (Eastern time)
on the Closing Date in accordance with the regular practices of the Trust.
ARTICLE 4.
CLOSING AND CLOSING DATE
SECTION A. CLOSING TIME AND PLACE. The Closing Date shall be the date on
which all of the conditions set forth in Article V have been fulfilled or
otherwise waived by the parties hereto but, in any event, not later than March
31, 1998, or such later date as the parties may mutually agree. All acts taking
place on the Closing Date shall be deemed to be taking place simultaneously as
of the close of business on the Closing Date, unless otherwise provided. The
closing shall be held at 4:30 p.m. (Eastern time) at the offices of
Nicholas-Applegate Capital Management ("NACM"), 600 West Broadway, San Diego,
California 92101, or such other time and/or place as the parties may mutually
agree.
SECTION B. DELAY OF VALUATION. If on the Closing Date (a) the primary
trading market for portfolio securities of any Portfolio is closed to trading or
trading thereon is restricted, or (b) trading or the reporting of trading is
disrupted so that an accurate appraisal of the value of the net assets of the
Portfolio
B-2
<PAGE>
and an accurate calculation of the number of shares held by each shareholder is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
ARTICLE 5.
CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THE REORGANIZATION
The respective obligations of each party to effect the reorganization
contemplated by this Agreement is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
SECTION A. SHAREHOLDER APPROVAL. On or prior to the Closing Date, the
following matters shall have been approved by the following shareholders of the
Trust in accordance with the provisions of the Trust's Declaration of Trust and
the 1940 Act: (a) the shareholders of each of the Institutional Portfolios shall
have approved an amendment to the Declaration of Trust of the Trust to permit
the Board of Trustees to create multiple classes of shares of the Institutional
Portfolios; and (b) the shareholders of each of the Portfolios of the Trust
shall have approved the transactions contemplated by this Agreement and Plan of
Reorganization.
SECTION B. DISSOLUTION OF MASTER FUNDS. Each Master Fund shall have
dissolved and distributed all of its assets in kind to the corresponding
Portfolios and Institutional Portfolios, respectively.
SECTION C. NO INJUNCTIONS OR RESTRAINTS. On the Closing Date, no action,
suit or other proceeding shall be pending before any court or government agency
which seeks to restrain or prohibit or obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.
SECTION D. CONSENTS. All consents of the other parties and all other
consents, orders and permits of Federal, state and local regulatory authorities
deemed necessary by the Trust and the Master Trust to permit consummation, in
all material respects, of the transactions contemplated herein shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
any Fund or Portfolio.
SECTION E. EFFECTIVE REGISTRATION STATEMENTS. The N-14 Registration
Statement of the Trust with respect to the reorganization provided for herein
and the N-1A Registration Statement of the Trust with respect to the Fund Shares
shall have become effective and no stop orders suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated.
SECTION F. TAX OPINIONS. The Trust shall have received an opinion of Paul,
Hastings, Janofsky & Walker LLP substantially to the effect that for Federal
income tax purposes:
1. No gain or loss will be recognized by any Portfolio upon the receipt by
the Portfolio of substantially all of the assets of the corresponding
Master Fund;
2. The transfer of substantially all of the assets and liabilities of each
Portfolio to the corresponding Fund in exchange for Fund Shares, and the
distribution of those Fund Shares to the Portfolio shareholders in
liquidation of the Portfolio, will constitute a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended;
3. No gain or loss will be recognized by any Fund upon the receipt of the
assets of a Portfolio solely in exchange for Fund Shares;
4. No gain or loss will be recognized by any Portfolio upon the transfer of
its assets to its corresponding Fund in exchange for Fund Shares or upon
the distribution of Fund Shares to Portfolio shareholders in exchange for
their Portfolio shares;
5. No gain or loss will be recognized by any Portfolio shareholders upon
exchange of their Portfolio shares for Fund Shares;
B-3
<PAGE>
6. The tax basis of the assets of each Portfolio acquired by each Fund will
be the same as the tax basis of such assets to the Portfolio immediately
prior to the Reorganization;
7. The tax basis of Fund Shares received by each shareholder of each
Portfolio pursuant to the Reorganization will be the same as the tax
basis of the Portfolio shares held by such shareholder immediately prior
to the Reorganization;
8. The holding period of the assets of each Portfolio by each Fund will
include the period during which those assets were held by the Portfolio
and the corresponding Master Fund; and
9. The holding period of the Fund Shares to be received by each Portfolio
shareholder will include the period during which the Portfolio shares
exchanged therefor were held by such shareholder.
SECTION G. INVESTMENT ADVISORY AGREEMENT. The Trust shall have entered
into an Investment Advisory Agreement with NACM on substantially the same terms
as the current agreement between NACM and the Master Trust.
SECTION H. COVENANTS, REPRESENTATIONS AND WARRANTIES. Each party shall
have performed all of its covenants set forth in Article VII, and its
representations and warranties set forth in Article VI shall be true and correct
and in all materials respects on and as of the Closing Date as if made on such
date.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
The parties represent and warrant as follows:
SECTION A. STRUCTURE AND STANDING. The Trust represents and warrants that
it is a business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets.
SECTION B. POWER. The Trust represents and warrants that it has full power
and authority to enter into and perform its obligations under this Agreement;
the execution, delivery and performance of this Agreement has been duly
authorized by all necessary action of its Board of Trustees; and this Agreement
constitutes its valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
SECTION C. LITIGATION. The Trust represents and warrants that no
litigation or administrative proceeding or investigation of or before any court
or governmental body is currently pending against it and, to the best of its
knowledge, none is threatened against it or any of its properties or assets,
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business, it knows of no facts which
might form the basis for the institution of such proceedings, and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
SECTION D. SEC DOCUMENTS. The Trust represents and warrants, on behalf of
each Fund, that its N-14 Registration Statement, on its effective date, insofar
as it relates to such Fund (i) will comply in all material respects with the
provisions of the Securities Act of 1933 and the 1940 Act, and (ii) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
SECTION E. ASSETS AND LIABILITIES. The Trust represents and warrants on
behalf of each Fund, that, prior to the date hereof the Fund has had, and prior
to the Closing Date the Fund will have, no assets or liabilities and no
operations except as contemplated by this Agreement.
B-4
<PAGE>
SECTION F. CAPITAL STRUCTURE. The Trust represents and warrants that all
of its issued and outstanding shares are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable.
ARTICLE 7.
COVENANTS
SECTION A. COVENANTS RELATING TO THE CONDUCT OF BUSINESS. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date, each party shall operate its
business in the ordinary course.
SECTION B. PREPARATION OF N-14 REGISTRATION STATEMENT. As soon as
reasonably practicable after the execution of this Agreement, the Trust shall
file an N-14 Registration Statement with respect to the reorganization
contemplated hereby with the United States Securities and Exchange Commission in
form and substance satisfactory to all parties, and shall use its best efforts
to provide that the N-14 Registration Statement becomes effective as promptly as
practicable. As soon as reasonably practicable, the Trust shall also prepare and
file any other filings required under applicable state securities laws.
SECTION C. AMENDMENT OF N-1A REGISTRATION STATEMENT. As soon as reasonably
practicable after the execution of this Agreement, the Trust shall amend its
N-1A Registration Statement with respect to the Fund Shares with the United
States Securities and Exchange Commission in form and substance satisfactory to
all parties, and shall use its best efforts to provide that the amendment
becomes effective as promptly as practicable. As soon as reasonably practicable,
the Trust shall also prepare and file any other filings required under
applicable state securities laws.
SECTION D. SHAREHOLDERS MEETING. As soon as practicable after the
effective date of the N-14 Registration Statement the Trust shall call a special
meeting of the shareholders of the Trust for the purpose of considering the
reorganization contemplated by this Agreement.
SECTION E. FEES AND EXPENSES. Whether or not this Agreement is
consummated, the Trust shall cause fifty percent (50%) of all costs and expenses
incurred in connection with this Agreement and the transactions contemplated to
be paid by NACM, and the balance by the Portfolios pro rata in proportion to
their respective net assets at the Closing.
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
SECTION A. TERMINATION. This Agreement may be terminated by resolution of
the Board of Trustees of the Trust at any time prior to the Closing Date,
whether before or after approval by the shareholders of the Trust, if
1. circumstances develop that, in the opinion of such Board of Trustees,
make proceeding with the Plan inadvisable; or
2. any approval of the shareholders of the Trust required for the
consummation of the Plan shall not have been obtained; or
3. any governmental body shall have issued an order, decree or ruling
having the effect of permanently enjoining, restraining or otherwise
prohibiting the consummation of this Agreement.
SECTION B. EFFECT OF TERMINATION. In the event of any termination pursuant
to Section 8.1, there shall be no liability for damage on the part of the Trust,
or the Board of Trustees.
SECTION C. AMENDMENT. This Agreement may be amended prior to the Closing
Date by the parties at any time before or after approval hereof by the
shareholders of the Trust; provided, however,
B-5
<PAGE>
that after such shareholder approval there shall not be any amendment that by
law requires further approval by the shareholders without obtaining such further
approval.
SECTION D. WAIVER. At any time prior to the Closing Date, any of the terms
or conditions of this Agreement may be waived by the Board of Trustees of the
Trust, if, in its judgment after consultation with legal counsel, such action or
waiver will not have a material adverse effect on the benefits intended under
this Agreement to the shareholders of the Trust or the Master Trust.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
attested on its behalf by its duly authorized representatives as of the date
first above written.
Nicholas-Applegate Mutual Funds on behalf of
each Portfolio
Attest:
By:
---------------------------------------------
John Wylie
PRESIDENT
- ----------------------------
Nicholas-Applegate Mutual Funds on behalf of
each Institutional Portfolio
Attest:
By:
---------------------------------------------
John Wylie
PRESIDENT
- ----------------------------
B-6
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 West Broadway
San Diego, California 92101
January 5, 1998
Dear Shareholder:
A special meeting of shareholders of Nicholas-Applegate Mutual Funds (the
"Trust") will be held to determine important organizational issues affecting
your portfolio. The meeting will begin at 9:00 a.m. local time on February 27,
1998, at the offices of the Trust, 600 West Broadway, 30th Floor, San Diego,
California 92101.
At the meeting shareholders of the Trust, other than shareholders of the
Government Income Portfolios, will be asked to consider a reorganization in
which the Trust will move from a complex "master-feeder" structure to a simpler
and more economical "multi-class" structure.
At the same time, shareholders of the Government Income A, B, C and
Qualified Portfolios of the Trust will be asked to consider a reorganization in
which they will receive corresponding Class A, B, C and Q shares of the Fully
Discretionary Fixed Income Fund of the Trust. The goal of the reorganization is
to produce a higher level of income for you from a portfolio comprised
principally of investment grade debt securities. The reorganization should
produce this increased income by spreading overhead costs over a substantially
larger asset base and by giving you the opportunity to benefit from the higher
level of income associated with the Fully Discretionary Fixed Income Fund.
After the reorganization, your shares in the Fully Discretionary Fixed
Income Fund will have exactly the same value as the shares of the Government
Income Portfolio you owned immediately prior to the reorganization. In the
opinion of the Trust's tax counsel, the proposed transaction with have no tax
implications for you.
In addition, shareholders of the Trust will be asked to elect Trustees to
take office when the reorganization is concluded and to ratify the selection of
Ernst & Young L.L.P. as independent public accountants of the Trust.
The proposals have been carefully reviewed by your Board of Trustees, which
recommends that you approve them. Please read the enclosed materials carefully,
and sign, date and mail the enclosed proxy card(s) promptly in the enclosed
return envelope. Your vote is important for the proper administration of the
Trust.
Thank you for your attention to this matter. If you have any questions on
voting of proxies or the proposal to be considered at the meeting, please call
us toll free at 1-800-551-8045.
John D. Wylie
PRESIDENT
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 WEST BROADWAY
SAN DIEGO, CALIFORNIA 92101
800/ 551-8045
------------------------
COMBINED PROXY STATEMENT AND PROSPECTUS
(FOR THE GOVERNMENT INCOME PORTFOLIOS)
------------------------
This Combined Proxy Statement and Prospectus, which includes a Notice of
Special Meeting of Shareholders, a Proxy Statement and a form of Proxy, is being
furnished in connection with the special meeting of shareholders of
Nicholas-Applegate Mutual Funds (the "Trust") to be held on February 27, 1998,
and any adjournment thereof (the "Meeting"). It is being furnished to the
shareholders of the Government Income Portfolios of the Trust. Shareholders of
the other portfolios of the Trust are being asked to approve certain related
matters described below, and are being provided with a separate Combined Proxy
Statement and Prospectus in connection with the Meeting.
The various portfolios of the Trust currently invest all of their assets in
corresponding "master funds" of Nicholas-Applegate Investment Trust. At the
Meeting the shareholders of the Trust, other than shareholders of the Government
Income Portfolios, will be asked to approve a reorganization in which the Trust
will move from this "master-feeder" structure to a "multi-class" structure. As a
result of the reorganization, each shareholder of an A, B, C Qualified or
Institutional portfolio (other than the Government Income Portfolios) will
receive Class A, B, C, Q or I shares of a corresponding multi-class series of
the Trust.
At the Meeting, the shareholders of the Government Income A, B, C, and
Qualified Portfolios will be asked to approve a reorganization in which they
will receive corresponding Class A, B, C and Q shares of the Fully Discretionary
Fixed Income Fund of the Trust.
The shareholders of the Trust also will be asked to elect Trustees of the
Trust and to ratify the selection of Ernst & Young L.L.P. as independent
accountants.
The Trust is an open-end, management investment company comprised of a
number of diversified portfolios. This Combined Proxy Statement and Prospectus
sets forth concisely the information that shareholders of the Government Income
Portfolios of the Trust should know before voting on the proposed reorganization
of those Portfolios and the other matters to be considered at the meeting. It
should be read and retained for future reference.
The most recent Prospectus and Statement of Additional Information relating
to each A, B, C and Qualified Government Income Portfolio of the Trust are on
file with the Securities and Exchange Commission and are incorporated by
referenced herein. They are available without charge by writing or calling the
Trust at its address and telephone number above. The Prospectus relating to the
corresponding Class A, B, C, and Q shares of the Fully Discretionary Fixed
Income Fund to be distributed to the shareholders pursuant to the reorganization
accompanies this document. The Statement of Additional Information relating to
the Class A, B, C, and Q shares of the Fully Discretionary Fixed Income Fund is
also incorporated herein and is available without charge by writing or calling
the Trust at its address and telephone number above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATE:
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 WEST BROADWAY
SAN DIEGO, CALIFORNIA 92101
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1998
(FOR THE GOVERNMENT INCOME PORTFOLIOS)
------------------------
A Special Meeting of shareholders (the "Meeting" ) of Nicholas-Applegate
Mutual Funds (the "Trust") will be held at the offices of the Trust, 600 West
Broadway, 30th Floor, San Diego, California 92101 at 9:00 a.m. local time on
February 27, 1998.
For shareholders of the Government Income Portfolios, the purpose of the
Meeting is:
1. To vote upon the reorganization of the A, B, C, and Qualified Government
Income Portfolios pursuant to an Agreement and Plan of Reorganization in
which the shareholders of the Portfolios will receive corresponding
shares of the Fully Discretionary Fixed Income Fund of the Trust in
exchange for their Portfolio shares.
2. To elect Trustees of the Trust to hold office until their successors are
elected and qualified.
3. To ratify the selection of Ernst & Young L.L.P. as independent
accountants for the Trust for the fiscal year ended March 31, 1998.
Shareholders of record of the Trust at the close of business on December 19,
1997 will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. Each shareholder is requested to sign, date and return the enclosed
proxy card(s) without delay, even if such shareholder now plans to attend the
Meeting. A postage-paid envelope is enclosed for this purpose. Any shareholder
present at the Meeting may vote personally on all matters brought before the
Meeting and in that event such shareholder's proxy will not be used.
E. Blake Moore, Jr.,
SECRETARY
Nicholas-Applegate Mutual Funds
January 5, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.............................................................. 1
SHARES AND VOTING......................................................... 2
BACKGROUND OF THE PROPOSED GOVERNMENT INCOME PORTFOLIOS REORGANIZATION.... 2
PROPOSAL 1. AMENDMENT OF DECLARATION OF TRUST............................. 6
PROPOSAL 2. APPROVAL OF THE PROPOSED GOVERNMENT INCOME PORTFOLIOS
REORGANIZATION................................................ 6
PROPOSAL 3. ELECTION OF TRUSTEES.......................................... 14
PROPOSAL 4. SELECTION OF INDEPENDENT ACCOUNTANTS.......................... 19
OTHER MATTERS............................................................. 19
NEXT MEETING OF SHAREHOLDERS.............................................. 19
APPENDIX A--AGREEMENT AND PLAN OF REORGANIZATION
</TABLE>
<PAGE>
INTRODUCTION
SOLICITATION OF PROXIES
This Combined Proxy Statement and Prospectus (the "Proxy Statement") is
being furnished to the shareholders of the Government Income A, B, C and
Qualified Portfolios (the "Government Income Portfolios") of Nicholas-Applegate
Mutual Funds (the "Trust") in connection with the solicitation of proxies by the
Board of Trustees of the Trust for use at a Special Meeting of Shareholders of
the Trust, and any adjournment thereof (the "Meeting"). Shareholders of the
other portfolios of the Trust are being asked to approve certain related matters
described below, and are receiving a separate combined proxy statement and
prospectus in connection with the Meeting.
The Meeting will to be held on February 27, 1998, at the offices of the
Trust, 600 West Broadway, 30th Floor, San Diego, California 92101, for the
purposes set forth in the Notice of Special Meeting of Shareholders and more
fully described below. This Proxy Statement and the enclosed form of proxy (the
"Proxy") were first mailed to shareholders entitled to vote at the Meeting on or
about January 5, 1998.
PURPOSE OF MEETING
One of the purposes of the Meeting is to permit the shareholders of the
portfolios of the Trust, other than the Government Income Portfolios, to
consider a reorganization (the "Multi-Class Reorganization") in which the
portfolios will move from a "master-feeder" structure to a "multi-class"
structure (Proposal 1). Currently, the A, B, C, Qualified and Institutional
portfolios of the Trust, known as "feeder funds," invest all of their assets in
shares of corresponding funds, known as "master funds," of Nicholas-Applegate
Investment Trust (the "Master Trust"). As a result of the Multi-Class
Reorganization the Trust will manage its assets directly rather than through the
Master Trust, and each shareholder of a Nicholas-Applegate A, B, C, Qualified or
Institutional portfolio (other than the Government Income Portfolios) will
receive Class A, B, C, Q or I shares of a corresponding multi-class series of
the Trust. The series of the Trust created after August 1, 1997 (the Global Blue
Chip Bond Fund, Emerging Markets Bond Fund, Pacific Rim Fund, Greater China Fund
and Latin America Fund) are not part of the master/feeder structure and will not
be affected by the Multi-Class Reorganization. The Board of Trustees and
management of the Trust believe that the Multi-Class Reorganization will result
in substantial economies for the Trust.
Another purpose of the Meeting is to permit the shareholders of the
Government Income A, B, C and Qualified Portfolios of the Trust to consider a
reorganization (the "Government Income Portfolios Reorganization") in which they
will receive corresponding Class A, B, C and Q shares of the Fully Discretionary
Fixed Income Fund series of the Trust (Proposal 2). The Board of Trustees and
management of the Trust believe that the Government Income Portfolios
Reorganization will result in a higher level of income for shareholders from a
portfolio comprised principally of investment grade debt securities.
All shareholders of the Trust will also be asked to act on two other
matters--the election of Trustees to take office when the Multi-Class
Reorganization is concluded (Proposal 3) and ratification of the selection of
Ernst & Young L.L.P. as independent public accountants to the Trust (Proposal
4).
Nicholas-Applegate Capital Management (the "Investment Adviser") will bear
50% of the cost of solicitation of proxies, including the cost of printing,
preparing, assembling and mailing the Notice of Meeting, Combined Proxy
Statement and Prospectus and form of Proxy, and the balance will be paid by the
Trust. In addition to solicitations by mail, proxies may be solicited by
officers and regular employees of the Trust and the Investment Adviser by
personal interview, by telephone or by facsimile. Tritech will also be retained
to provide professional proxy solicitation services. The cost of solicitation,
including specified expenses, is not expected to exceed $20,000.
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SHARES AND VOTING
The presence in person or by proxy of more than one-third of the outstanding
shares of beneficial interest of the Trust entitled to vote at the Meeting will
constitute a quorum. If a quorum is not present at the Meeting, sufficient votes
in favor of the Proposals set forth in the Notice of Meeting are not received by
the time scheduled for the Meeting, or the holders of shares present in person
or by proxy determine to adjourn the Meeting for any other reason, the
shareholders present in person or by proxy may adjourn the Meeting from time to
time, without notice other than announcement at the Meeting. Any such
adjournment will require the affirmative vote of shareholders holding a majority
of the shares present in person or by proxy at the Meeting. The persons named in
the Proxy will vote in favor of adjournment those shares which they represent if
adjournment is necessary to obtain a quorum or to obtain a favorable vote on any
Proposal. Business may be conducted once a quorum is present and may continue
until adjournment of the Meeting notwithstanding the withdrawal or temporary
absence of sufficient shares to reduce the number present to less than a quorum.
Each shareholder is entitled to one vote for each full share and a
fractional vote for each fractional share outstanding on the books of the Trust
in the name of the shareholder or his or her nominee on the Record Date. The
Record Date and time for determining those entitled to notice of and to vote at
the Meeting has been fixed at the close of business on December 19, 1997.
At the Record Date, the Trust had 62 series of shares and total shares
outstanding. At the Record Date, the following persons owned of record more than
5% of the outstanding shares of the Government Income Portfolios and of the
Trust as a whole:
The Trust has no information regarding the beneficial owners of such
shares at the Record Date. Except as indicated above, the officers and
Trustees of the Trust as a group beneficially owned less than 1% of the
outstanding shares of each of the Government Income Portfolios and the
Trust as a whole at the Record Date.
All shares represented by each properly signed Proxy received prior to the
Meeting will be voted at the Meeting. If a shareholder specifies how the Proxy
is to be voted on a Proposal to be considered at the Meeting, it will be voted
as specified. If no direction is made on the Proxy, the Proxy will be voted FOR
the proposals described in this Proxy Statement. Shareholders voting to ABSTAIN
on a Proposal will be treated as present for purposes of achieving a quorum and
in determining the votes cast on the Proposal. A properly signed Proxy on which
a broker has indicated that it has no authority to vote on a Proposal on behalf
of the beneficial owner (a "broker non-vote") will be treated as present for
purposes of achieving a quorum but will not be counted in determining the votes
cast on the Proposal.
A Proxy may be revoked by a shareholder at any time prior to its use by
written notice to the Trust, by submission of a later dated Proxy or by voting
in person at the Meeting. If any other matters come before the Meeting, Proxies
will be voted by the persons named in the Proxy in accordance with their best
judgement.
Proposal 1 affects only the shareholders of the Institutional Portfolios of
the Trust and will not be submitted to the shareholders of the Government Income
Portfolios. Shareholders of each A, B, C, and Qualified Government Income
Portfolio will vote separately with respect to Proposal 2. All of the
shareholders of the Trust will vote in the aggregate with respect to Proposals 3
and 4.
BACKGROUND OF THE PROPOSED
GOVERNMENT INCOME PORTFOLIOS REORGANIZATION
THE MULTI-CLASS REORGANIZATION
Unlike other mutual funds that acquire their securities directly, the
portfolios of the Trust created prior to August 1, 1997 invest their assets in
funds of the Master Trust. This two-tier structure is known as a
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<PAGE>
"master/feeder" structure and it permits one or more feeder funds that have the
same investment objectives but different operating characteristics (such as
sales charges, expenses and investment minimums) to invest in the same master
fund.
When the Board of Trustees of the Trust established the master/feeder
structure in 1993, it believed this form of organization would achieve certain
efficiencies of operation and economies of scale. However, since the
establishment of the master/feeder structure, the number of portfolios organized
by the Trust using that structure has increased significantly, to 57.
Furthermore, regulatory developments have occurred enabling mutual fund
complexes to more easily achieve, through the use of multiple classes of shares,
the benefits at one time expected of the master/feeder approach without the
operating costs and technical complexities of a two-tiered structure.
The purpose of the Multi-Class Reorganization is to eliminate the cost and
complexity of a master/ feeder structure that has not yielded and is no longer
expected to yield long-term efficiencies of operation and economies of scale.
Management of the Trust expects the Multi-Class Reorganization to save the Trust
approximately $1,000,000 per year in fees currently paid to the company which
provides day-to-day accounting services to the Trust. In addition, the number of
tax returns currently filed annually by the Trust and the Master Trust would be
reduced from 129 to 38 and separate audits for the master funds would no longer
be necessary, with an annual savings of approximately $ . Over time the
Trust would also benefit from the fewer number of required SEC filings and other
legal and administrative cost savings.
As Investment Adviser to the Master Trust, Nicholas-Applegate Capital
Management has to date voluntarily agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Trust and the Master
Trust, to the extent necessary to ensure that the expenses for each portfolio
(other than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses) do not
exceed certain levels. Accordingly, the shareholders of the Trust have in the
past not borne the full cost of the master/feeder structure. However, the Board
of Trustees believes that the Multi-Class Reorganization will benefit the
shareholders of the Trust. Any expenses in excess of the current expense caps
may be borne by the shareholders in the future, as in subsequent years each
portfolio will reimburse the Investment Adviser when operating expenses (before
recoupment) for the portfolio are less than the expense cap. Furthermore,
although the Investment Adviser has agreed to maintain these expense caps
through March 31, 1998, it cannot be expected to maintain the expense caps
indefinitely in the future.
In addition, the proposed Multi-Class Reorganization will permit the Trust
to provide for the automatic conversion of its current portfolio B shares to
portfolio A shares seven years after purchase. Although portfolio B shares may
currently be exchanged voluntarily for the corresponding portfolio A shares
seven years after purchase, the exchange is treated as a redemption and purchase
for tax purposes. In the proposed multi-class structure, the Trust will be able
to provide for automatic conversion without adverse federal income tax
consequences. Such an exchange is beneficial for long-term shareholders, as
portfolio A shares have lower annual distribution-related fees than portfolio B
shares.
Upon completion of the Multi-Class Reorganization, the current Fully
Discretionary Fixed Income Institutional Portfolio of the Trust will be renamed
the "Fully Discretionary Fixed Income Fund," the shareholders of the Portfolio
will become Class I shareholders of the Fund, and the Board of Trustees will
create Class A, B, C and Q shares of the Fund to enable the Government Income
Portfolios Reorganization to be completed.
THE GOVERNMENT INCOME PORTFOLIOS REORGANIZATION
The Board of Trustees of the Trust believes that, at their current sizes
(ranging from $4,283,869 to $17,075 as of October 31, 1997), the Government
Income A, B, C and Qualified Portfolios, and the corresponding Government Income
master fund in which the Government Income Portfolios invest, are too small to
operate in a cost effective manner. The Government Income Portfolios incur
substantial
3
<PAGE>
overhead expenses, directly and through their investment in the Government
Income master fund, for accounting services, legal services, printing,
insurance, and custodial, transfer agency, advisory and administrative services.
To date, Nicholas-Applegate Capital Management has been voluntarily subsidizing
the Government Income Portfolios' operations by reducing its management fees to
the Government Income master fund and by absorbing some of the other expenses of
the master fund and the Portfolios, in order that the Government Income
Portfolios can provide competitive yields to their shareholders. Management of
the Trust does not foresee any significant increases in the assets of the
Government Income Portfolios or the Government Income master fund in the near
future, and Nicholas-Applegate Capital Management has informed the Board that it
is unwilling to continue subsidizing the Government Income Portfolios'
operations in the future despite any economies achieved in connection with the
Multi-Class Reorganization.
The Fully Discretionary master fund had aggregate assets of $14,665,285
million as of October 31, 1997, compromised principally of assets of the Fully
Discretionary Fixed Income Institutional Portfolio of the Trust. The Fully
Discretionary Fixed Income Institutional Portfolio and the corresponding Fully
Discretionary Fixed Income master fund currently incur expenses similar to those
of the Government Income Portfolios and the Government Income master fund.
However, management believes that as a result of the proposed Multi-Class
Reorganization and the proposed Government Income Portfolios Reorganization, the
combined asset base of the Fully Discretionary Fund will permit the Fund to
spread reduced expenses over a larger asset base, with reasonable prospects for
further increases in assets in the future. Because the investment objectives of
the Government Income Portfolios and the Fully Discretionary Fixed Income Fund
are similar, the Board of Trustees believes that shareholders of the Government
Income Portfolios should be able to continue to meet their primary goal of
current income from a portfolio comprised principally of high quality fixed
income securities after completion of the Government Income Portfolios
Reorganization.
The Board of Trustees believes that the only practical alternative to the
proposed Government Income Portfolios Reorganization would be a taxable
liquidation of the Portfolios, which would not be preferable to the proposed
tax-free reorganization with the Fully Discretionary Fund.
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<PAGE>
INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. The figures
below are expenses for each Government Income Portfolio (including their shares
of the expenses of the corresponding Government Income master fund) for the
fiscal year ended March 31, 1997. No Fully Discretionary Fixed Income A, B, C or
Qualified Portfolios currently exist, so the figures set forth below for the A,
B, C and Q Classes of the Fully Discretionary Fund are estimated expenses for
the first year of operation of the Fund.
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIOS FULLY DISCRETIONARY
-------------------------------------------------------- FIXED INCOME FUND
QUALIFIED -------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C PORTFOLIO CLASS A CLASS B CLASS C
------------- ------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum sales charge on
purchases (as a percentage of
offering price)............... 4.75% None None 4.75% 4.75% None None
Sales charge on reinvested
dividends..................... None None None None None None None
Deferred sales charge (as a
percentage of original
purchase price or redemption
proceeds, whichever is
lower)........................ None(1) 5.00% 1.00% None None(1) 5.00% 1.00%
Redemption fee.................. None None None None None None None
Exchange Fee.................... None None None None None None None
ANNUAL PORTFOLIO OPERATING
EXPENSES AS A PERCENTAGE OF
AVERAGE NET ASSETS:...........
Management fees................. 0.40% 0.40% 0.40% 0.40% 0.45% 0.45% 0.45%
12b-1 expenses.................. 0.25% 0.50% 0.50% 0.25% 0.25% 0.50% 0.50%
Other expenses (after expense
deferral) (2)................. 0.25% 0.40% 0.40% 0.15% 0.60% 0.75% 0.75%
Total operating expenses (after
expense deferral) (2)......... 0.90% 1.30% 1.30% 0.80% 1.30% 1.70% 1.70%
<CAPTION>
CLASS Q
-----------
<S> <C>
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:...........
Management fees................. 0.45%
12b-1 expenses.................. 0.25%
Other expenses (after expense
deferral) (2)................. 0.18%
Total operating expenses (after
expense deferral) (2)......... 0.88%
</TABLE>
- --------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase.
(2) The Investment Adviser has voluntarily agreed to waive or defer its
management fees and to absorb other operating expenses payable by the master
funds and the Portfolios through March 31, 1998, and will do so for the
various Classes of the Fully Discretionary Fixed Income fund through March
31, 1999. For the Government Income A, B, C and Qualified Portfolios, Total
operating expenses would have been 7.67%, 8.33%, 4.98% and 2,789.64%,
respectively, and Other expenses would have been 7.02%, 7.43%, 4.08%, and
2,788.99%, respectively, absent the deferral. For the Class A, B, C and Q
shares of the Fully Discretionary Fixed Income Fund, estimated Total
operating expenses are 6.18%, 4.35%, 3.92% and 268.01%, respectively, and
estimated Other expenses are 5.53%, 3.45%, 3.02%, and 267.36%, respectively,
absent the deferral. Because of the 12b-1 fees, long-term shareholders may
indirectly pay more than the equivalent of the maximum permitted front-end
sales charge.
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<PAGE>
PROPOSAL 1. AMENDMENT OF DECLARATION OF TRUST
At the Meeting, shareholders of the Institutional Portfolios of the Trust
(including the Fully Discretionary Fixed Income Institutional Portfolio) will be
asked to approve an amendment to the Trust's Declaration of Trust to permit the
board of Trustees to create multiple classes of the Institutional Portfolios. As
this Proposal affects only the Institutional Portfolios, it is not being
submitted to the shareholders of the Government Income Portfolios.
PROPOSAL 2. APPROVAL OF THE PROPOSED GOVERNMENT INCOME
PORTFOLIOS REORGANIZATION
At the Meeting, shareholders of the A, B, C, and Qualified Government Income
Portfolios will be asked to approve the proposed Government Income Portfolios
Reorganization.
DESCRIPTION OF THE PROPOSED GOVERNMENT INCOME PORTFOLIOS
REORGANIZATION
THE REORGANIZATION AGREEMENT
The terms and conditions under which the proposed Government Income
Portfolios Reorganization will be completed are set forth in the Agreement and
Plan of Reorganization (the "Reorganization Agreement") attached as Appendix A.
The following is a summary of the Reorganization Agreement.
The Reorganization Agreement provides for the completion of the Government
Income Portfolios Reorganization (the "Closing") in several steps:
First, upon completion of the Multi-Class Reorganization, the Fully
Discretionary Fixed Income Institutional Portfolio will be renamed the
"Fully Discretionary Fixed Income Fund," and its existing shares will be
designated Class I shares of the Fund.
Second, the Government Income master fund will dissolve and distribute
its assets in kind (i.e., in the form of the bonds or other investment
securities held by the master fund), to the A, B, C and Qualified Government
Income Portfolios.
Third, the A, B, C and Qualified Government Income Portfolios will
transfer their assets to the Fully Discretionary Fixed Income Fund. In
exchange, each Government Income Portfolio will receive Class A, B, C or Q
shares of the Fully Discretionary Fixed Income Fund with the same total net
asset value as the assets being transferred.
Finally, each A, B, C and Qualified Government Income Portfolio will
distribute the Fully Discretionary Fixed Income Fund shares it receives to
its shareholders, and will dissolve. For example, Government Income
Portfolio A will distribute the Class A shares of the Fully Discretionary
Fixed Income Fund to its shareholders. Each former shareholder of Government
Income Portfolio A will then hold Class A shares of the Fully Discretionary
Fixed Income Fund with the same net asset value as the shares of the
Government Income Portfolio A he previously held.
The Closing is subject to various conditions, including the completion of
the Multi-Class Reorganization, approval of the Government Income Portfolios
Reorganization by a majority of shares of each A, B, C, and Qualified Government
Income Portfolio, dissolution of the Government Income master fund, completion
of all filings with, and receipt of all necessary orders and approvals from, the
Securities and Exchange Commission (the "SEC"), delivery of legal opinions
regarding the Federal tax consequences of the Government Income Portfolios
Reorganization, and other customary corporate and securities matters. Any
conditions may be waived by the Board of Trustees of the Trust if, in its
judgment, such waiver will not have a material adverse effect on the interests
of the shareholders. The Reorganization Agreement may be terminated at any time
if the Board of Trustees determines in good faith that the Government Income
6
<PAGE>
Portfolios Reorganization is not in the best interests of its shareholders or
the shareholders of the Fully Discretionary Fixed Income Fund.
FEDERAL TAX CONSEQUENCES
The Trust has received an opinion from Paul, Hastings, Janofsky & Walker
LLP, the legal counsel to the Trust, to the effect that under the Internal
Revenue Code the Government Income Portfolios Reorganization will not result in
any taxable income to the Trust or its shareholders. This legal opinion is not
binding on the Internal Revenue Service or any other taxing authority, and the
Trust does not intend to seek a private letter ruling or advisory opinion from
the Internal Revenue Service with respect to the tax effects of the Government
Income Portfolios Reorganization.
CHANGE OF FUND NAME
After the Multi-Class Reorganization and the Government Income Portfolios
Reorganization are completed, the Fully Discretionary Fixed Income Fund will be
renamed the High Quality Bond Fund, to better reflect its investment objective
and policies.
COMPARISON OF THE GOVERNMENT INCOME PORTFOLIOS AND THE FULLY
DISCRETIONARY FIXED INCOME FUND
The Trust is an open-end management investment company currently offering a
number of separate diversified Portfolios with differing sales load, shareholder
services plan and distribution plan arrangements. The Trust was organized in
December 1992 as a business trust under the laws of the State of Delaware. If
the Multi-Class Reorganization is approved and completed, shareholders of each
Institutional Portfolio series of the Trust will become Class I shareholders of
the same series (which will be renamed a "Fund"), and shareholders of each A, B,
C and Qualified Portfolio series of the Trust will become Class A, B, C and Q
shareholders of the corresponding Fund.
Pursuant to the Multi-Class Reorganization, the Fully Discretionary Fixed
Income Institutional Portfolio of the Trust will be renamed the "Fully
Discretionary Fixed Income Fund" of the Trust, and the existing shareholders of
that Institutional Portfolio will hold Class I shares of the Fully Discretionary
Fixed Income Fund. As a result of the proposed Government Income Portfolios
Reorganization, each shareholder of an A, B, C, or Qualified Government Income
Portfolio will hold Class A, B, C or Q shares of the Fully Discretionary Fixed
Income Fund with the same net asset value as his current shares.
A brief comparison of the Government Income Portfolios with the Fully
Discretionary Fixed Income Fund is set forth below:
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Government Income Portfolios seek, as their investment objective,
current income consistent with prudent investment risk and preservation of
capital. They invest (through the Government Income master fund) primarily in
intermediate term government bonds. The Fully Discretionary Fixed Income Fund
seeks to maximize total return through an actively managed diversified portfolio
of debt securities.
Under normal conditions, the Government Income Portfolios, through the
Government Income master fund, invest at least 75% of their total assets in
securities issued by the U.S. Government and its agencies and instrumentalities.
They invest the remainder primarily in non-agency mortgage-related securities,
domestic and foreign investment grade debt obligations and short-term
investments. The Fully Discretionary Fixed Income Fund, under normal conditions,
invests at least 65% of its total assets in investment grade debt securities
issued by U.S. and foreign corporations and U.S. and foreign governments and
their agencies and instrumentalities. In addition, unlike the Government Income
Portfolios, the Fully
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<PAGE>
Discretionary Fixed Income Fund may invest in municipal debt securities and may
invest up to 20% of its assets in debt securities rated below investment grade.
The investment policies of the Government Income Portfolios and the Fully
Discretionary Fixed Income Fund also differ in certain other significant
respects. Both the Government Income Portfolios and the Fully Discretionary
Fixed Income Fund may enter into interest rate or financial futures contracts
and into foreign currency futures contracts (and options on those futures
contracts) as hedging techniques. However, the Fully Discretionary Fixed Income
Fund may also write covered call and secured put options on securities and
securities indexes and may enter into interest rate and currency swaps as
hedging techniques, subject to the limitation that it may not enter into such
hedging transactions if as a result more than 25% of its net assets would be
hedged or more than 25% of its net assets would be used as cover for options it
has written. In addition to hedging transactions, the Fully Discretionary Fixed
Income Fund may enter into options, futures and swap transaction to enhance
potential gain in circumstances where hedging is not involved, provided that its
net loss exposure from such transactions does not exceed 5% of its net assets at
any time.
RISK FACTORS
As noted above, the investment objectives, policies and restrictions of the
Government Income Portfolios and the Fully Discretionary Fund differ in some
respects. As a result of these differences, an investment in the Fully
Discretionary Fixed Income Fund involves greater risk than an investment in a
Government Income Portfolio.
The values of both the Government Income Portfolios' and the Fully
Discretionary Fixed Income Fund's portfolios fluctuate in response to movements
in interest rates. However, the average duration of the Fully Discretionary
Fixed Income Fund's portfolio will range from two to eight years, compared to
three to six years for the Government Income Portfolios. Although longer
maturity securities generally have higher yields, they also have greater
fluctuations in price. In addition, by including in its portfolio a greater
portion of securities issued by domestic and foreign companies, states and
municipalities, the Fully Discretionary Fixed Income Fund incurs market and
credit risks, in addition to interest rate risks, that are greater than those
incurred by the Government Income Portfolios, which have investment portfolios
consisting primarily of securities issued by the U.S. Government and its
agencies and instrumentalities. Although at least 65% of the Fully Discretionary
Fixed Income Fund's total assets will be comprised of investment grade
securities, the prices of such securities are likely to change more than those
of U.S. Government securities, and thus the net asset values of the Fund's
shares are likely to move more in price than those of the Government Portfolios.
Furthermore, credit ratings of portfolio securities are heavily weighted by past
developments and do not necessarily reflect probable future conditions,
securities in the lower investment grades have some speculative characteristics,
and changes in economic conditions or other circumstances may be more likely to
lead to the issuers' weakened capacity to pay interest and principal than would
be the case with higher rated investment grade securities.
In addition, the Fully Discretionary Fixed Income Fund may invest up to 20%
of its assets in debt and convertible securities rated below investment grade.
Securities rated below investment grade, commonly referred to as "junk bonds" or
"high-yield, high risk bonds," are subject to greater risk of loss of income and
principal than higher rated bonds and are considered to be predominantly
speculative. The issuers' capacity to pay interest and repay principal may
decline during sustained periods of deteriorating economic conditions or rising
interest rates, and such bonds are subject to wider market and yield
fluctuations than higher-rated securities. The markets for such securities may
be thinner and less active than higher-rated securities, which can adversely
affect the prices at which the securities can be sold and the Fund's ability to
accurately price the securities. The Fund may purchase securities with any
rating (or comparable unrated securities), including securities currently in
payment default. Although Nicholas-Applegate Capital Management (the "Investment
Adviser") will attempt to identify those issuers of high-
8
<PAGE>
yielding securities whose financial condition is adequate to meet future
obligations, there can be no assurance that losses will not occur.
Furthermore, the Fully Discretionary Fixed Income Fund may invest an
unlimited portion of its portfolio in securities of foreign companies and
governments, compared to a limited of 35% for the Government Income Portfolios.
Such investments bear special risks, 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. 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 the 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 foreign investments. 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 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. Neither the Government Income
Portfolios nor the Fully Discretionary Fixed Income Fund will 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.
The Fully Discretionary Fixed Income Fund may invest in securities issued by
state and local governments, territories and possession of the U.S., regional
government authorities, and their agencies and instrumentalities ("municipal
securities"), including general obligation and revenue bonds. The issuers of
municipal securities may become subject to laws enacted in the future by state
or local legislative bodies or referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of the issuers to levy taxes. Furthermore, as a
result of legislation or other conditions, the power or ability of any issuer to
pay, when due, the principal or an interest on its municipal obligations may be
materially affected.
The Fully Discretionary Fixed Income Fund may use options on securities and
securities indexes for hedging purposes and in non-hedging transactions to
enhance potential gain. There is a risk that the prices of the options may not
correlate perfectly with the prices of the securities in its portfolio. This may
cause the options to react differently than the Fund's portfolio securities to
market changes. In addition, the Investment Adviser could be incorrect in its
expectations about the direction or extent of market movements, in which case
the Fund could lose money on an option. The Fund may also use dealer options,
which lack the liquidity of exchange traded options and involve the risk that
the securities dealers participating in the transactions will fail to meet their
obligations. Although the Investment Adviser will consider liquidity before
entering into options transactions, there is no assurance that a liquid
secondary market will exist for these instruments, which could prevent the Fully
Discretionary Fixed Income Fund from liquidating an unfavorable position.
Interest rate and currency swap transactions in which the Fully
Discretionary Fixed Income Fund may invest require the Fund to rely on the other
party to the transaction to perform its obligations pursuant to the swap
agreement. In the event of a default by the other party, the Fund would have
contractual remedies against the defaulting party but there is no assurance that
the Fund would be able to obtain the expected benefit from the transaction.
9
<PAGE>
INVESTMENT ADVISER
All of the Portfolios of the Trust, including the Government Income
Portfolios, currently invest their assets in the corresponding series of the
Master Trust managed by the Investment Adviser, and the Portfolios do not
themselves engage the services of the Investment Adviser or any other investment
manager. Upon completion of the Multi-Class Reorganization, the Trust will enter
into a new investment advisory agreement with the Investment Adviser on behalf
of all of its portfolios, including the Fully Discretionary Fixed Income Fund,
on terms and conditions substantially identical to the terms and conditions of
the current investment advisory agreement between the Investment Adviser and the
Master Trust.
The investment advisory fees currently paid by the Government Income
Portfolios will increase slightly as a result of the proposed Government Income
Portfolios Reorganization. As compensation for the services it provides to the
Government Income master fund, the Investment Adviser receives a monthly fee at
the rate of 0.40% of the first $500 million of the master fund's net assets, and
0.35% of net assets in excess of $500 million. As compensation for the services
it provides to the Fully Discretionary Fixed Income Fund, the Investment Adviser
will receive a monthly fee at the rate of 0.45% of the first $500 million of the
Fund's average net assets, 0.40% of the next $250 million of average net assets,
and 0.35% of average net assets in excess of $750 million.
The expense cap voluntarily applied by the Investment Adviser to the Fully
Discretionary Fixed Income Fund will be higher than the expense cap currently
voluntarily applied to the Government Income Portfolios. To limit the expenses
of the Government Income Portfolios, the Investment Adviser has voluntarily
agreed to defer its fees payable by the Government Income master fund, and to
absorb other operating expenses payable by the master fund and the Government
Income Portfolios, through March 31, 1999, to ensure that the expenses allocable
to each Portfolio (excluding interest, taxes, brokerage commission and other
portfolio transaction expenses, capital expenditures and extraordinary expenses,
but including the Portfolio's proportionate share of the master fund's similar
operating expenses) do not exceed the following respective percentages of the
Portfolios' average net assets on an annual basis: Portfolio A--0.90%; Portfolio
B--1.30%; Portfolio C--1.30%; Qualified Portfolio--0.80%. To limit the expenses
of the various Classes of the Fully Discretionary Fixed Income Fund, the
Investment Adviser has voluntarily agreed to similar expense deferrals through
March 31, 1999, as follows: Class A--1.30%; Class B--1.70%; Class C--1.70%,
Class Q--0.88%. As was the case with the Government Income Portfolios, each
Class of the Fully Discretionary Fixed Income Fund will reimburse the Investment
Adviser for fees deferred or other expenses paid in later years in which
operating expenses for the Class are less than the applicable percentage
limitation for any such year. In both cases, no interest, carrying or finance
charge will be paid with respect to any amounts representing fees deferred or
other expenses paid by the Investment Adviser. In addition, in both cases
unreimbursed amounts will not be payable upon termination or renewal of the
investment advisory agreement. Although the limitations are voluntary, they have
been in effect since the inception of the Government Income Portfolios and Fully
Discretionary Fixed Income Institutional Portfolios, and the Investment Adviser
has no current intention of terminating the limitations applicable to the
Classes of the Fully Discretionary Fixed Income Fund.
ADMINISTRATIVE SERVICES
Investment Company Administration Corporation ("ICAC") currently serves as
the principal administrator of the Trust and the Master Trust and, pursuant to
Administration Agreements with the Trust and the Master Trust, is responsible
for performing all administrative services required for the daily business
operations of the Trust and the Master Trust, subject to the supervision of the
Board of Trustees of the Trust and the Master Trust. After the Multi-Class
Reorganization, the Master Trust's Administration Agreement will be terminated,
and the Trust will enter into a new Administration Agreement on terms and
conditions substantially identical to those applicable to the Portfolios
immediately prior to the Multi-Class Reorganization, except for the fee
adjustments described below.
10
<PAGE>
The total fees paid to ICAC by the Government Income Portfolios and the
Government Income master fund for the fiscal year ended March 31, 1997 were
$27,846 (.58% of the Government Income Portfolios' average net assets). Under
its new Administration Agreement with the Trust, ICAC will receive annual fees
from the Fully Discretionary Fund equal to the Fully Discretionary Fund's pro
rata portion (based on its net assets compared to the Trust's total net assets)
of a fee equal to 0.05% of the first $100 million of the Trust's average net
assets, 0.04% of the next $150 million, 0.03% of the next $300 million, 0.02% of
the next $300 million and 0.01% thereafter, subject to a $40,000 annual minimum.
If this fee arrangement had been in effect for the year ended March 31, 1997,
the total fees paid to ICAC by the Government Income Portfolios would have been
$27,846 (.58% of average net assets).
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is currently responsible for providing all administrative
services to the Trust which are not provided by ICAC or by the Trust's
distributor, transfer agents, accounting agents, independent accountants and
legal counsel. The Administrative Services Agreement will be amended to add the
Funds (including the Fully Discretionary Fixed Income Fund) as parties on terms
and conditions substantially identical to the terms and conditions applicable to
the Portfolios immediately prior to the Multi-Class Reorganization.
PFPC Inc. currently provides day-to-day accounting services to the Trust and
the Master Trust pursuant to Accounting Services Agreement with the Trust and
the Master Trust. After the Multi-Class Reorganization, the Master Trust's
Accounting Services Agreement will be terminated, and the fee schedule for the
Trust's Accounting Services Agreement will be amended.
Under its current Accounting Services Agreement with the Trust, PFPC
receives annual fees from the Government Income Portfolios aggregating $50,664
and from the Government Income master fund equal to $6,250 plus 0.03% of average
daily net assets from $100 million to $250 million, 0.02% of the next $250
million, and 0.15% thereafter. The total fees paid to PFPC by the Government
Income Portfolios and the Government Income master fund for the fiscal year
ended March 31, 1997 were $114,358 (2.4% of the Government Income Portfolios'
average net assets). Under its new fee schedule with the Trust, PFPC will
receive annual fees from the Fully Discretionary Fund equal to its pro rata
portion (based on its net assets compared to the Trust's total net assets) of a
fee equal to $6,250 per Fund plus 0.03% of each Fund's average daily net assets
from $100 million to $250 million, 0.02% of the next $250 million, and 0.15%
over $500 million. If this arrangement had been in effect for the year ended
March 31, 1997, the total fees paid to PFPC by the Government Income Portfolios
would have been $75,497 (.82% of average net assets).
DISTRIBUTOR, TRANSFER AGENT AND CUSTODIAN
Nicholas-Applegate Securities currently serves as the principal underwriter
and distributor for the Trust pursuant to a Distribution Agreement with the
Trust, State Street Bank and Trust Company currently serves as the transfer
agent for the Trust pursuant to a Transfer Agency and Services Agreement with
the Trust, and PNC Bank currently serves as the custodian for the Trust pursuant
to a Custodian Services Agreement with the Trust. The Distribution Agreement,
the Transfer Agency and Service Agreement and the Custodian Services Agreement
will be amended to add the Funds (including the Fully Discretionary Fixed Income
Fund) as parties to each on terms and conditions substantially identical to the
terms and conditions applicable to the Portfolios immediately prior to the
Multi-Class Reorganization. The Master Trust has similar arrangements for which
it pays nominal fees, which will be terminated upon completion of the
Multi-Class Reorganization.
11
<PAGE>
CAPITALIZATION
The following table shows the capitalization of the Fully Discretionary
Fixed Income Portfolio at October 31, 1997 (unaudited) and on a pro forma basis
(unaudited) giving effect to the Multi-Class Reorganization and the Government
Income Portfolios Reorganization:
CAPITALIZATION TABLE
<TABLE>
<CAPTION>
FULLY DISCRETIONARY FULLY DISCRETIONARY
GOVERNMENT INCOME FIXED INCOME FIXED INCOME FUND
PORTFOLIO (1) PORTFOLIO (1) COMBINED PRO FORMA (2)
------------------ ------------------- -----------------------
<S> <C> <C> <C>
Portfolio A...................................... $ 1,103,818 None $ 1,103,818(Class A)
Portfolio B...................................... $ 1,924,564 None $ 1,924,564(Class B)
Portfolio C...................................... $ 4,283,869 None $ 4,283,869(Class C)
Portfolio Q...................................... $ 17,075 None $ 17,075(Class Q)
</TABLE>
- ------------------------
(1) As of October 31, 1997.
(2) After giving effect to the Multi-Class Reorganization and the Government
Income Portfolios Reorganization.
PURCHASES AND REDEMPTIONS
Shareholders of the Government Income Portfolios who receive shares of
corresponding Classes of the Fully Discretionary Fixed Income Fund in the
Government Income Portfolios Reorganization will be able to purchase and redeem
shares in the Fund in substantially the same manner and subject to substantially
the same conditions as shares in the Portfolios presently are purchased and
redeemed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Government Income Portfolios currently pay monthly dividends of net
investment income and annual contributions of net capital gains, if any.
Following the Government Income Portfolios Reorganization, the Fully
Discretionary Fixed Income Fund will declare and pay dividends and calculate and
make distributions of net capital gains, if any, in the same manner.
The Trust has elected to qualify each Government Income Portfolio and the
Fully Discretionary Fixed Income Institutional Portfolio as a regulated
investment company under Subchapter M of the Code, and intends that the Fully
Discretionary Fixed Income Fund will remain so qualified. As a regulated
investment company, the Fully Discretionary Fixed Income Fund will be entitled
to the same benefits and subject to the same tax regulations as the Government
Income Portfolios immediately prior to the Government Income Portfolios
Reorganization.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser will execute the portfolio transactions and allocate
the brokerage business of the Fully Discretionary Fixed Income Fund subject to
policies established by the Board of Trustees of the Trust which are
substantially identical to those in effect with respect to the Government Income
master fund immediately prior to the Multi-Class Reorganization.
SHAREHOLDERS' RIGHTS
The rights of shareholders of the Classes of the Fully Discretionary Fixed
Income Fund are identical in all material respects to those of shareholders of
the Government Income Portfolios, except that Class B shares will convert
automatically to Class A shares seven years after purchase. As was the case
before the Multi-Class Reorganization, the shareholders of the Trust will vote
in the aggregate on all matters except
12
<PAGE>
those affecting only a particular Fund or Class, in which case only the
shareholders of the affected Fund or Class will vote.
FURTHER INFORMATION ABOUT THE GOVERNMENT INCOME PORTFOLIOS AND THE FULLY
DISCRETIONARY FIXED INCOME FUND
Further information about the Government Income Portfolios and the Fully
Discretionary Fixed Income Fund is contained in their current prospectuses and
statements of additional information, which are incorporated herein by
reference. Copies of the Fund's prospectus accompanies this Proxy Statement. The
Trust will also provide its most recent annual reports to shareholders with
respect to the Fully Discretionary Fixed Income Institutional Portfolio for the
year ended March 31, 1997, and its semiannual report to shareholders for the six
months ended September 30, 1997, upon request. These documents are available
without charge by writing to the Trust at 600 West Broadway, San Diego,
California 92101, or by calling (800) 551-8045.
The Trust is subject to the information requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, and as required by
those Acts file reports, proxy statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Room maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices at 219 South Dearborn Street, Chicago, Illinois 6064 and 75
Park Place, New York, New York. They may also be viewed on the Internet at
www.sec.gov. Copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information Services
of the SEC, Washington, D.C. 20549.
APPROVAL OF THE BOARD OF TRUSTEES
As discussed above, the Board of Trustees believes that the proposed
Government Income Portfolios Reorganization will be advantageous to the
shareholders of the Portfolios. At their current sizes, the Government Income
Portfolios are too small to operate in a cost effective manner. Management of
the Trust does not foresee any significant increases in the assets of the
Government Income Portfolios or the Government Income master fund in the near
future which would change this situation. Although Nicholas-Applegate Capital
Management has been voluntarily subsidizing the Portfolios' operations, it is
not willing to continue to do so in the future, even after completion of the
Multi-Class Reorganization.
Although the Fully Discretionary Fixed Income Fund has slightly higher
expenses than the Government Income Portfolios, management believes that as a
result of the Multi-Class Reorganization and the Government Income Portfolios
Reorganization, the combined asset base of the Fund will permit it to spread
reduced expenses over a larger asset base, with reasonable prospects for further
increases in assets and correspondingly lower expenses in the future.
Furthermore, the investment objective of the Fully Discretionary Fixed Income
Fund is similar to that of the Government Income Portfolios, and a substantial
portion of the Fund's portfolio will be comprised of investment-grade
securities. Thus, the Board of Trustees believes that the shareholders of the
Government Income Portfolios should be able to continue to meet their primary
goal of current income from a portfolio comprise principally of high quality
fixed income securities after completion of the Government Income Portfolios
Reorganization.
The Board of Trustees believes that the only practical alternative to the
proposed Government Income Portfolios Reorganization would be a taxable
liquidation of the Portfolios, which would not be preferable to the proposed
tax-free reorganization with the Fully Discretionary Fixed Income Fund. However,
if for any reason the proposed Government Income Portfolios Reorganization is
not completed, the Board of Trustees currently believes that its only option
will be such a liquidation.
13
<PAGE>
VOTE REQUIRED
Approval of the Government Income Portfolios Reorganization requires the
affirmative votes of shareholders holding more than 50% of the outstanding
shares of each of the Government Income Portfolios. If the shareholders of all
the Portfolios do not approve the proposed Government Income Portfolios
Reorganization, or either the Multi-Class Reorganization or the Government
Income Portfolios Reorganization is not completed for any other reason, then the
Board of Trustees intends to liquidate the Government Income Portfolios.
PROPOSAL 3. ELECTION OF TRUSTEES
At the Meeting, shareholders will be asked to elect Trustees of the Trust to
hold office until their
successors are elected. to hold office until their successors are elected.
The Proxy holders intend to vote for the election of the nominees named
below, all of whom are currently Trustees of the Trust or the Master Trust. All
of the nominees have consented to be named and have indicated their intent to
serve if elected. If any nominee is unavailable for any reason, the proxy
holders will consult with the Board of Trustees of the Trust in determining how
to vote the shares represented by them.
The following table indicates, as to each of the nominees for election as a
Trustee, his or her name, position with the Trust or Master Trust, age,
principal occupation during the past five years, other directorships held in
public companies, and the number of shares of the Trust beneficially owned at
the Record Date. Unless otherwise indicated and subject to applicable community
property and similar laws, each nominee has sole voting and investment power
with respect to the shares of the Trust beneficially owned. Trustees whose names
are followed by an asterisk are "interested persons" of the Trust (as defined by
the Investment Company Act of 1940, as amended).
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AND
NAME, POSITION AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF TRUST
- ------------------------------- ---------------------------------------------------------------- ---------------
<S> <C> <C>
FRED C. APPLEGATE, Trustee and Private investor (since January 1992); formerly President,
Chairman of the Board of Nicholas-Applegate Capital Management (from August 1984 to
Trustees () (2) December 1991).Director of Nicholas- Applegate Fund, Inc. (since
1987).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 Chairman, A.B. Laffer, V.A. Canto & Associates, an economic
()*(3) consulting firm (since 1979); Chairman, Laffer Advisors
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), and Coinmach Laundry Corporation
(since 1996); Chairman, Calport Asset Management, Inc. (since
1992); formerly Distinguished University Professor and Director,
Pepperdine University (from Sept. 1985 to May 1988) and
Professor of Business Economics, University of Southern
California (1976 to 1984).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AND
NAME, POSITION AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF TRUST
- ------------------------------- ---------------------------------------------------------------- ---------------
<S> <C> <C>
CHARLES E. YOUNG, Trustee Chancellor, UCLA (1968-1997); Director, Nicholas- Applegate
() (2) Fund, Inc. (since 1992); 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).
ARTHUR E. NICHOLAS, Trustee ()* Trustee and Chairman of the Board of Trustees of the Master
Trust; Managing Partner and Chief Investment Officer,
Nicholas-Applegate Capital Management, since 1984, and
Chairman/President, Nicholas-Applegate Securities.Director and
Chairman of the Board of Directors of Nicholas-Applegate Fund,
Inc., a registered open-end investment company, since 1987.
DANN V. ANGELOFF, Trustee () Trustee of the Master Trust; President, The Angeloff Company,
corporate financial advisers (since 1976); Director,
Nicholas-Applegate Fund, Inc. (since 1987); Trustee (1979 to
1987) and University Counselor to the President (since 1987),
University of Southern California (since 1987); Director, Public
Storage, Inc., a real estate investment trust (since 1980),
Storage Properties, a real estate investment trust (since 1989),
Datametrics Corporation, a producer of computer peripherals and
communication products (since 1993), SEDA Specialty Packaging,
Inc. (since 1993), and Leslies Poolmart, a distributor of
swimming pool services and products (since 1996).
WALTER E. AUCH, Trustee ()*(4) Trustee of the Master Trust; 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 Advisors 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).
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AND
NAME, POSITION AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION % OF TRUST
- ------------------------------- ---------------------------------------------------------------- ---------------
<S> <C> <C>
THEODORE J. COBURN, Trustee () Trustee of the Master Trust; Partner, Brown, Coburn & Co., an
investment banking firm (since 1991), and research associate,
Harvard Graduate School of Education (since 1996); Director,
Nicholas-Applegate Fund, Inc. (since 1987), Emerging Germany
Fund (since 1991), Moovies, Inc. (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 ()*(5) Trustee of the Master Trust; President and Founder, DeRemer
Associates, a marketing consultant for the financial services
industry (since 1987); Vice President, PBNG Funds, Inc. (since
1995); 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, Jurika & Voyles Fund Group (since 1994),
Nicholas-Applegate Strategic Opportunities Ltd. (since 1994),
Nicholas-Applegate Securities International (since 1994),and
King's Wood Montessori School (since 1995); Member of Advisory
Board, Financial Women's Association (since 1995).
GEORGE F. KEANE, Trustee () Trustee of the Master Trust;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, Investor Responsibility Research Center (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).
</TABLE>
- ------------------------
(1) Shares beneficially owned by the person constitute less than 1% of the
Trust's outstanding shares.
(2) Member of the Trust's Audit Committee and Nominating Committee.
16
<PAGE>
(3) Mr. Laffer will be considered to be an "interested person" of the Trust
because A.B. Laffer, V.A. Canto & Associates received substantial
compensation from the Investment Adviser for consulting services provided
from time to time to the Investment Adviser, and because during the last two
fiscal years his son was an employee of the Investment Adviser.
(4) Mr. Auch will be considered to be an "interested person" of the Trust
because he is on the board of a company a subsidiary of which is a
broker-dealer.
(5) Ms. DeRemer will be considered to be an "interested person" of the Trust
because DeRemer Associates received substantial compensation from the
Investment Adviser for consulting services provided in connection with its
institutional business.
The Board of Trustees of the Trust met 4 times during the fiscal year ended
March 31, 1997. All of the Trustees attended at least 75% of the meetings.
The members of the Audit Committee of the Board of Trustees of the Trust,
neither of whom is affiliated with the Investment Advisor, oversee and review
the audit procedures of the Trust and assist the Board in fulfilling its
responsibilities relating to Trust accounting and reporting practices. During
the fiscal year ended March 31, 1997, the Audit Committee held 2 meetings. The
same persons serve as members of the Nominating Committee of the Board of
Trustees, and are responsible for nominating persons to fill vacancies on the
Board. The Nominating Committee did not meet during the fiscal year ended March
31, 1997. F
OFFICERS OF THE TRUST
The following table indicates, as to each executive officer of the Trust,
his or her name, position with the Trust, principal occupational during the past
five years, other directorships held in public companies and the number of
shares of the Trust beneficially owned at the Record Date.
<TABLE>
<CAPTION>
SHARES
OWNED
BENEFICIALLY
AND % OF
NAME AND POSITION AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION TRUST
- ----------------------------- --- ---------------------------------------------------------------- -------------------
<S> <C> <C> <C>
JOHN D. WYLIE President of the Master Trust; Partner (since January 1994),
President Chief Investment Officer--Investor Services Group (since
December 1995), and Portfolio Manager (since January 1990),
Nicholas-Applegate Capital Management.
THOMAS PINDELSKI Chief Financial Officer of the Master Trust; Partner (since
Chief Financial Officer 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).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SHARES
OWNED
BENEFICIALLY
AND % OF
NAME AND POSITION AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION TRUST
- ----------------------------- --- ---------------------------------------------------------------- -------------------
<S> <C> <C> <C>
PETER J. JOHNSON Vice President of the Master Trust; Partner and Director--Client
Vice President 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).
E. BLAKE MOORE, JR. Secretary of the Master Trust; General Counsel and Secretary,
Secretary Nicholas-Applegate Capital Management and Nicholas-Applegate
Securities (since 1993); formerly Attorney, Luce, Forward,
Hamilton & Scripps (from 1989 to 1993).
</TABLE>
- ------------------------
(1) Shares beneficially owned constitute less than 1% of the Trust's outstanding
shares.
REMUNERATION OF TRUSTEES AND OFFICERS
Each Trustee of the Trust and the Master Trust who is not an officer or
affiliate of the Trust, the Investment Adviser or the Distributor receives an
aggregate annual fee of $14,000 for services rendered as a Trustee, and $1,000
for each meeting attended ($2,000 per committee meeting for committee chairmen).
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
and the Master Trust for the fiscal year ended March 31, 1997, 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 or Master 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):
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
AGGREGATE BENEFITS COMPENSATION
COMPENSATION ACCRUED AS ESTIMATED FROM TRUST
FROM TRUST OR PART OF TRUST ANNUAL BENEFITS COMPLEX PAID
NAME MASTER TRUST EXPENSES UPON RETIREMENT TO TRUSTEE
- ---------------------------------------------------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Fred C. Applegate................................... $ 10,635 None N/A $ 36,250(47*)
Arthur B. Laffer.................................... $ 9,558 None N/A $ 31,750(47*)
Charles E. Young.................................... $ 9,827 None N/A $ 31,750(47*)
Dann V. Angeloff.................................... $ 10,635 None N/A $ 36,750(16*)
Walter E. Auch...................................... $ 9,827 None N/A $ 18,250(15*)
Theodore J. Coburn.................................. $ 9,827 None N/A $ 34,250(16*)
Darlene DeRemer..................................... $ 9,558 None N/A $ 17,250(15*)
George K. Keane..................................... $ 9,827 None N/A $ 18,250(15*)
</TABLE>
- ------------------------
* Indicates number of funds in Trust complex.
18
<PAGE>
VOTE REQUIRED
A plurality of votes cast at the Meeting, in person or by proxy, will elect
a Trustee. Election of Trustees is contingent upon completion of the
Reorganization. If for any reason the Reorganization is not completed, the
current Trustees of the Trust will remain in office.
PROPOSAL 4. SELECTION OF INDEPENDENT ACCOUNTANTS
At the meeting, shareholders will be asked to ratify the selection by the
Board of Trustees of the Trust of Ernst & Young L.L.P. as the independent
accountants to the Trust for the fiscal year ended March 31, 1997. Ernst & Young
L.L.P. has acted as independent accountants to the Trust since 1996.
VOTE REQUIRED
The affirmative vote of a majority of the shares of the Trust present in
person or by proxy at the Meeting is required to ratify the selection of Ernst &
Young L.L.P. as independent accountants for the Trust. If for any reason this
Proposal is not approved, the Board of Trustees of the Trust will take such
action as they deem appropriate, which may include retention of another
accounting firm or re-proposal of Ernst & Young L.L.P. to the shareholders of
the Trust.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, management has not
been informed of any matters that will be presented for action at the Meeting
other than the Proposals listed in the Notice of Meeting. If other matters are
properly presented to the Meeting for action, the persons named in the Proxy
will vote or refrain from voting in accordance with their best judgment on those
matters.
NEXT MEETING OF SHAREHOLDERS
The Trust is not required to hold annual or other periodic meetings of
shareholders except as required by the Investment Company Act, and does not
intend to do so. The next meeting of shareholders will be held at such time as
the Board of Trustees of the Trust may determine or at such time as may be
legally required. Any shareholder proposal intended to be presented at such
meeting must be received by the Trust at its office a reasonable time prior to
the meeting, as determined by the Board of Trustees, to be included in the
Trust's proxy statement and form of proxy relating to such meeting, and must
satisfy all other federal and state legal requirements.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made as of
this day of , 199 , by and among Nicholas-Applegate Mutual Funds, a
Delaware business trust (the "Trust") on behalf of the Government Income A, B, C
and Qualified Portfolio series of the Trust (each a "Government Income
Portfolio" and, collectively, the "Government Income Portfolios"), and the Trust
on behalf of the Fully Discretionary Fixed Income Institutional Portfolio series
of the Trust (the "Fully Discretionary Portfolio").
BACKGROUND
WHEREAS, the Government Income Portfolios and the Fully Discretionary
Portfolio are series of the Trust, a registered open-end management investment
company that invests all of the assets of each of its series in corresponding
series of Nicholas-Applegate Investment Trust, a Delaware business trust (the
"Master Trust").
WHEREAS, the series of the Master Trust, including the Government Income
Fund series (the "Government Income Master Fund") and the Fully Discretionary
Fixed Income Fund series (the "Fully Discretionary Master Fund"), will dissolve
and distribute their assets in kind to the corresponding series of the Trust,
including the Government Income Portfolios and the Fully Discretionary
Portfolio, respectively, immediately prior to the transactions contemplated by
this Agreement.
WHEREAS, the Board of Trustees of the Trust (the "Board of Trustees") has
approved and submitted to the shareholders of all A, B, C and Qualified
portfolios of the Trust other than the Government Income Portfolios, and to all
Institutional portfolios of the Trust including the Fully Discretionary
Portfolio (the "Reorganizing Portfolios"), a plan of reorganization (the
"Multi-Class Reorganization") pursuant to which the name of each Institutional
Portfolio of the Trust (including the Fully Discretionary Portfolio) will be
changed to a "Fund" and the current shares of such Portfolio will be renamed as
Class I shares of the Fund; the assets of the A, B, C and Qualified Reorganizing
Portfolios will be transferred to the corresponding Fund in exchange for Class
A, B, C and Qualified shares of the Fund; the shareholders of the A, B, C and
Qualified Reorganizing Portfolios will receive (in exchange for their current
shares) shares of corresponding classes of the corresponding Fund; and the
assets of the Reorganizing Portfolios will be managed pursuant to an Investment
Advisory Agreement between the Trust and Nicholas-Applegate Capital Management
(the "Investment Adviser") rather than by the Master Trust.
WHEREAS, the parties wish to enter into a plan of reorganization (the
"Plan") which will consist, among other things, of creation by the Board of
Trustees of Class A, B, C and Q shares of the Fully Discretionary Fixed Income
Fund (the "Fully Discretionary Fund"); the transfer of assets of the Government
Income A, B, C and Qualified Portfolios to the Fully Discretionary Fund in
exchange for a similar number of Class A, B, C or Q shares of the Fully
Discretionary Fund (the "Fund Shares"); and distribution by the Government
Income Portfolios of the Fund Shares to their shareholders and dissolution of
the Government Income Portfolios.
WHEREAS, the Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), has determined that the Plan is in the
best interests of the shareholders of each Government Income Portfolio and of
the Fully Discretionary Portfolio and that their interests would not be diluted
as a result of the transactions contemplated thereby.
A-1
<PAGE>
AGREEMENT
NOW THEREFORE, in consideration of the agreements contained in this
Agreement, the parties agree as follows:
ARTICLE 1.
MULTIPLE CLASSES OF SHARES
SECTION A. CREATION OF MULTIPLE CLASSES OF SHARES. Effective on the
Closing Date, as defined in Article IV, the Board of Trustees shall establish
four additional classes of shares of the Fully Discretionary Fund designated
Class A, B, C and Q shares.
ARTICLE 2.
TRANSFER OF ASSETS AND LIABILITIES
SECTION A. TRANSFER OF ASSETS/LIABILITIES. Subject to the terms and
conditions set forth herein, on the Closing Date the Trust shall cause the
Government Income Portfolios to transfer all of their assets, including all
assets received from the Government Income Master Fund, to the Fully
Discretionary Fund, and shall cause the Fully Discretionary Fund to assume all
of the liabilities of the Government Income Portfolios. In exchange therefor,
the Trust shall cause the Fully Discretionary Fund to deliver to each Government
Income Portfolio a number of the Fully Discretionary Fund's Class A, B, C or Q
shares, as applicable, which is equal to (i) the aggregate net asset value of
the corresponding Government Income Portfolio determined at the close of
business on the Closing Date, divided by (ii) the net asset value per share of
the respective A, B, C or Q Class of shares of the Fully Discretionary Fund
outstanding as of the Closing Date.
ARTICLE 3.
SHARES OF THE FULLY DISCRETIONARY FUND
SECTION A. LIQUIDATION OF A, B, C AND QUALIFIED PORTFOLIOS. Subject to the
terms and conditions set forth herein, on the Closing Date the Trust shall
liquidate the Government Income Portfolios and shall distribute pro rata to the
shareholders of record of each Government Income Portfolio, determined as of the
Closing Date, the Fund Shares received by such Government Income Portfolio
pursuant to Section 2.1.
SECTION B. ISSUANCE OF SHARE CERTIFICATES. Each Government Income
Portfolio shall accomplish the liquidation and distribution provided for herein
by opening accounts on the books of the Fully Discretionary Fund in the names of
its shareholders and transferring the Fund Shares credited to the account of the
Government Income Portfolio on the books of the Fully Discretionary Fund. As
promptly as practicable after the Closing, each holder of any outstanding
certificate evidencing shares of a Government Income Portfolio shall be entitled
to surrender the same to the Trust's transfer agent and request in exchange
therefor a certificate or certificates representing the number of shares of
beneficial interest of the Class of the Fully Discretionary Fund into which the
shares of beneficial interest theretofore represented by the certificate or
certificates so surrendered shall have been converted. Certificates for
fractional shares of beneficial interests of the Fully Discretionary Fund shall
not be issued, but shall be continued to be carried by the Fully Discretionary
Fund for the open account of such shareholder. Until so surrendered, each
outstanding certificate which, prior to the Closing, represented shares of
beneficial interest of a Government Income Portfolio shall be deemed for all
purposes to evidence ownership of the number of shares of the Class of shares of
beneficial interest of the Fully Discretionary Fund into which the shares of
beneficial interest of such Government Income Portfolio have been converted.
SECTION C. TIME AND DATE OF VALUATION. The number of shares to be issued
by the Fully Discretionary Fund to each Government Income Portfolio shall be
computed as of 4:00 p.m. (Eastern time) on the Closing Date in accordance with
the regular practices of the Trust.
A-2
<PAGE>
ARTICLE 4.
CLOSING AND CLOSING DATE
SECTION A. CLOSING TIME AND PLACE. The Closing Date shall be the date on
which all of the conditions set forth in Article V have been fulfilled or
otherwise waived by the parties hereto but, in any event, not later than March
31, 1998, or such later date as the parties may mutually agree. All acts taking
place on the Closing Date shall be deemed to be taking place simultaneously as
of the close of business on the Closing Date, unless otherwise provided. The
closing shall be held at 4:30 p.m. (Eastern time) at the offices of the Trust,
600 West Broadway, San Diego, California 92101, or such other time and/or place
as the parties may mutually agree.
SECTION B. DELAY OF VALUATION. If on the Closing Date (a) the primary
trading market for portfolio securities of any Government Income Portfolio or
the Fully Discretionary Portfolio is closed to trading or trading thereon is
restricted, or (b) trading or the reporting of trading is disrupted so that an
accurate appraisal of the value of the net assets of any Government Income
Portfolio or the Fully Discretionary Portfolio and an accurate calculation of
the number of shares held by each shareholder is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored.
ARTICLE 5.
CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THE REORGANIZATION
The respective obligations of each party to effect the reorganization
contemplated by this Agreement is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
A. SHAREHOLDER APPROVAL. On or prior to the Closing Date, the shareholders
of each Government Income Portfolio shall have approved the transactions
contemplated by this Agreement in accordance with the provisions of the Trust's
Declaration of Trust and the 1940 Act.
B. CREATION OF MULTIPLE CLASSES. The shareholders of the Trust shall have
taken such actions as may be required in accordance with the provisions of the
Trust's Declaration of Trust and the 1940 Act to permit the creation of the Fund
Shares, and the Board of Trustees shall have established such shares.
C. CLOSING OF MULTI-CLASS REORGANIZATION. The Multi-Class Reorganization
shall have been implemented in accordance with its terms.
D. DISSOLUTION OF MASTER FUNDS. The Government Income Master Fund and the
Fully Discretionary Master Fund shall have dissolved and distributed all of
their assets in kind to the Government Income Portfolios and the Fully
Discretionary Portfolio, respectively.
E. NO INJUNCTIONS OR RESTRAINTS. On the Closing Date, no action, suit or
other proceeding shall be pending before any court or government agency which
seeks to restrain or prohibit or obtain damages or other relief in connection
with this Agreement or the transactions contemplated hereby.
F. CONSENTS. All consents of the other parties and all other consents,
orders and permits of Federal, state and local regulatory authorities deemed
necessary by the Trust and the Master Trust to permit consummation, in all
material respects, of the transactions contemplated herein shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
the Government Income Master Fund, any Government Income Portfolio, the Fully
Discretionary Master Fund, or the Fully Discretionary Fund.
G. EFFECTIVE REGISTRATION STATEMENTS. The N-14 Registration Statement of
the Trust with respect to the reorganization provided for herein and the N-1A
Registration Statement of the Trust with respect to the Fund Shares shall have
become effective and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated.
A-3
<PAGE>
H. TAX OPINIONS. The Trust shall have received an opinion of Paul,
Hastings, Janofsky & Walker LLP substantially to the effect that for Federal
income tax purposes:
(a) No gain or loss will be recognized by any Government Income Portfolio
or the Fully Discretionary Portfolio upon the receipt by the
Government Income Portfolio and the Fully Discretionary Portfolio of
substantially all of the assets of the corresponding Master Fund;
(b) The transfer of substantially all of the assets and liabilities of
each Government Income Portfolio to the Fully Discretionary Fund in
exchange for Fund Shares, and the distribution of those Fund Shares
to the Portfolio shareholders in liquidation of the Portfolio, will
constitute a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended;
(c) No gain or loss will be recognized by the Fully Discretionary Fund
upon the receipt of the assets of a Government Income Portfolio
solely in exchange for Fund Shares;
(d) No gain or loss will be recognized by any Government Income Portfolio
upon the transfer of its assets to the Fully Discretionary Fund in
exchange for Fund Shares or upon the distribution of Fund Shares to
Government Income Portfolio shareholders in exchange for their
Government Income Portfolio shares;
(e) No gain or loss will be recognized by any Government Income Portfolio
shareholders upon exchange of their Government Income Portfolio
shares for Fund Shares;
(f) The tax basis of the assets of each Government Income Portfolio
acquired by the Fully Discretionary Fund will be the same as the tax
basis of such assets to the Government Income Portfolio immediately
prior to the Reorganization;
(g) The tax basis of Fund Shares received by each shareholder of each
Government Income Portfolio pursuant to the Reorganization will be
the same as the tax basis of the Government Income Portfolio shares
held by such shareholder immediately prior to the Reorganization;
(h) The holding period of the assets of each Government Income Portfolio
by the Fully Discretionary Fund will include the period during which
those assets were held by the Government Income Portfolio and the
Government Income Master Fund; and
(i) The holding period of the Fund Shares to be received by each
Government Income Portfolio shareholder will include the period
during which the Government Income Portfolio shares exchanged
therefor were held by such shareholder.
I. COVENANTS, REPRESENTATIONS AND WARRANTIES. Each party shall have
performed all of its covenants set forth in Article VII, and its representations
and warranties set forth in Article VI shall be true and correct in all material
respects on and as of the Closing Date as if made on such date.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
The parties represent and warrant as follows:
SECTION A. STRUCTURE AND STANDING. The Trust represents and warrants that
it is a business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets.
SECTION B. POWER. The Trust represents and warrants that it has full power
and authority to enter into and perform its obligations under this Agreement;
the execution, delivery and performance of this Agreement has been duly
authorized by all necessary action of its Board of Trustees; and this Agreement
constitutes its valid and binding contract enforceable in accordance with its
terms, subject to
A-4
<PAGE>
the effects of bankruptcy, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
SECTION C. LITIGATION. The Trust represents and warrants that no
litigation or administrative proceeding or investigation of or before any court
or governmental body is currently pending against it and, to the best of its
knowledge, none is threatened against it or any of its properties or assets,
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business, it knows of no facts which
might form the basis for the institution of such proceedings, and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
SECTION D. SEC DOCUMENTS. The Trust represents and warrants, on behalf of
the Fully Discretionary Fund, that its N-14 Registration Statement, on its
effective date, insofar as it relates to the Fully Discretionary Fund (i) will
comply in all material respects with the provisions of the Securities Act of
1933 and the 1940 Act, and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION E. THE PORTFOLIO ASSETS. The Trust represents and warrants, on
behalf of each Government Income Portfolio, that on the Closing Date the assets
received by such Government Income Portfolio from the Government Income Master
Fund will be delivered to the Fully Discretionary Fund as provided in Section
2.2 free and clear of all liens, pledges, security interests, charges or other
encumbrances of any nature whatsoever created by the Government Income Portfolio
and without any restriction upon the transfer thereof, except for such
liabilities assumed as provided in Section 2.1.
SECTION F. THE FULLY DISCRETIONARY FUND SHARES. The Trust represents and
warrants, on behalf of the Fully Discretionary Fund, that on the Closing Date
(a) the Class I shares of the Fully Discretionary Fund will be the only
outstanding shares of the Fully Discretionary Fund, all of which will be duly
authorized, validly issued, fully paid and nonassessable; (b) the Fund Shares to
be delivered to the Government Income Portfolios as contemplated in this
Agreement will be duly authorized, validly issued, fully paid and nonassessable;
(c) no shareholder of the Fully Discretionary Fund or any other series of the
Trust has any preemptive right to subscription or purchase in respect thereof;
(d) each Government Income Portfolio will acquire its Fund Shares free and clear
of all liens pledges, security interests, charges or other encumbrances of any
nature whatsoever created by the Fully Discretionary Fund and without any
restriction on the transfer thereof; and (e) the Fund Shares will be duly
qualified for offering to the public in all of the states of the United States
in which such qualification is required or an exemption from such requirement
shall have been obtained.
ARTICLE 7.
COVENANTS
SECTION A. COVENANTS RELATING TO THE CONDUCT OF BUSINESS. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date, each party shall operate its
business in the ordinary course.
SECTION B. PREPARATION OF N-14 REGISTRATION STATEMENT. As soon as
reasonably practicable after the execution of this Agreement, the Trust shall
file an N-14 Registration Statement with respect to the reorganization
contemplated hereby with the United States Securities and Exchange Commission in
form and substance satisfactory to all parties, and shall use its best efforts
to provide that the N-14 Registration Statement becomes effective as promptly as
practicable. As soon as reasonably practicable, the Trust shall also prepare and
file any other related filings required under applicable state securities laws.
SECTION C. AMENDMENT OF N-1A REGISTRATION STATEMENT. As soon as reasonably
practicable after the execution of this Agreement, the Trust shall amend its
N-1A Registration Statement with respect
A-5
<PAGE>
to the Fund Shares contemplated hereby with the United States Securities and
Exchange Commission in form and substance satisfactory to all parties, and shall
use its best efforts to provide that the Amendment becomes effective as promptly
as practicable. As soon as reasonably practicable, the Trust shall also prepare
and file any other related filings required under applicable state securities
laws.
SECTION D. SHAREHOLDERS MEETING. As soon as practicable after the
effective date of the N-14 Registration Statement the Trust shall call a special
meeting of the shareholders of the Government Income Portfolios for the purpose
of considering the reorganization contemplated by this Agreement.
SECTION E. FEES AND EXPENSES. Whether or not this Agreement is
consummated, the Trust shall cause fifty percent (50%) of all costs and expenses
incurred in connection with this Agreement and the transactions contemplated to
be paid by Nicholas-Applegate Capital Management, and the balance by the
Government Income Portfolios pro rata in proportion to their respective net
assets at the Closing.
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
SECTION A. TERMINATION. This Agreement may be terminated by resolution of
the Board of Trustees of the Trust at any time prior to the Closing Date,
whether before or after approval by the shareholders of the Government Income
Portfolios, if
1. circumstances develop that, in the opinion of such Board of Trustees,
make proceeding with the Plan inadvisable; or
2. any approval of the shareholders of the Trust required for the
consummation of the Plan shall not have been obtained; or
3. any governmental body shall have issued an order, decree or ruling
having the effect of permanently enjoining, restraining or otherwise
prohibiting the consummation of this Agreement.
SECTION B. EFFECT OF TERMINATION. In the event of any termination pursuant
to Section 8.1, there shall be no liability for damage on the part of the Trust
or the Board of Trustees.
SECTION C. AMENDMENT. This Agreement may be amended prior to the Closing
Date by the parties at any time before or after approval hereof by the
shareholders of the Trust; provided, however, that after such shareholder
approval there shall not be any amendment that by law requires further approval
by the shareholders without obtaining such further approval.
SECTION D. WAIVER. At any time prior to the Closing Date, any of the terms
or conditions of this Agreement may be waived by the Board of Trustees of the
Trust, if, in their judgment after consultation with legal counsel, such action
or waiver will not have a material adverse effect on the benefits intended under
this Agreement to the shareholders of the Trust.
A-6
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
attested on its behalf by its duly authorized representatives as of the date
first above written.
<TABLE>
<S> <C>
Attest: Nicholas-Applegate Mutual Funds on behalf of
- ------------------------------------ each Government Income Portfolio
By:
--------------------------------------------
John Wylie
PRESIDENT
Attest: Nicholas-Applegate Mutual Funds on behalf of
- ------------------------------------ the Fully Discretionary Fund
By:
--------------------------------------------
John Wylie
PRESIDENT
</TABLE>
A-7
<PAGE>
PRELIMINARY PROSPECTUS
The prospectus contains vital information about the Class A, B and C Shares of
these Funds. For your own benefit and protection, please read it before you
invest, and keep it on hand for future reference.
Please note that these Shares
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or government agency
- - are not guaranteed to achieve their investment objectives
THE HIGH YIELD BOND FUND MAY INVEST WITHOUT LIMITATION IN DEBT SECURITIES RATED
BELOW INVESTMENT GRADE, SOMETIMES REFERRED TO AS "JUNK BONDS." THESE LOWER
RATED SECURITIES ARE SPECULATIVE AND INVOLVE GREATER RISKS, INCLUDING RISK OF
DEFAULT, THAN HIGHER RATED SECURITIES. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS."
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
GLOBAL FUNDS
- --------------------------------------------------------------------------------
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries
US FUNDS
- --------------------------------------------------------------------------------
Large Cap Growth
Core Growth
Value
Emerging Growth
Income & Growth
Balanced Growth
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Fully Discretionary
High Yield Bond
Money Market
, 1998
------------------
THIS PRELIMINARY PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT WITHOUT
NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED
PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO
CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF
SUCH JURISDICTION.
<PAGE>
TABLE OF CONTENTS
OVERVIEW
A FUND BY FUND LOOK AT GOALS, STRATEGIES, RISKS, AND FINANCIAL HISTORY.
GLOBAL FUNDS
- --------------------------------------------------------------------------------
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries
US FUNDS
- --------------------------------------------------------------------------------
Large Cap
Core Growth
Value
Emerging Growth
Income & Growth
Balanced Growth
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Fully Discretionary
High Yield Bond
Money Market
SIMPLIFIED ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Opening an Account
Buying Shares
Signature Guarantees
Exchanging Shares
Selling and Redeeming Shares
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING AND CLOSING AN ACCOUNT IN ANY
FUND
YOUR ACCOUNT
- --------------------------------------------------------------------------------
Transaction Policies
Features and Account Policies
ORGANIZATION AND MANAGEMENT
- --------------------------------------------------------------------------------
Investment Adviser Compensation
Administrator Compensation
Distributor
Portfolio Trades
Investment Objectives
Diversification
Portfolio Teams
DETAILS THAT APPLY TO THE FUNDS AS A GROUP.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
- --------------------------------------------------------------------------------
2
<PAGE>
OVERVIEW
FUND INFORMATION
Concise Fund descriptions begin on the next page. Each description provides the
following information:
INVESTMENT OBJECTIVE
The Fund's particular investment goal.
INVESTMENT STRATEGY
The strategy the Fund intends to use in pursuing the investment objective.
PRINCIPAL INVESTMENTS
The primary types of securities in which the Fund invests. Secondary
investments are described in "Risk Factors and Special Considerations" at the
end of the prospectus.
RISK FACTORS
The major risk factors associated with the Fund. Other risk factors are also
described in "Risk Factors and Special Considerations."
INVESTOR EXPENSES
The overall costs borne by an investor in the Class A, B and C Shares, including
sales charges and annual expenses.
FINANCIAL HIGHLIGHTS
A table showing the financial performance for each predecessor Portfolio since
inception.
GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS
The Nicholas-Applegate Mutual Funds (the "Trust") are designed to provide
investors with a well rounded investment program by offering investors various
portfolios each with different investment objectives and policies (each a
"Fund"). The Class A, B and C Shares of each Fund represent interests in a
diversified, open-end management investment company (a mutual fund).
Each Fund employs its own strategy and has its own risk/reward profile. Because
you could lose money by investing in these Funds, be sure to read all risk
disclosures carefully before investing.
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS
- - those are investing for long term goals
- - those want higher potential for gain but who are willing to accept higher
risks associated with investing in foreign companies
- - those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS
- - those who are investing with a shorter time frame
- - those who are uncomfortable with an investment that will go up and down in
value
- - those who are unable to accept the special risks associated with foreign
investing
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS
- - those who are investing for retirement or other long term goals
- - those who desire current income
- - those who want a high level of liquidity
- - those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS
- - those who are investing with a shorter time frame
- - those who are uncomfortable with an investment that will go up and down in
value
- - those who are unable to accept the special risks associated with foreign
investing
THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
investment adviser to the Funds. Arthur E. Nicholas and 14 other partners with
a staff of approximately 400 employees currently manage over $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.
3
<PAGE>
INTERNATIONAL CORE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout the world,
and systematic disciplines to uncover signs of "change at the margin" - positive
business developments which are not yet fully reflected in a company's stock
price. It gathers financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
The Fund invests in the larger capitalized companies in each country.
Generally, this means issuers in each country whose market capitalizations are
in the top 75% of publicly traded companies as measured by capitalizations in
that country. Under normal conditions, the Fund invests at least 65% of its
total assets in securities of issuers located in at least three countries
outside the U.S. The Fund may invest up to 35% of its total assets in U.S.
issuers.
Under normal conditions, the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of foreign companies
and foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete listing of the portfolio
team, see "Portfolio Teams" on page __.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic
conditions. As with any international fund, performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the
Fund invests. For further explanation, see "Risk Factors and Special
Considerations" starting on page __.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------
CLASS A CLASS B CLASS C
--------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- ---------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- ---------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) None(1) 5.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ---------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ---------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.70% 0.85% 0.85%
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.95% 2.60% 2.60%
--------------------------------
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund Class. For
Portfolios A,B & C, Total operating expenses would have been 1,475%, 4,405%
and 25.55% respectively and Other expenses would have been 16,000%, 4,580%
and 23.80% respectively, absent the deferral. See "Investment Adviser
Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
4
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $71 $111 $152 $268
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $78 $113 $161 $293
Assuming no redemption $26 $81 $138 $293
- ----------------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $37 $81 $138 $293
Assuming no redemption $26 $81 $138 $293
------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997. Please read in conjunction with the Trust's
1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
---------------------------------------------------------------------------
2/28/97 TO 4/1/97 TO 2/28/97 TO 4/1/97 TO 2/28/97 TO 4/1/97 TO
3/31/97 9/30/97 3/31/97 9/30/97 3/31/97 9/30/97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.73 $12.50 $12.68 $12.50 $12.68
Income from investment operations:
Net investment income (deficit) -- (0.02) -- (0.04) -- (0.75)
Net realized and unrealized gains (losses)
on securities and foreign currency 0.23 3.40 0.18 3.44 0.18 4.06
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.23 3.38 0.18 3.40 0.18 3.31
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.73 $16.11 $12.68 $16.08 $12.68 $15.99
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 1.76% 26.65% 1.44% 26.22% 1.44% 26.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,642 $3,020 $1,027 $4,987 $43,075 $1,128,037
Ratio of expenses to average net assets,
after expense reimbursement++ 1.95%* 1.96%* 2.59%* 2.61%* 2.41%* 2.61%*
Ratio of expenses to average net assets,
before expense reimbursement+ 4,580%* 4.94%* 16,000%* 6.85%* 25.55%* 8.63%*
Ratio of net investment income (deficit) to
average net assets, after expense reimbursement++ -- (0.41%)* -- (1.08%)* (0.7%)* (1.03%)*
Ratio of net investment income (deficit) to average
net assets, before expense reimbursement++ (4,577%)* (3.39%)* (15,998%)* (5.33%)* (291.20%)* (7.05%)*
Portfolio turnover** 75.53% 75.53% 75.53%
Average commission rate paid** $0.0106 $0.016 $0.016
---------------------------------------------------------------------------
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
5
<PAGE>
WORLDWIDE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout the world,
and systematic disciplines to uncover signs of "change at the margin" - positive
business developments which are not yet fully reflected in a company's stock
price. It gathers financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries, one of
which may be the U.S. The Fund may invest up to 50% of its total assets in U.S.
issuers.
Under normal conditions the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests
the remainder in investment grade debt securities of foreign companies and
foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
The securities of small, less well-known companies may be more volatile than
those of larger companies. As with any international fund, performance also
depends upon changing currency values, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. The risks are magnified in countries with emerging markets, since
these countries may have unstable governments and less established markets. For
a further explanation, see "Risk Factors and Special Considerations" starting on
page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------
CLASS A CLASS B CLASS C
--------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- ---------------------------------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- ---------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower) None (1) 5.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ---------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES AS A PERCENTAGE OF
AVERAGE NET ASSETS: (AFTER EXPENSE DEFERRAL)
Management fees 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ---------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)2 1.85% 2.50% 2.50%
--------------------------------
</TABLE>
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A,B & C,
Total operating expenses would have been 2.17%, 4.81% and 2.61%
respectively and Other expenses would have been .92%, 3.06% and .86%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $70 $108 $147 $258
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $77 $110 $156 $284
Assuming no redemption $25 $78 $133 $284
- ----------------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $36 $78 $133 $284
Assuming no redemption $25 $78 $133 $284
------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B
--------------------------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $14.94 $14.29 $16.57 $16.88 $12.50 $14.34 $16.02
Income from investment operations:
Net investment income (deficit) (0.07) (0.05) (0.07) (0.16) 0.01 (0.05) (0.14) (0.05)
Net realized and unrealized gains
(losses)
on securities and foreign 2.51 (0.09) 2.86 2.20 4.38 1.89 1.82 4.19
currency
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.44 (0.14) 2.79 2.04 4.39 1.84 1.68 4.14
Less distributions:
Dividends from net investment income -- (0.02) (0.12) -- -- -- -- --
Distributions from capital gains -- (0.49) (0.39) (1.73) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.94 $14.29 $16.57 $16.88 $21.27 $14.34 $16.02 $20.16
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 19.52% (0.90%) 19.79% 12.51% 26.01% 14.72% 11.72% 25.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $20,194 $22,208 $23,481 $24,022 $33,337 $1,972 $5,942 $9,160
Ratio of expenses to average net assets,
after expense reimbursement++ 1.85%* 1.85% 1.85% 1.85% 1.86%* 2.50%* 2.50% 2.51%*
Ratio of expenses to average net assets,
before expense reimbursement+ 2.23%* 2.18% 2.17% 2.17% 2.11%* 9.50%* 4.81% 3.70%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement++ (0.69%)* (O.42%) (0.35%) (0.93%) (0.35%)* (1.28%)* (1.62%) (1.03%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement++ (1.07%)* (0.75%) (0.61%) (1.18%) (0.60%)* (8.12%)* (3.87%) (2.22%)*
Portfolio turnover** 95.09% 98.54% 132.20% 181.81% 132.20% 181.81%
Average commission rate paid** N/A N/A $0.0187 $0.0078 $0.0187 $0.0078
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
PORTFOLIO C
----------------------------------------------------
4/19/93 4/19/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET asset value, beginning of period $12.50 $14.86 $14.44 $16.76 $16.92
Income from investment operations:
Net investment income (deficit) (0.09) (0.15) (0.21) (0.28) (0.10)
Net realized and unrealized gains
(losses)
on securities and foreign currency 2.45 (0.08) 2.92 2.23 4.43
- -------------------------------------------------------------------------------------------------
Total from investment operations 2.36 (0.23) 2.71 1.95 4.33
Less distributions:
Dividends from net investment income -- -- (0.01) -- --
Distributions from capital gains -- (0.19) (0.38) (1.79) --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $14.86 $14.44 $16.76 $16.92 $21.25
- -------------------------------------------------------------------------------------------------
TOTAL RETURN+: 18.88% (1.49%) 18.95% 11.81% 25.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $66,577 $71,201 $71,155 $70,345 $86,109
Ratio of expenses to average net assets,
after expense reimbursement++ 2.44%* 2.50% 2.50% 2.50% 2.51%*
Ratio of expenses to average net assets,
before expense reimbursement+ 2.44%* 2.57% 2.57% 2.61% 2.67%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement++ (1.24%)* (1.06%) (0.99%) (1.57%) (1.01%*)
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement++ (1.24%)* (1.13%) (1.00%) (1.62%) (1.17%)*
Portfolio turnover** 95.09% 98.54% 132.20% 181.81%
Average commission rate paid** N/A N/A $0.0187 $0.0078
</TABLE>
* Annualized
** for Corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
7
<PAGE>
INTERNATIONAL SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout the world,
and systematic disciplines to uncover signs of "change at the margin" - positive
business developments which are not yet fully reflected in a company's stock
price. It gather financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
The Fund emphasizes companies in the bottom 75% of publicly traded companies as
measured by market capitalizations in each country ("small cap securities").
The Fund may have less U.S. exposure (up to 35% of its total assets in U.S.
issuers) than the Worldwide Growth Fund.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests 65% of its total assets in small cap
securities of issuers located in at least three different countries outside the
U.S. Under normal conditions, the Fund invests at least 75% of its total assets
in common and preferred stock, warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of foreign companies
and foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
As with any international fund, the Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. In
addition to the risks posed by foreign investing, the securities of smaller,
less well-known companies may be more volatile than larger companies and may
trade less frequently. The information regarding these smaller companies may
also be less available, incomplete or inaccurate. Accordingly, the securities
of the companies in which the Fund invests may be more volatile and speculative
than those of larger companies. The risks are magnified in countries with
emerging markets since these countries may have unstable governments and less
established markets. For further explanation, see "Risk Factors and Special
Considerations" starting on page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown
<TABLE>
<CAPTION>
------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -----------------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -----------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of
original purchase price or redemption proceeds,
whichever is lower) None (1) 5.00% 1.00%
- -----------------------------------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES AS A PERCENTAGE
OF AVERAGE NET ASSETS: (AFTER EXPENSE DEFERRAL)
Management fees 1.00% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.70% 0.85% 0.85%
- -----------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.95% 2.60% 2.60%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A, B &
C, Total operating expenses would have been 3.76%, 4.89% and 3.95%
respectively and Other expenses would have been 2.51%, 3.14% and 2.20%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $71 $111 $152 $268
- ---------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $78 $113 $161 $293
Assuming no redemption $26 $81 $138 $293
- ---------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $37 $81 $183 $293
Assuming no redemption $26 $81 $183 $293
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1.) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report
<TABLE>
<CAPTION>
PORTFOLIO A PORTFOLIO B
-------------------------------------------------------------------------------------------------
8/31/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $12.50 $11.51 $13.15 $14.92 $12.50 $13.96 $15.89
Income from investment
operations:
Net investment
income (deficit) -- (0.02) 0.04 (0.01) (0.02) (0.15) (0.06)
Net realized and
unrealized gains
(losses) on
securities and
foreign currency (0.98) 1.79 1.88 3.09 1.48 2.09 3.31
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.98) 1.77 1.92 3.08 1.46 1.94 3.25
Less distributions:
Dividends from net
investment income (0.01) (0.13) (0.01) -- -- (0.01) --
Distributions from
capital gains -- -- (0.14) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.51 $13.15 $14.92 $18.00 $13.96 $15.89 $19.14
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (7.85%) 15.46% 14.67% 20.64% 11.68% 13.96% 20.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $610 $1,056 $5,569 $11,212 $1,487 $5,080 $8,780
Ratio of expenses to
average net assets,
after expense
reimbursement++ 1.95%* 1.95% 1.95% 1.96%* 2.60%* 2.60% 2.61%*
Ratio of expenses to
average net assets,
before expense
reimbursement+ 9.77%* 10.06% 3.76% 2.85%* 16.15%* 4.89% 3.56%*
Ratio of net investment
income (deficit) to
average net assets, after
expense reimbursement++ (0.07%)* (0.27%) (1.05%) (0.81%)* (0.64%) (1.66%) (1.94%)*
Ratio of net investment
income (deficit) to
average net assets, before
expense reimbursement++ (7.89%)* (7.75%) (2.82%) (1.70%)* (13.26%)* (3.91%) (2.42%)*
Portfolio turnover** 74.85% 141.02% 206.07% 141.02% 206.07%
Average commission rate
paid** N/A $0.128 $0.0098 $0.0128 $0.0098
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
PORTFOLIO C
----------------------------------------------------
8/31/94 4/1/95 4/1/96 4/1/97
TO TO TO TO
3/31/95 3/31/96 3/31/97 9/30/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $11.32 $13.05 $14.87
Income from investment operations:
Net investment income (deficit) (0.04) 0.01 (0.16) (0.13)
Net realized and unrealized gains
(losses) on securities and foreign
currency (1.12) 1.72 1.98 3.15
- ------------------------------------------------------------------------------------------------
Total from investment operations (1.16) 1.73 1.82 3.02
Less distributions:
Dividends from net investment income (0.02) -- -- --
Distributions from capital gains -- -- -- --
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $11.32 $13.05 $14.87 $17.89
- ------------------------------------------------------------------------------------------------
TOTAL RETURN+: (9.25%) 15.30% 13.98% 20.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $24 $933 $3,592 $5,135
Ratio of expenses to average net assets,
after expense reimbursement++ 2.61%* 2.60% 2.60% 2.61%*
Ratio of expenses to average net assets,
before Expense reimbursement+ 75.37%* 16.15% 3.95% 3.29%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement++ (0.76%)* (1.02%) (1.67%) (1.46%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement++ (73.52%)* (13.95%) (2.99%) (2.15%)*
Portfolio turnover** 74.85% 141.02% 206.07%
Average commission rate paid** N/A $0.128 $0.0098
</TABLE>
* Annualized
** for corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
9
<PAGE>
EMERGING COUNTRIES FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests primarily in equity securities of issuers located in countries
with emerging securities markets - that is, countries with securities markets
which are, in the opinion of the Investment Adviser, emerging as investment
markets but have yet to reach a level of maturity associated with developed
foreign stock markets, especially in terms of participation by foreign
investors. The Investment Adviser seeks issuers in the early stages of
development, growth companies, cyclical companies, or companies believed to be
undergoing a basic change in operations. The Investment Adviser currently
selects portfolio securities from an investment universe of approximately 6,000
foreign issuers in over 20 emerging markets.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries. These
countries include but are not limited to: Argentina, Brazil, Chile, China,
Columbia, the Czech Republic, Greece, Hungary, India, Indonesia, Israel, Jordon,
Malaysia, South Africa, South Korea, Taiwan, Thailand, Italy and Venezuela.
Under normal market conditions, the Fund invests at least 75% of its total
assets in corporate stock (common and preferred), warrants and convertible
securities. It invests the remainder primarily in investment grade bonds of
foreign companies and foreign governments, and their agencies and
instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
As with any fund investing in foreign securities, the Fund's performance also
depends upon changing currency values, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. Emerging countries markets may present greater opportunity for gain,
but also involve greater risk than more developed markets. These countries tend
to have less stable governments and less established markets. The markets tend
to be less liquid and more volatile, and offer less regulatory protection for
investors. The economies of emerging countries may be predominantly based on
only a few industries or dependent on revenue from particular commodities,
international aid or other assistance. For further explanation, see "Risk
Factors and Special Considerations" starting on page __.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. The figures below
show the expenses for each Portfolio and its corresponding Fund for the past
year. Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None (1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.25% 1.25% 1.25%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.75% 0.90% 0.90%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 2.25% 2.90% 2.90%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A,B & C,
Total operating expenses would have been 3.08%, 3.66% and 3.12%
respectively and Other expenses would have been 1.58%, 1.66% and 1.12%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $74 $119 $167 $297
- ----------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period1 $80 $122 $75 $322
Assuming no redemption $29 $90 $153 $322
- ----------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period1
Assuming no redemption $40 $90 $153 $322
$29 $90 $153 $322
- ----------------------------------------------------------------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1.) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B
--------------------------------------------------------------------------------------------------
11/28/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $12.50 $11.00 $14.03 $17.20 $12.50 $14.02 $17.29
Income from investment
operations:
Net investment
income (deficit) 0.04 (0.04) (0.06) 0.02 (0.04) (0.11) (0.01)
Net realized and
unrealized gains
(losses) on securities
and foreign currency (1.54) 3.15 3.51 3.23 1.56 3.47 3.23
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (1.50) 3.11 3.45 3.25 1.52 3.36 3.22
Less distributions:
Dividends from net
investment income -- (0.02) -- -- -- -- --
Distributions from
capital gains -- (0.06) (0.28) -- -- (0.09) --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.00 $14.03 $17.20 $20.45 $14.02 $17.29 $20.51
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (11.98%) 28.43% 24.79% 18.90% 12.16% 24.00% 18.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,197 $4,718 $38,688 $61,710 $3,557 $24,558 $41,847
Ratio of expenses to
average net assets,
after expense
reimbursement++ 2.25%* 2.25% 2.25% 2.26%* 2.90%* 2.90% 2.91%*
Ratio of Expenses to
average net assets,
before expense
reimbursement+ 6.15%* 6.72% 3.08% 2.33%* 7.58%* 3.66% 3.18%*
Ratio of net investment
income (deficit) to
average net assets, after
expense reimbursement++ 1.09%* (0.35%) (1.14%) (0.05%)* (1.05%)* (1.77%) (0.71%)*
Ratio of net investment
income (deficit) to
average net assets,
before expense
reimbursement++ (4.99%)* (3.61%) (2.00%) (0.12%)* (5.44%)* (2.55%) (0.98%)*
Portfolio turnover** 60.79% 118.21% 176.20% 118.21% 176.20%
Average commission
rate paid** N/A $0.0022 $0.0021 $0.0022 $0.0021
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
PORTFOLIO C
------------------------------------------------------
11/28/94 4/1/95 4/1/96 4/1/97
TO TO TO TO
3/31/95 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $12.50 $10.79 $13.71 $16.81
Income from investment operations:
Net investment income (deficit) -- (0.05) (0.10) (0.08)
Net realized and unrealized gains
(losses) on securities and foreign
currency (1.70) 2.97 3.37 3.22
- ------------------------------------------------------------------------------------------------
Total from investment operations (1.70) 2.92 2.27 3.14
Less distributions:
Dividends from net investment income (0.01) -- -- --
Distributions from capital gains -- -- (0.17) --
Net asset value, end of period $10.79 $13.71 $16.81 $19.95
TOTAL RETURN+: (13.64%) 27.30% 23.94% 18.68%
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------
Net assets, end of period $59 $4,345 $29,376 $47,051
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
after expense reimbursement++ 2.90%* 2.90% 2.90% 2.91%*
Ratio of Expenses to average net assets,
before expense reimbursement+ 242.59% 6.23% 3.12% 2.99%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (0.04%)* (1.06%) (1.75%) (0.70%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (239.73%)* (4.15%) (1.99%) (0.78%)*
Portfolio turnover** 60.79% 118.21% 176.20%
Average commission rate paid** N/A $0.0022 $0.0021
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
11
<PAGE>
LARGE CAP GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin" - positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes equity securities of U.S. companies with market
capitalizations generally above $3 billion and whose earnings and stock prices
are expected to grow faster than the S&P 500 ("large cap securities").
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
large cap securities, including common and preferred stocks, warrants, and
convertible securities of U.S. companies. It invests the remainder of its
assets primarily in investment grade corporate debt securities, U.S. Government
securities, and securities of foreign issuers. The Fund may also use options
and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets as well as in response to the activities
of individual companies. To the extent the Fund is overweighted in certain
market sectors compared to the S&P 500, the Fund may be more volatile than the
S&P 500. Additionally, to the extent the Fund invests in foreign issuers, the
risks and volatility are magnified since the performance of foreign stocks also
depends on changes in foreign currency values, different regulatory and
political environments, and overall political and economic conditions in
countries where the Fund invests. For further explanation, see "Risk Factors
and Special Considerations" starting on page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None (1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 0.60% 2.25% 2.25%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A,B & C,
Total operating expenses would have been 2.31%, 2.96% and 2.96%
respectively and Other expenses would have been 1.31%, 1.46% and 1.46%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ----------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $74 $103 $143 $258
Assuming no redemption $23 $70 $120 $258
- ----------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $33 $70 $116 $250
Assuming no redemption $23 $70 $116 $250
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997. Please read in conjunction with the Trust's
1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
-----------------------------------------------------------------------------------
7/21/97 4/1/97 7/21/97 4/1/97 7/21/97 4/1/97
TO TO TO TO TO TO
9/30/97 9/30/97 9/30/97 9/30/97 9/30/97 9/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.50 $12.50
Income from investment operations:
Net investment income (deficit) (0.01) (0.02) 0.00
Net realized and unrealized gains
(losses) on securities and foreign
currency 0.92 0.90 0.90
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $13.41 $13.38 $13.40
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.41 $13.38 $13.40
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (38.11%) 37.51% 37.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $331,199 $1,134,885 $160,692
Ratio of expenses to average
net assets, after expense
reimbursement++ 1.60%* 2.24%* 2.24%*
Ratio of expenses to average
net assets, before expense
reimbursement+ 4.89%* 5.09%* 6.26%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (0.63%)* (1.25%)* (1.27%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (3.92%)* (4.10%)* (5.29%)*
Portfolio turnover** 269.87% 269.87% 269.87%
Average commission rate paid** $0.0599 $0.0599 $0.0599
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
13
<PAGE>
CORE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin" - positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations above $500 million.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder of its assets primarily in preferred
and convertible securities, investment grade debt securities, and securities
issued by the U.S. Government and its agencies and instrumentalities. The Fund
may invest up to 20% of its total assets in foreign securities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. The companies in which the Fund
invests may be more subject to volatile market movements than securities of
larger, more established companies. To the extent the Fund invests in foreign
securities, the risks and volatility are magnified since the performance of
foreign stocks also depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations" starting on page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of
original purchase price or redemption proceeds,
whichever is lower) None (1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.64%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 1.60% 2.25% 2.17%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge
may be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class B, Total
operating expenses would have been 2.66%, and Other expenses would have
been 1.16%, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ----------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1)
Assuming no redemption $74 $23 $103 $70
$143 $120 $258 $258
- ----------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1)
Assuming no redemption $32 $23 $70 $70
$120 $120 $258 $258
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1.) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The figures have been audited by Ernst & Young L.L.P. with respect to the fiscal
year ended March 31, 1996, and 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B
-----------------------------------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO ` TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NEt asset value, beginning
of period $12.50 $13.25 $13.61 $18.37 $16.80 $12.50 $16.25 $16.33
Income from investment
operations:
Net investment income
(deficit) (0.07) (0.10) (0.18) (0.17) (0.10) (0.09) (0.17) (0.11)
Net realized and
unrealized gains (losses)
on securities and foreign
currency 0.86 0.46 4.94 0.57 5.16 3.84 0.25 4.97
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.79 (0.36) 4.76 0.40 5.06 3.75 0.08 4.86
Less distributions:
Dividends from net
investment income -- -- -- -- -- -- -- --
Distributions from
capital gains (0.04) -- -- (1.97) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.25 $13.61 $18.37 $16.80 $21.86 $16.25 $16.33 $21.19
- ------------------------------------------------------------------------------------------------------------------------------
Total return+: 6.27% 2.72% 35.07% 1.09% 30.12% 30.00% (0.49%) 29.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $70,512 $65,292 $77,275 $76,108 $94,794 $11,186 $29,002 $41,071
Ratio of expenses to
average net assets, after
expense reimbursement++ 1.57%* 1.59% 1.58% 1.60% 1.59%* 2.22%* 2.25% 2.24%*
Ratio of Expenses to average
net assets, before expense
reimbursement+ 1.71%* 1.63% 1.56% 1.56% 1.72%* 3.39%* 2.66% 2.28%*
Ratio of net investment
income (deficit) to
average net assets, after
expense reimbursement++ (0.68%)* (0.66%) (0.0.91%) (1.05%) (0.83%)* (1.61%)* (1.69%) (1.48%)*
Ratio of net investment
income (deficit) to
average net assets, before
expense reimbursement++ (0.82%)* (0.70%) (0.89%) (1.01%) (0.95%)* (2.77%)* (2.10%) 1.53%)*
Portfolio turnover** 84.84% 98.09% 114.48% 153.20% 114.48% 153.20%
Average commission rate paid** N/A N/A $0.0593 $0.0582 $0.0593 $0.0582
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
PORTFOLIO C
--------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.18 $13.45 $18.06 $1.48
Income from investment operations:
Net investment income (deficit) (0.11) (0.17) (0.27) (0.32) (0.13)
Net realized and unrealized gains
(losses)
on securities and foreign currency 0.80 0.44 4.88 0.62 5.03
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 0.69 0.27 4.61 0.30 4.90
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from capital gains (0.01) -- -- (1.88) --
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.18 $13.45 $18.06 $16.48 $21.38
- ---------------------------------------------------------------------------------------------------------------
Total return+: 5.54% 2.05% 34.28% 0.56% 29.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $141,489 $143,390 $177,461 $157,501 $183,697
Ratio of expenses to average
net assets, after expense
reimbursement++ 2.17%* 2.24% 2.14% 2.14% 2.26%*
Ratio of Expenses to average
net assets, before expense
reimbursement+ 2.17%* 2.24% 2.14% 2.17% (1.49%)*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (1.30%)* (1.30%) (1.47) (1.59%) (1.58%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (1.30%)* (1.30%) (1.47%) (1.62%)
Portfolio turnover** 84.84% 98.09% 114.48% 153.20%
Average commission rate paid** N/A N/A $0.0593 $0.0582
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's Sales charges
++ Includes expenses allocated from Master Trust
15
<PAGE>
VALUE FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin" - positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations generally above $5
billion.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities. It invests the remainder primarily in preferred and
convertible securities, investment grade debt securities, and securities issued
by the U.S. Government and its agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
The Fund's portfolio is designed to have risk, capitalization and industry
characteristics similar to those of the S&P 500 Index.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
As with any equity fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. To the extent the Fund invests in
foreign securities, the risks and volatility are magnified since the performance
of foreign stocks depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations" starting on page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None (1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A, B & C,
Total operating expenses are expected to be 2.25%, 2.85% and 2.85%
resspectively, and Other expenses are expected to be 1.50%, 2.10% and 2.10%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
---------------------
1 Year 3 Years
---------------------
CLASS A $68 $100
- ---------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1)
Assuming no redemption $74 $103
$23 $70
- ---------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1)
Assuming no redemption $32 $70
$23 $70
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
17
<PAGE>
EMERGING GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin" - positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations below $500 million at
the time of purchase.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder primarily in preferred and convertible
securities, investment grade debt securities, and securities issued by the U.S.
Government and its agencies and instrumentalities. The Fund may invest up to
20% of its total assets in foreign securities. The Fund may also use options
and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. Although small-cap stocks have a
history of long-term growth, they tend to be more volatile and speculative than
stocks of larger, more established companies. To the extent the Fund invests in
foreign issuers, the investment risks and volatility are magnified since the
performance of foreign stocks depends on changes in foreign currency values,
different political and regulatory environments, and the overall political and
economic conditions in the foreign countries where the Fund invests. For
further explanation, see "Risk Factors and Special Considerations" starting on
page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None (1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.47% 0.85% 0.60%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 1.72% 2.60% 2.35%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class B Total
operating expenses would have been 2.73%, and Other expenses would have
been .98%, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
18
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $69 $104 $142 $247
- ---------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1)
Assuming no redemption $78 $113 $161 $293
$26 $81 $138 $293
- ---------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1)
Assuming no redemption $36 $79 $136 $289
$26 $79 $136 $289
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Portfolio A Portfolio B
------------------------------------------------------------------------------------------------
12/27/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $12.50 $12.10 $13.06 $17.93 $15.15 $12.50 $16.69 $15.51
Income from Investment
operations:
Net investment income
(deficit) (0.04) (0.16) (0.20) (0.22) (0.02) (0.14) (0.21) (0.11)
Net realized and
unrealized gains (losses)
on securities and
foreign currency (0.36) 1.12 5.09 (0.66) 6.95 4.33 (0.97) 7.14
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.40) 0.96 4.89 (0.88) 6.93 4.19 (1.18) 7.03
Less distributions:
Dividends from net
investment income -- -- -- -- -- -- -- --
Distributions from
capital gains -- -- (0.02) (1.90) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.10 $13.06 $17.93 $15.15 $22.08 $16.69 $15.51 $2.54
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (3.20%) 7.93% 37.48% (6.26%) 45.74% 33.52% (7.07%) 45.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of period $104,838 $106,725 $138,155 $121,742 $211,071 $13,626 $28,030 $49,917
Ratio of expenses to
average net assets, after
expense reimbursement++ 1.73%* 1.86% 1.74% 1.72% 1.96%* 2.58%* 2.61% 2.60%*
Ratio of Expenses to
average net assets, before
expense reimbursement+ 1.80%* 1.84% 1.74% 1.72% 1.90%* 3.26%* 2.73% 2.58%*
Ratio of net investment
income (deficit) to
average net assets, after
expense reimbursement++ (1.44%)* (1.27%) (1.20%) (1.26%) (1.42%)* (2.09%)* (2.13%) (2.09%)*
Ratio of net investment
income (deficit) to
average net assets, before
expense reimbursement++ (1.51%)* (1.25%) (1.20%) (1.26%) (1.36%)* (2.76%)* (2.25%) (2.06%)*
Portfolio turnover** 50.51% 100.46% 129.59% 112.90% 129.59% 112.90%
Average commission
rate paid** N/A N/A $0.0523 $0.0523 $0.0520 $0.0582
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Portfolio C
---------------------------------------------------------------------
12/27/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.07 $12.96 $17.62 $14.69
Income from investment operations:
Net investment income (deficit) (0.06) (0.22) (0.29) (0.31) (0.17)
Net realized and unrealized gains
(losses) on securities and foreign
currency (0.37) 1.11 5.03 (0.63) 6.83
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations (0.43) 0.89 4.74 (0.94) 6.21
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from capital gains -- -- (0.08) (1.99) (1.99)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.07 $12.96 $17.62 $14.69 $21.35
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (3.44%) 7.37% 37.18% (6.81%) 45.34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $142,874 $157,292 $207,332 $182,907 $249,108
Ratio of expenses to average net
assets, after expense
reimbursement++ 2.34%* 2.44% 2.35% 2.35% 2.58%*
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.34%* 2.44% 2.35% 2.35% 2.56%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (2.04%)* (1.85%) (1.81%) (1.89%) (2.05%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (2.04%)* (1.85%) (1.81%) (1.89%) (2.03%)*
Portfolio turnover** 50.51% 100.46% 129.59% 112.90%
Average commission rate paid** N/A N/A $0.0523 $0.0520
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
19
<PAGE>
INCOME & GROWTH FUND
INVESTMENT OBJECTIVE
Maximum total return, consisting of long-term capital appreciation and current
income.
INVESTMENT STRATEGY
The Fund invests primarily in convertible securities. The Investment Adviser
evaluates each security's investment characteristics as a fixed income
instrument as well as its potential for capital appreciation. In evaluating
convertibles, the Investment Adviser searches for what it calls "changes at the
margin" -- positive business developments which are not yet fully reflected in
the company's stock price. It searches for successful growing companies that
are managing change advantageously and poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
convertible securities. It invests the remainder primarily in common and
preferred stocks, debt securities, and securities issued by the U.S. Government
and its agencies and instrumentalities. The Fund may also use options and
futures contracts as hedging techniques.
At all times, the Fund invests a minimum of 25% of its total assets in common
and preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its assets in debt securities
rated below investment grade.
The Fund emphasizes companies with market capitalizations above $500 million.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page __.
RISK FACTORS
Convertible securities have the investment characteristics of both equity and
debt securities. Accordingly, the value of your investment will fluctuate with
movements in the stock and bond markets. The companies in which the Fund
invests may be subject to more volatile market movements than securities of
larger, more established companies. The value of the Fund's debt securities
will change as interest rates fluctuate: if rates go up, the value of debt
securities go down; if rates go down, the value of debt securities go up. In
addition, the lower-rated convertible securities in which the Fund may invest
are considered predominately speculative and are subject to greater volatility
and risk of loss than investment grade securities, particularly in deteriorating
economic periods. For further explanation, see "Risk Factors and Special
Considerations" starting on page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None (1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A, B & C,
Total operating expenses would have been 1.75%, 3.19% and 2.29%,
respectively, and Other expenses would have been .75%, 1.69% and .79%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
20
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1)
Assuming no redemption $74 $103 $143 $258
$23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1)
Assuming no redemption $33 $70 $120 $258
$23 $70 $120 $258
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1.) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Portfolio A Portfolio B
-----------------------------------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $12.50 $14.16 $12.86 $15.68 $16.59 $12.50 $14.96 $16.60
Income from investment
operations:
Net investment income
(deficit) 0.32 0.49 0.48 0.47 0.46 0.24 0.31 0.32
Net realized and
unrealized gains (losses)
on securities and foreign
currency 2.15 (0.89) 2.82 1.64 3.04 2.46 1.64 3.17
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.47 (0.40) 3.30 2.11 2.58 2.70 1.95 2.85
Less distributions:
Dividends from net
investment income (0.32) (0.49) (0.48) (0.48) (0.23) (0.24) (0.31) (0.17)
Distributions from
capital gains (0.49) (0.41) -- (0.72) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.16 $12.86 $15.68 $16.59 $19.86 $14.96 $16.60 $19.92
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 19.65% (2.64%) 26.00% 13.73% 21.18% 21.72% 13.01% 21.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $30,447 $31,150 $31,712 $32,082 $38,880 $2,125 $12,740 $21,147
Ratio of expenses to
average net assets, after
expense reimbursement++ 1.59%* 1.60% 1.60% 1.60% 1.59%* 2.25% 2.25% 2.24%*
Ratio of expenses to
average net assets, before
expense reimbursement+ 1.83%* 1.76% 1.76% 1.75% 1.72%* 7.08%* 3.19% 2.75%*
Ratio of net investment
income (deficit) to
average net assets, after
expense reimbursement++ 2.83%* 3.71% 3.29% 2.83% 2.56%* 2.59%* 2.29% 1.96%*
Ratio of net investment
income (deficit) to
average net assets, before
expense reimbursement++ 2.59%* 3.55% 3.12% 2.66% 2.43%* (2.22%)* 1.32% 1.45%*
Portfolio turnover** 177.52% 125.51% 144.97% 166.84% 144.97% 166.84%
Average commission rate
paid** N/A N/A $0.0597 $0.0523 $0.0520 $0.0582
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Portfolio C
--------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $14.28 $13.03 $15.89 $17.05
Income from investment operations:
Net investment income (deficit) 0.24 0.41 0.40 0.37 0.36
Net realized and unrealized gains
(losses) on securities and foreign
currency 2.11 (0.89) 2.86 1.66 3.19
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 2.35 (0.48) 3.26 2.03 2.83
Less distributions:
Dividends from net investment income (0.24) (0.41) (0.40) (0.37) (0.18)
Distributions from capital gains (0.33) (0.36) -- (0.50) --
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.28 $13.03 $15.89 $17.05 $20.42
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 18.76% (3.26%) 25.24% 12.91% 20.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $69,265 $61,792 $58,997 $62,143 $73,059
Ratio of expenses to average net assets,
after expense reimbursement++ 2.22%* 2.25% 2.25% 2.25% 2.24%*
Ratio of expenses to average net
assets, before expense reimbursement+ 2.23%* 2.29% 2.28% 2.29% 2.32%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 2.28%* 3.05% 2.64% 2.18% 1.92%*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ 2.27%* 3.01% 2.61% 2.11% 1.83%*
Portfolio turnover** 177.52% 125.51% 144.97% 166.84%
Average commission rate paid** N/A N/A $0.0523 $0.0520
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
21
<PAGE>
BALANCED GROWTH FUND
INVESTMENT OBJECTIVE
A balance of long-term capital appreciation and current income.
INVESTMENT STRATEGY
The Fund's Investment Adviser actively manages a blended portfolio of equity and
fixed income securities with an emphasis on the overall total return. For the
equity portion, the Investment Adviser focuses on a "bottom-up" analysis that
evaluates the financial condition and competitiveness of individual companies.
It primarily uses computer intensive systematic disciplines to uncover "change
at the margin" -- positive business developments that are not yet fully
reflected in a company's stock price. The fixed income portion is actively
managed to take advantage of current interest rates and bond market trends by
varying the structure, duration and allocation of fixed income investments
from various business sectors.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund allocates about 60% of its total assets (but
no more than 70% and no less than 50%) to equity securities, with an emphasis on
companies with market capitalizations in excess of $500 million, and about 40%
of its total assets to debt securities issued by corporations and the U.S.
Government and its agencies and instrumentalities. A portion of the Fund 's
total assets (less than 35%) may be invested in debt securities rated below
investment grade. The Fund may invest up to 20% of its total assets in
securities of foreign issuers. The Fund may also use options as hedging
techniques.
PORTFOLIO MANAGEMENT The Investment Adviser emphasizes a team approach to
portfolio management to maximize its overall effectiveness. For a complete
list of the portfolio team, see "Portfolio Teams" on page __.
RISK FACTORS
As with any fund that invests in common stocks and debt obligations, the value
of your investment will fluctuate with movements in the stock and bond markets.
Equity securities in which the Fund invests may be more volatile than securities
of larger, more established companies. The value of the Fund's debt securities
will change as interest rates fluctuate: if rates go up, the value of debt
securities go down; if rates go down, the value of debt securities go up. Debt
securities with longer maturities tend to be more sensitive to interest rate
movements than those with shorter maturities. Lower-rated securities in which
the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. For further explanation, see "Risk Factors and
Special Considerations" starting on page __.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
--------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
--------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES AS A
PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A, B & C,
Total operating expenses would have been 3.30%, 6.44% and 2.83%
respectively, and Other expenses would have been .2.30%, 4.94% and 1.33%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
22
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1)
Assuming no redemption $74 $103 $143 $258
$23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1)
Assuming no redemption $33 $70 $120 $258
$23 $70 $120 $258
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1.) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Portfolio A Portfolio B
-----------------------------------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period $12.50 $13.52 $13.74 $16.16 $15.54 $12.50 $14.18 $14.88
Income from investment
operations:
Net investment income
(deficit) 0.15 0.21 0.34 0.32 0.23 0.12 0.17 0.10
Net realized and
unrealized gains (losses)
on securities and foreign
currency 1.02 0.22 2.42 0.84 4.27 1.68 0.70 4.20
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.17 0.43 2.76 1.16 4.50 1.80 0.87 4.30
Less distributions:
Dividends from net
investment income (0.15) (0.21) (0.34) (0.32) (0.11) (0.12) (0.17) (0.05)
Distributions from
capital gains -- -- -- (1.46) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.52 $13.74 $16.16 $15.54 $19.92 $14.18 $14.88 $19.13
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (9.35%) 3.22% 20.16% 6.74% 28.98% 14.45% 6.10% 28.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $6,446 $4,980 $5,902 $4,898 $6,230 $673 $2,133 $3,062
Ratio of expenses to
average net assets, after
expense reimbursement++ 1.59%* 1.60% 1.60% 1.60% 1.61%* 2.25%* 2.25% 2.26%*
Ratio of Expenses to
average net assets, before
expense reimbursement+ 3.28%* 2.78% 3.30% 3.00% 2.64%* 13.05%* 6.44% 4.63%*
Ratio of net investment
income (deficit) to
average net assets, after
expense reimbursement++ 1.30%* 1.44% 2.16% 1.87% 1.26%* 1.38%* 1.25% 0.63%*
Ratio of net investment
income (deficit) to
average net assets, before
expense reimbursement++ (0.39%)* 0.26% 0.88% 0.73% 0.22%* (8.86%)* (2.67%) (1.75%)*
Portfolio turnover** 85.43% 110.40% 197.19% 212.95% 197.19% 212.95%
Average commission rate
paid** N/A N/A $0.0594 $0.0586 $0.0594 $0.0586
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Portfolio C
--------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.54 $13.76 $16.20 $15.59
Income from investment operations:
Net investment income (deficit) 0.08 0.11 0.24 0.21 0.11
Net realized and unrealized gains
(losses) on securities and
foreign currency 1.04 0.22 2.44 0.85 4.34
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 1.12 0.33 2.68 1.06 4.45
Less distributions:
Dividends from net investment income (0.08) (0.11) (0.24) (0.21) (0.60)
Distributions from capital gains -- -- -- (1.46) --
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.54 $13.76 $16.20 $15.59 $19.98
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 8.91% 2.47% 19.58% 6.05% 28.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $16,248 $16,470 $16,586 $16,990 $20,259
Ratio of expenses to average net assets,
after expense reimbursement++ 2.24%* 2.25% 2.25% 2.25% 2.77%*
Ratio of Expenses to average net
assets, before expense reimbursement+ 2.73% 2.60% 3.01% 2.83% 0.61%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 0.61%* 0.83% 1.53% 1.23% 0.10%*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ 0.12%* 0.48% 1.19% 0.91%
Portfolio turnover** 85.43% 110.40% 197.19% 212.95%
Average commission rate paid** N/A N/A $0.0594 $0.0586
</TABLE>
* Annualized
** For corresponding Series of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from Master Trust
23
<PAGE>
FULLY DISCRETIONARY FUND
INVESTMENT OBJECTIVE
Seeks maximum total return.
INVESTMENT STRATEGY
The Fund's Investment Adviser seeks to outperform the total return of an
index of either government/corporate investment grade debt or
government/corporate/ mortgage investment grade debt over a full market
cycle through an actively managed diversified portfolio of debt securities.
When evaluating any bond, the Investment Adviser selects bonds based upon a
"top down" analysis of economic trends. Investment philosophy emphasizes
interest rate decisions and shifts among sectors of the bond market. It
also analyzes credit quality, the yield to maturity of the security, and
the effect the security will have on the Fund.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets
in investment grade debt securities issued by U.S. and foreign
corporations, U.S. and foreign governments, and their agencies and
instrumentalities. These securities include bonds, notes, mortgage-backed
and asset-backed securities with rates that are fixed, variable or
floating. The Fund may invest up to 20% of its assets in debt securities
rated below investment grade. For a description of these ratings, see
"Corporate Bond Ratings" beginning on page _____. The Fund may also use
options, futures contracts and interest rate and currency swaps as hedging
techniques. The average portfolio duration of the Fund will range from two
to eight years. The Fund may invest up to 30% of its total assets in
securities payable in foreign currencies.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management
to maximize its overall effectiveness. For a complete list of the
portfolio team, see "Portfolio Teams" on page _____.
RISK FACTORS
As with any fund that invests in bonds, the value of the Fund's investments
fluctuates in response to movements in interest rates. If interest rates
go up, the value of bonds fall; if rates go down, the value of bonds rise.
However, the Investment Adviser expects the Fund's fluctuations to be more
moderate than those of a fund with a longer average duration. The
lower-rated debt securities in which the Fund invests are considered
speculative and are subject to greater volatility and risk of loss than
investment grade securities, particularly in deteriorating economic periods.
To the extent the Fund invests in foreign securities, performance also
depends upon changing currency values, different political and economic
environments, and other overall economic conditions in countries where the
Fund invests. For further explanation, see "Risk Factors and Special
Considerations" starting on page____.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
------------------------------
Maximum sales charge on purchases
(as a percentage of offering price) 4.75% None None
- --------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- --------------------------------------------------------------------------------
Deferred sales charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) None(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Redemption fee None None None
- --------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.45% 0.45% 0.45%
- --------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.25% 0.40% 0.40%
- --------------------------------------------------------------------------------
Total operating expenses (after expense 0.95% 1.35% 1.35%
deferral)(2)
- -------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A,B & C,
Total operating expenses are expected to be 7.73%, 8.38% and 5.03%,
respectively, and Other expenses are expected to be 7.38%, 7.93% and 4.58%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
24
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $57 $77 $98 $155
- --------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $66 $77 $98 $162
Assuming no redemption $14 $43 $74 $162
- --------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $25 $70 $74 $162
Assuming no redemption $14 $43 $74 $162
</TABLE>
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
25
<PAGE>
HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE
High level of current income and capital growth.
INVESTMENT STRATEGY
The Fund invests primarily in lower-rated debt securities commonly referred
to as "junk bonds." When evaluating any bond, the Investment Adviser
selects bonds based upon a combination of both "top-down" analysis of
economic trends and "bottom-up" analysis that evaluates the financial
condition and competitiveness of individual companies. It also analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the average yield to maturity of the Fund. The
Investment Adviser believes it can lower the risks of investing in
lower-rated debt through these professional management techniques and
through diversification.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund allocates at least 65% of its total
assets in lower-rated debt securities and convertible securities rated
below investment grade. There is no limit on either the portfolio maturity
or the acceptable rating of securities bought by the Fund. For a
description of these ratings, see "Corporate Bond Ratings" beginning on
page _____. Securities may bear rates that are fixed, variable or
floating. The Fund may also use options, futures contracts and interest
rate and currency swaps as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management
to maximize its overall effectiveness. For a complete list of the
portfolio team, see "Portfolio Teams" on page _______.
RISK FACTORS
As with any fund that invests primarily in bonds, the value of the Fund's
investments fluctuates in response to movements in interest rates. When
rates go up, bond prices fall; when rates go down, bond prices rise. Debt
securities with longer maturities tend to be more sensitive to interest
rate movements than those with shorter maturities. Lower-rated securities,
while usually offering higher yields, generally have more risk and
volatility than higher-rated securities because of reduced creditworthiness
and greater chance of default. Periods of high interest rates and
recession may adversely affect the issuer's ability to pay interest and
principal. To the extent the Fund invests in stocks, the value of those
investments will fluctuate day to day with movements in the stock market as
well as in response to the activities of individual companies. The
companies in which the Fund invests may be more subject to volatile market
movements than securities of larger, more established companies. To the
extent the Fund invests in foreign securities, performance also depends on
changes in foreign currency values different political and regulatory
environments, and overall economic factors in the countries where the Fund
invests. For further explanation, see "Risk Factors and Special
Considerations" starting on page _____.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
------------------------------
Maximum sales charge on purchases (as a 5.25% None None
percentage of offering price)
- ------------------------------------------------------------------------------
Sales Charge on reinvested dividends None None None
- ------------------------------------------------------------------------------
Deferred sales charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) None(1) 5.00% 1.00%
- ------------------------------------------------------------------------------
Redemption fee None None None
- ------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES AS A
PERCENTAGE OF AVERAGE NET ASSETS: (AFTER
EXPENSE DEFERRAL)
Management fees 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- ------------------------------------------------------------------------------
Total operating expenses (after expense 1.60% 2.25% 2.25%
deferral)(2)
- --------------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.
(2) The Investment Adviser has agreed to waive or defer its management fees and
to absorb other operating expenses payable by the Fund. For Class A,B & C,
Total operating expenses are expected to be 2.25%, 2.85% and 2.85%,
respectively, and Other expenses are expected to be 1.50%, 2.10% and 2.10%
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
26
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
1 YEAR 3 YEARS
---------------------
CLASS A $68 $100
- -----------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $74 $103
Assuming no redemption $23 $70
- -----------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $33 $70
Assuming no redemption $23 $70
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Class B shares for Class A shares seven or more years after purchase.
27
<PAGE>
MONEY MARKET FUND
INVESTMENT OBJECTIVE
High current income consistent with preservation of capital and maintenance
of liquidity.
INVESTMENT STRATEGY
The Fund's investment Adviser invests only in securities that mature in 397
days or less, and are rated in one of the two highest short-term rating
categories by one or more nationally recognized statistical rating
organization, or in comparable unrated securities. The Fund maintains a
dollar weighted portfolio average maturity of 90 days or less.
PRINCIPAL INVESTMENTS
The Fund invests in high-quality, short-term U.S. dollar denominated money
market instruments that comply with the credit quality and diversification
requirements of Rule 2a-7 under the Investment Company Act, which regulates
money market funds. These include obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits and bankers' acceptances of certain domestic and
foreign banks, and domestic savings and loan associations; commercial paper
and other short-term corporate obligations; and repurchase agreements.
Certain of the acceptable debt instruments may be credit-enhanced by a
guaranty, letter of credit, or insurance.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfoliomanagement to
maximize its overall effectiveness. For a complete list of the portfolio
team, see "Portfolio Teams" on page _____.
RISK FACTORS
Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund. As with
any money market fund, there is the risk that the issuers or guarantors of
securities owned by the Fund will default on the payment of principal or
interest or the obligation to repurchase securities from the Fund. Neither
the Fund nor the Portfolio is insured or guaranteed by the U.S. Government.
For further explanation, see "Risk Factors and Special Considerations"
starting on page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly.
Actual expenses may be more or less than those shown.
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(1)
- -----------------------------------------------------------------------------
Redemption fee None
- -----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees(2) 0.00%
- -----------------------------------------------------------------------------
12b-1 expenses 0.15%
- -----------------------------------------------------------------------------
Other expenses (after expense deferral)(3) 0.30%
- -----------------------------------------------------------------------------
Total operating expenses (after expense deferral)(3) 0.45%
- ------------------------
(1) Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.
(2) The management fee has been reduced to reflect waivers of the management
fee. The maximum management fee is .25%.
(3) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Fund. Total
operating expenses would have been 1.73%, and Other expenses would have
been 1.58% , absent the deferral. See "Investment Adviser Compensation."
28
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------
$3 $10 $17 $39
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ended September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997, and by another independent auditor with
respect to commencement of operation through March 31, 1995. Please read in
conjunction with the Trust's 1997 Annual Report and 1997-98 Semi-Annual Report.
<TABLE>
<CAPTION>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income (deficit) 0.01 0.05 0.05 0.05 0.06
Net realized and unrealized gains (losses)
on securities and foreign currency -- -- -- -- (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.01 0.05 0.05 0.05 0.03
Less distributions:
Dividends from net investment income (0.01) (0.05) (0.05) (0.05) (0.03)
Distributions from capital gains -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 1.72% 4.58% 5.47% 5.09% 2.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $48 $2,996 $3,129 $36,259 $39,504
Ratio of expenses to average net assets, after
expense reimbursement(++) 0.54%* 0.31% 0.45% 0.45% 0.45%*
Ratio of expenses to average net assets,before
expense reimbursement(+) 323.54%* 2.49% 5.78% 1.73% 1.18%*
Ratio of net investment income (deficit) to
average net assets, after expense reimbursement(++) 1.85%* 4.60% 5.35% 4.97% 5.15%*
Ratio of net investment income (deficit) to
average net assets, before expense reimbursement(++) (320.85%)* 2.42% 2.77% 4.12% 4.42%*
Portfolio turnover(**) N/A N/A N/A N/A
Average commission rate paid(**) N/A N/A N/A N/A
</TABLE>
(*) Annualized
(**) For corresponding Series of the Master Trust
(+) Computations do not reflect the Portfolio's sales charges
(++) Includes expenses allocated from Master Trust
29
<PAGE>
DISTRIBUTION OF SHARES
CHOOSING A PORTFOLIO
This prospectus offers A, B & C Classes. Each Class has its own cost structure,
allowing you to choose the one that best meets your requirements. Your
financial representative can help you decide. For actual past expense of A, B &
C Classes, see the Fund Information earlier in this prospectus.
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES. Sales charges are as follows:
ALL CLASS A SHARES EXCEPT FULLY DISCRETIONARY
- ------------------------------------------------------------------------------
AS A % OF AS A % OF DEALER COMMISSION
YOUR INVESTMENT OFFERING YOUR AS % OF
PRICE INVESTMENT OFFERING PRICE
- ------------------------------------------------------------------------------
Up to $49,999 5.25% 5.54% 4.50%
$50,000 - $99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1,000,000 and over (See below) (See below) (See below)
FULLY DISCRETIONARY
- ------------------------------------------------------------------------------
AS A % OF AS A % OF DEALER COMMISSION
YOUR INVESTMENT OFFERING YOUR AS % OF
PRICE INVESTMENT OFFERING PRICE
- ------------------------------------------------------------------------------
Up to $49,999 4.75% 4.99% 4.00%
$50,000 - $99,999 4.00% 4.17% 3.25%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1,000,000 and over (See below) (See below) (See below)
Investments of $1 million or more of Class A Shares have no front-end sales
charge. The Distributor pays a commission of 1% to financial institutions that
initiate purchases of $1 million and more.
CLASS B SHARES
Class B shares are offered at their net asset value per share, without any
initial sales charge. The Distributor pays to a commission of 4% (3% for the
Fully Discretionary Fund) to financial institutions who initiate purchases.
There is a contingent deferred sales charge (CDSC) on shares you sell within six
years of buying them.
CLASS C SHARES
Class C Shares are offered at their net asset value per share without any The
Distributor pays a 1% commission to financial institutions that initiate
purchases.
MONEY MARKET FUND
Shares of the Money Market Fund are offered at their net asset value per share
without any initial sales charge.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a CDSC upon redemption of their shares under the
following conditions:
CLASS A SHARES
Shareholders who buy $1 million in shares without a sales charge and redeem
within one full year of purchase may be charged a CDSC of 1% on shares redeemed.
CLASS B SHARES
YEARS AFTER PURCHASE CDSC ON SHARES
BEING SOLD
1st year 5.00%
2nd year 4.00%
3rd or 4th years 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
CLASS C SHARES
Shareholders who redeem Class C shares within one full year of the purchase date
may be charged a CDSC of 1%.
MONEY MARKET FUND
A CDSC may be charged on redemptions of shares purchased through an exchange of
Class B or C shares of an investor who did not own the Class B shares for six
full years or the Class C shares for one full year, whichever is applicable.
There is no CDSC imposed on shares acquired through reinvestment of dividends or
capital gains.
The CDSC will be imposed on the lesser of the original purchase price or the net
asset value of the redeemed shares at the time of redemption. CDSC calculations
are based on the numbers of shares involved not the value of your account. To
keep your CDSC as low as possible, each time you place a request to sell shares,
we will first sell any shares in your account that represent reinvested
dividends/capital gains and then shares that satisfy the holding period. If
there are not enough of these to meet your request, we will sell your shares on
a first-in, first-out basis. Your financial institution may elect to waive some
or all of the payment thereby reducing the otherwise applicable CDSC.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES.
There are several ways you can combine multiple purchases of shares of Class A
Shares to take advantage of the breakpoints in the sales charge schedule. These
can be combined in any manner:
- - ACCUMULATION PRIVILEGE - lets you add the value of Class A Shares you and
your immediate family already own to the amount of your next investment for
purposes of calculating the sales charge.
- - LETTER OF INTENT - lets you purchase Class A Shares over a 13 month period
and receive the same sales charge as if all shares had been purchased at once.
- - COMBINATION PRIVILEGE - lets you combine Class A Shares for purposes of
reducing the sales charge.
TO UTILIZE: COMPLETE THE APPROPRIATE SECTION ON YOUR APPLICATION, OR CONTACT
YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL FUNDS TO ADD THESE
OPTIONS TO AN EXISTING ACCOUNT.
30
<PAGE>
CDSC WAIVERS. In general, the CDSC may be waived on shares you sell for the
following reasons:
- - make payments through certain systematic withdrawal plans
- - qualifying distributions from qualified retirement plans and other employee
benefit plans
- - distributions from custodial accounts under section 403(b)(7) of the Internal
Revenue Code as well as IRAs due to death, disability or attainment of age
59 1/2
TO UTILIZE: CONTACT YOUR FINANCIAL REPRESENTATIVE OR THE NICHOLAS-APPLEGATE
MUTUAL FUNDS, OR CONSULT THE SAI (SEE THE BACK COVER OF THIS PROSPECTUS)
REINSTATEMENT PRIVILEGE. If you sell Class A Shares, you may invest some or all
of the proceeds in the same Class within 90 days without a sales charge. If you
paid a CDSC when you sold your shares, you will be credited with the amount of
the CDSC. All accounts involved must have the same registration.
TO UTILIZE: CONTACT YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL
FUNDS.
NET ASSET VALUE PURCHASES. Class A Shares may be sold at net asset value to:
(1) current or retired directors, trustees, partners, officers and employees of
the Trust, the Distributor, the Investment Adviser and its general partner,
certain family members of the above persons, and trusts or plans primarily for
such persons;
(2) current or retired registered representatives or full-time employees and
their spouses and minor children and plans of such persons;
(3) former limited partners and participants of certain investment partnerships
and pooled trusts previously managed by the Investment Adviser;
(4) investors who exchange their shares from an unaffiliated investment company
which has a sales charge, so long as shares are purchased within 60 days of the
redemption;
(5) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with 50 or more eligible employees;
(6) investment advisers and financial planners who place trades for their own
accounts or the accounts of their clients either individually or through a
master account and who charge a management, consulting or other fee for their
services;
(7) employee-sponsored benefit plans in connection with purchases of Class A
Shares made as a result of participant-directed exchanges between options in
such a plan;
(8) "wrap accounts" for the benefit of clients of broker-dealers, financial
institutions or financial planners having sales or service agreements with the
Distributor or another broker-dealer or financial institution with respect to
sales of Class A Shares; and
(9) such other persons as are determined by the Board of Trustees (or by the
Distributor pursuant to guidelines established by the Board) to have acquired
shares under circumstances not involving any sales expense to the Trust or the
Distributor.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Each Fund has adopted a distribution plan in accordance with Rule 12b-1 under
the Investment Company Act. Class B and C Shares may pay a fee to the
Distributor in an amount computed at an annual rate of .75% of the average daily
net assets to finance any activity which is principally intended to result in
the sale of shares. Class A Shares may pay the Distributor a fee equal to .25%
of the average daily net assets, and the Money Market Fund may pay up to .15% of
the average daily net assets. The schedule of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Distributor.
Each of the Funds has entered into a Shareholder Services Agreement with the
Distributor under which each Fund will reimburse the Distributor up to .25% of
the average daily assets of each of the Portfolios to pay financial institutions
for certain personal services for shareholders and for the maintenance of
shareholder accounts.
In addition to the payments described above, the Distributor may also pay
additional compensation to financial institutions in connection with selling
shares of the Funds. Compensation may include financial assistance for
conferences, shareholder services, computer software, training programs or
promotional activities. The Distributor offers additional compensation to
financial institutions that the Distributor expects will sell a significant
amount of shares. Financial institutions may obtain more information by call
(800) 551-8045.
THE DISTRIBUTOR OF THE TRUST'S SHARES
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
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<PAGE>
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<S><C>
OPENING AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
REGULAR INVESTMENT RETIREMENT
FOR THIS TYPE OF ACCOUNT Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
- ----------------------------------------------------------------------------------------------------------------------------------
This is the minimum $2,000 $250 $50 $250
initial investment
- ----------------------------------------------------------------------------------------------------------------------------------
Use this type of New Account Form (Non-Retirement) IRA Application
application
- ----------------------------------------------------------------------------------------------------------------------------------
Before completing the Each Fund offers a variety of features, which are described in the "Your Account" section of this
application prospectus. Please read this section before completing the application
- ----------------------------------------------------------------------------------------------------------------------------------
Completing
the application If you need assistance, contact your financial representative, or call us (800) 551-8043.
- ----------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and send check, payable to: NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA
by CHECK 02266-8326. The Trust WILL NOT accept third-party checks.
- ----------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below. You will need to
If you are sending money obtain an account number with the Trust by sending a completed application to: NICHOLAS-APPLEGATE
by BANK WIRE OR ACH MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326. To receive your account number, call either your
financial representative or us at (800) 551-8043.
BUYING SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
REGULAR INVESTMENT RETIREMENT
Regular For a Minor Automatic IRA, Rollover
(UGMA/UTMA) Investment SEP, etc.
- ----------------------------------------------------------------------------------------------------------------------------------
This is the minimum $100 $100 $50 $100
subsequent investment
- ----------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will receive All transactions received in good order before the market closes receive that day's price.
- ----------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and send check, payable to: NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA
by CHECK 02266-8326. The Trust WILL NOT accept third-party checks.
- ----------------------------------------------------------------------------------------------------------------------------------
If you are sending money Instruct your bank to wire the amount you wish to invest to:
by BANK WIRE STATE STREET BANK & TRUST CO. -- ABA #011000028
DDA #9904-645-0
STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME][SHARE CLASS], [YOUR NAME], [ACCOUNT NAME OR NUMBER]
- ----------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active on your bank
If you are sending money account. To establish this option, either complete the appropriate sections when opening an account,
by ACH or contact your financial representative, or call us at (800) 551-8043 for further information. To
initiate an ACH purchase, call the Trust at (800) 551-8043.
</TABLE>
32
<PAGE>
<TABLE>
<S><C>
SELLING OR REDEEMING SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
IN WRITING BY PHONE
Selling shares by phone is a service option which
must be established on your account prior to
making a request.. See the "Your Account" section,
Certain requests may require a SIGNATURE or contact your financial representative or call
GUARANTEE. See that section below for further us at (800) 551-8043
information. You may sell up to the full account for further information.
Things you should know value, less any applicable sales charge. The The maximum amount which may be requested by
Trust may have additional requirements for phone, regardless of account size, is $50,000.
redeeming shares. Please call us for more Amounts greater than that must be requested in
information. writing. If you wish to receive your monies by
bank wire, the minimum request is $5,000.
- ----------------------------------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan administrator/sponsor,
you should call them regarding the most efficient way to sell shares.
If you bought shares recently by check, they may not be available to be sold for up to
15 calendar days from the date of purchase.
Sales by a corporation, trust or fiduciary may have special requirements.
Please call your financial representative, a plan administrator/sponsor or us for further information.
- ----------------------------------------------------------------------------------------------------------------------------------
The price you will The Trust is open on days that the New York Stock Exchange is open.
receive All transactions received in good order before the market closes receive that day's price.
- ----------------------------------------------------------------------------------------------------------------------------------
If you want to receive
your monies by CHECK
- ----------------------------------------------------------------------------------------------------------------------------------
If you want to receive Please put your request in writing, including: the
your monies by BANK WIRE name of the account owners, account number and the
Fund and share Class you are redeeming from, the Either contact your financial representative or
share or dollar amount you wish to sell, signed by call us
all account owners. Mail this request to: at (800) 551-8043.
NICHOLAS-APPLEGATE MUTUAL FUNDS, The proceeds will be sent to the existing bank
PO BOX 8326, BOSTON, MA 02266 8326. wire address listed on the account.
The check will be sent to the existing bank wire
address listed on the account.
- ----------------------------------------------------------------------------------------------------------------------------------
Either contact your financial representative or call us
If you want to receive at (800) 551-8043.
your monies by ACH Please call us at (800) 551-8043. The proceeds will be sent to the existing ACH
instructions on the account and will generally be
received at your bank two business days after your
request is received.
SIGNATURE GUARANTEE
- ----------------------------------------------------------------------------------------------------------------------------------
A definition A signature guarantee is required of a financial institution to verify the authenticity of an
individual's signature. It can usually be obtained from a broker, commercial or savings bank, or
credit union.
- ----------------------------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making a written request for the following reasons:
When you need one 1. When selling more than $50,000 worth of shares;
2. When you want a check or bank wire sent to a name or address that is not currently listed on the
account;
3. To sell shares from an account controlled by a corporation, partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
</TABLE>
33
<PAGE>
<TABLE>
<S><C>
EXCHANGING SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
REGULAR INVESTMENT RETIREMENT
FOR THIS TYPE OF ACCOUNT Regular For a Minor Automatic Investment IRA, Rollover, SEP, etc.
(UGMA/UTMA)
This is the minimum $2,000 $250 $50 $250
exchange amount to open a
new account
- ----------------------------------------------------------------------------------------------------------------------------------
The price you will The Trust is generally open on days that the New York Stock Exchange is open. All transactions
receive received in good order before the market closes receive that day's price
- ----------------------------------------------------------------------------------------------------------------------------------
Things you should know The exchange must be to a portfolio in the same series in an account with the same registration. If
opening an account as part of an exchange, you must obtain and read the prospectus. If you intend to
keep money in the Fund you are exchanging from, make sure that you leave an amount equal to or greater
than the Fund's minimum account size (see the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- ----------------------------------------------------------------------------------------------------------------------------------
How to request an Either contact your financial representative, or call us at (800) 551-8043. The Trust will accept a
exchange by PHONE request by phone if this feature was previously established on your account.
See the "Your Account" section for further information.
- ----------------------------------------------------------------------------------------------------------------------------------
How to request an Put your exchange request in writing, including: the name on the account, the name of the Fund and the
exchange by MAIL account number you are exchanging from, the shares or dollar amount you wish to exchange, and the Fund
you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
34
<PAGE>
YOUR ACCOUNT
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share (NAV) for the Fund is
determined each business day at the close of regular trading on the New
York Stock Exchange (usually 4 p.m. Eastern Time) by dividing the Class'
net assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described
earlier. When you sell shares, you receive the NAV. Your financial
institution may charge you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York stock
Exchange is open, usually Monday-Friday. Buy and sell requests are
executed at the NAV next calculated after your request is received in good
order by the transfer agent or another agent designated by the Trust.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund
reserves the right to reject any purchase or to suspend or modify the
continuous offering of its shares. Your financial representative is
responsible for forwarding payment promptly to the transfer agent. The
Trust reserves the right to cancel any buy request if payment is not
received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing
of sell requests, or may postpone payment of proceeds for up to three
business days or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be
recorded in order to verify their accuracy. In addition the Trust will
take measures to verify the identity of the caller, such as asking for
name, account number, Social Security or taxpayer ID number and other
relevant information. If these measures are not taken, your Fund may be
responsible for any losses that may occur in your account due to an
unauthorized telephone call.
EXCHANGES. You may exchange shares of any Class for shares of the same
Class (A, B, or C) of any other Fund, generally without paying any
additional sales charges. You may also exchange shares of any Fund for
shares of the Money Market Portfolio. Class C shares purchased through an
exchange from a like Class will continue to age from the original date and
will retain the same CDSC rate as they had before the exchange. The
holding period of Money Market Fund shares purchased through an exchange
from Class B or C shares is excluded from the calculation of the holding
period on Class B and C shares.
To protect the interests of other investors in a Fund, the Trust may cancel
the exchange privileges of any parties that, in the opinion of the
Investment Adviser, are using market timing strategies that adversely
affect the Fund. Guidelines for exchanges are available from the
Distributor upon request. A Fund may also refuse any exchange order.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish
to have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell
shares for which the purchase money has not yet been collected, the request
will be executed in a timely fashion, but the Fund will not release the
proceeds to you until your purchase payment clears. This may take up to
fifteen calendar days after the purchase.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to the
Trust, c/o the Trust's transfer agent,
State Street Bank and Trust Company
Attention: Nicholas-Applegate Mutual Funds
P.O. Box 8326
Boston, MA 02266-8326
Telephone inquiries can be made by calling 1-800-551-8043 or, from outside
the U.S., 1-617-774-5000 (collect).
FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at
any time upon 60 days' written notice to shareholders. Shareholders
seeking to add to, change or cancel their selection of available services
should contact the transfer agent at the address and telephone number
provided above.
RETIREMENT PLANS. You may invest in each Fund through various retirement
plans, including IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information
about any of the plans, agreements, applications and annual fees, contact
the Distributor, your financial representative or plan sponsor. To
determine which retirement plan is appropriate for you, consult your tax
adviser.
ACCOUNT STATEMENTS. In general, you will receive account statements as
follows:
- After every transaction that affects your account balance.
- After any changes of name or address of the registered owner(s).
- In all other circumstances, every quarter.
Every year you will also receive an applicable tax information statement,
mailed by January 31.
35
<PAGE>
DIVIDENDS. The Funds generally distribute most or all of their net
earnings in the form of dividends. Each Fund pays dividends as follows:
Annually Quarterly Monthly
-------- --------- -------
International Core Growth Balanced Growth Fully Discretionary
Worldwide Growth Income & Growth High Yield Bond
International Small Cap Money Market
Emerging Countries
Large Cap Growth
Core Growth
Value
Emerging Growth
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not
indicate any choice, your dividends will be reinvested on the ex-dividend
date. Alternatively, you can choose to have a check for your dividends
mailed to you.
TAXABILITY OF DIVIDENDS. As long as a Fund meets the requirements for
being a tax-qualified regulated investment company, which each Fund has in
the past and intends to in the future, it pays no federal income tax on the
earnings it distributes to shareholders.
Consequently, dividends you receive from a Fund whether reinvested or taken
as cash, are generally considered taxable. Dividends from a Fund's
long-term capital gains are taxable as capital gains; dividends from other
sources are generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a
dividends-received deduction for a portion of certain dividends they
receive.
The tax information statement that is mailed to you details your dividends
and their federal tax category, although you should verify your tax
liability with your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and
the sale price of the shares you sell or exchange, you may have a gain or a
loss on the transaction. You are responsible for any tax liabilities
generated by your transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement
account so that its total value is less than the Fund minimum, you may be
asked to purchase more shares within 60 days. If you do not take action,
the Fund may close out your account and mail you the proceeds. Your
account will not be closed if its drop in value is due to Fund performance.
AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of
$50 or more on a monthly or quarterly basis if you have an account of
$5,000 or more in the Fund. Withdrawal proceeds will normally be received
prior to the end of the month or quarter. See the account application for
further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly
investments in Class A, B and C Shares of each Fund through automatic
withdrawals of specified amounts from your bank account once an automatic
investment plan is established. See the account application for further
details about this service or call the Transfer Agent at 1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and
capital gains distributions paid by one Fund into Class A, B and C
Shares of another Fund, subject to conditions outlined in the Statement
of Additional Information and the applicable provisions of the qualified
retirement plan.
36
<PAGE>
ORGANIZATION AND MANAGEMENT
INVESTMENT ADVISER COMPENSATION
Each Fund pays the Investment Adviser a fee pursuant to an investment
advisory agreement. The Emerging Countries Fund pays an advisory fee at
the annual rate of 1.25% of the Fund's net assets. The Worldwide,
International Growth and International Small Cap Funds each pay an
advisory fee at the annual rate of 1.00% on the first $500 million of each
Fund's net assets, .90% on the next 500 million of each Fund's net assets,
and .85% on net assets on each Fund in excess of $1 billion. The Fully
Discretionary Fund pays at the annual rate of 0.45% of the first $500
million of the Fund's average net assets, 0.40% of the next $250 million of
net assets, and 0.35% of net assets in excess of $750 million. The High
Yield Bond Fund pays at the annual rate of 0.60% of the Fund's net assets.
The Emerging Growth Fund pays at the annual rate of 1.00% of the Fund's net
assets. The Large Cap Growth, Core Growth, Value, Income & Growth, and
Balanced Growth Funds each pay at the annual rate of 0.75% of the first
$500 million of the Fund's net assets, 0.675% of the next $500 million of
net assets, and 0.65% of net assets in excess of $1 billion.
The Investment Adviser has agreed to waive or defer its management fees
payable by the Funds, and to absorb other operating expenses of the Funds
and the Portfolios, so that the expenses for the Portfolio will not exceed
the following expense ratios on an annual basis through March 31, 1998:
Worldwide Growth Class A, B & C - 1.85%, 2.50%, and 2.50%; International
Small Cap Growth Class A, B & C - 1.95%, 2.60% and 2.60%; Emerging
Countries - Class A, B & C - 2.25%, 2.90% and 2.90%; International Core
Growth Class A, B & C - 1.95%, 2.60% and 2.60%; Income & Growth, Balanced
Growth, Large Cap, Value and Core Growth Class A, B & C - 1.60%, 2.25% and
2.25%; Emerging Growth Class A, B & C - 1.95%, 2.60% and 2.60%; Fully
Discretionary Class A, B & C - 0.95%, 1.35% and 1.35%; Money Market Fund -
1.10%; Value Fund - _____%; and High Yield Bond Fund - ________%. Each
Portfolio will reimburse the Investment Adviser for fees deferred or other
expenses paid pursuant to this Agreement in later years in which operating
expenses for the Fund are less than the percentage limitation set forth
above for any such year.
ADMINISTRATOR COMPENSATION
The Funds pay administrative fees for administrative personnel and
services (including certain legal and financial reporting services). Each
Fund pays Nicholas-Applegate Capital Management an annual fee of .10% of
net assets. Each Fund pays Investment Company Administration Corporation
(ICAC) an annual fee.
DISTRIBUTOR:
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8045
PORTFOLIO TRADES
The Investment Adviser is responsible for the Funds' portfolio
transactions. In placing portfolio trades, the Investment Adviser may use
brokerage firms that sell shares of the Fund or that provide research
services to the Fund, but only when the Investment Adviser believes no
other firm offers a better combination of quality execution (i.e.
timeliness and completeness) and favorable price. The Investment Adviser
expects high annual portfolio turnover up to 200%. This is generally
higher than other funds and will result in the Funds incurring higher
brokerage costs.
INVESTMENT OBJECTIVE
Each Fund's investment objective is fundamental and may only be changed
with shareholder approval.
The fundamental limitations are described in the Statement of Additional
Information. All other changes may be made by the Board of Trustees
without shareholder approval.
DIVERSIFICATION
All the Funds are diversified.
37
<PAGE>
PORTFOLIO TEAMS
EQUITY MANAGEMENT - INTERNATIONAL/GLOBAL
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer - Global Equity Management
Joined firm in 1987; prior investment management experience with
Professional Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S. - University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, AND EMERGING GROWTH
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A. - Harvard University; B.E. - Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, AND VALUE
JOHN J. KANE, PARTNER
Portfolio Manager - U.S. Systematic
Joined firm in 1994; 25 years prior investment management/economics experience
with ARCO Investment Management Company and General Electric Company
M.A. and B.A. - Columbia University; M.B.A. - University of California, Los
Angeles
WORLDWIDE GROWTH, AND VALUE
AARON HARRIS
Portfolio Manager - Emerging Countries
Joined firm in 1995; 1 year prior investment management experience at Chemical
Bank
B.A. - Princeton University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP, AND
EMERGING COUNTRIES
PEDRO V. MARCAL
Portfolio Manager - Emerging Countries
Joined firm in 1994; 5 years prior investment management experience with A.B.
Laffer, V.A. Canto & Associates, and A-Mark Precious Metals
B.A. - University of California, San Diego
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP, AND
EMERGING COUNTRIES
ESWAR MENON
Portfolio Manager - Emerging Countries
Joined firm in 1995; 5 years prior investment management experience with
Koeneman Capital Management and Integrated Device Technology
M.B.A., summa cum laude - University of Chicago;
M.S. - University of California, Santa Barbara;
B.S. - Indian Institute of Technology, Madras
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP, AND
EMERGING COUNTRIES
LORETTA J. MORRIS
Portfolio Manager - International
Joined firm in 1990; 10 years prior investment management experience with
Collins Associates
Attended California State University, Long Beach;
CFA Level II candidate
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP GROWTH
ALEX MUROMCEW
Portfolio Manager - International
Joined firm in 1996; 6 years prior investment management experience with Jardine
Fleming Securities (Japan); Emerging Markets Investors Corporation; Teton
Partners LP
M.B.A. - Stanford University; B.A. - Dartmouth College
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP GROWTH
ERNESTO RAMOS, PH.D.
Portfolio Manager - International
Joined firm in 1994; 14 years prior investment management and quantitative
research experience with Batterymarch Financial Management; Bolt Beranek &
Newman Inc.; and Harvard University
Ph.D. - Harvard University; B.S. - Massachusetts Institute of Technology
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH, AND
EMERGING COUNTRIES
MELISA A. GRIGOLITE
Portfolio Manager
Joined firm in 1991; prior experience with SGPA Architecture and Planning
M.S. - San Diego State University; B.S. Southwest Missouri State University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP
JOHN TRIBOLET
Investment Analyst
Joined firm in 1997; 5 years prior experience with Kemper Securities, Inc. and
PaineWebber
M.B.A. - University of Chicago; B.A. - Columbia University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP
JESSICA HILINSKI
Assistant Portfolio Manager
Joined firm in 1996; 3 years prior experience in Eaton Vance Management and
Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
AYLIN UCKUNKAYA
Investment Analyst
Joined firm in 1997; 4 years investment management experience with Global
Securities
B.A. Istanbul University
EMERGING COUNTRIES
JON BORCHARDT
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with Union
Bank
B.S. University of San Francisco
EMERGING COUNTRIES
38
<PAGE>
EQUITY MANAGEMENT - U.S.
JOHN C. MARSHALL, JR., PARTNER
Chief Investment Officer - Institutional Equity Management
Joined firm in 1989; 8 years prior investment management experience with Pacific
Century Advisers; San Diego Trust & Savings Bank; Howard, Weill, Labouisse,
Fredrichs Inc.
M.B.A. and B.B.A. - Southern Methodist University
CORE GROWTH, AND LARGE CAP GROWTH
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer - Global Equity Management
Joined firm in 1987
M.B.A. and B.S. - University of Southern California
EMERGING GROWTH, BALANCED GROWTH, AND INCOME & GROWTH
THOMAS BLEAKLEY
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Twentieth Century Investors and Dell Computer Corporation
M.B.A. - University of Texas - Boston University
EMERGING GROWTH
SANDRA DURN
Portfolio Manager
Joined firm in 1994; prior experience at Science Solutions, Inc. and San Diego
State University Economics Department (instructor)
M.A. - San Diego State University; B.A. - University of Maryland
INCOME & GROWTH
ANDREW B. GALLAGHER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with Pacific
Century Advisors and Sentinel Asset Management
M.B.A. - San Diego State University; B.A. - University of California, Irvine
CORE GROWTH, AND LARGE CAP GROWTH
RONALD J. KRYSTYNIAK CFA
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with Pilgrim
Baxter & Associates and Peterson Consulting & Company
B.S. - Syracuse University
EMERGING GROWTH
MAREN LINDSTROM
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with Societe
Generale; Banque D'Orsay; and Prudential Asset Management
M.B.A. - University of California, Los Angeles;
B.A. - University of Michigan
CORE GROWTH, INCOME & GROWTH
JOHN C. MCCRAW
Portfolio Manager
Joined firm in 1992; prior investment management experience with Nations Bank
M.B.A. - University of California, Irvine;
B.A. - Flagler College
EMERGING GROWTH
STAN ROGERS
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with
Tennessee Consolidated Retirement System
B.A. - The University of the South
INCOME & GROWTH
THOMAS J. SULLIVAN
Portfolio Manager
Joined firm in 1994; 2 years prior investment experience with Donaldson, Lufkin
& Jenrette Securities Corp.
B.S. - Rochester Institute of Technology
CORE GROWTH
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FIXED INCOME
FRED S. ROBERTSON, III, PARTNER
Chief Investment Officer - Fixed Income
Joined firm in 1995; 22 years prior investment management experience with
Criterion Investment Management Company and DuPont Chemical Pension Fund
M.B.A. - College of William and Mary; B.S. - Cornell University
BALANCED GROWTH, AND FULLY DISCRETIONARY
JAMES E. KELLERMAN, PARTNER
Portfolio Manager
Joined firm in 1995; 20 years prior investment management experience with
Criterion Investment Management Company and Brown Brothers Harriman and
Equitable Life Insurance
M.B.A. - St. John's University; B.B.A. - Susquehanna University
BALANCED GROWTH, AND FULLY DISCRETIONARY
CLAUDIA BENGSTON
Portfolio Manager
Joined firm in 1995; 18 years prior investment experience with Criterion
Investment Management Company and Gibralter Savings
B.S. - University of Oklahoma
MONEY MARKET
MALCOM S. DAY, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with Payden
& Rygel
M.B.A. - University of California, Los Angeles;
B.S. - Northern University
BALANCED GROWTH, AND FULLY DISCRETIONARY
DOUGLAS FORSYTH, CFA
Portfolio Manager
Joined firm in 1994; 3 years prior investment management experience with AEGON
USA
B.B.A. - University of Iowa
HIGH YIELD BOND
JAN FRIEDLI
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with Stone
Capital Management, PIMCO, and the Vanguard Group, Inc.
M.B.A. - University of Chicago, B.S. - Villanova University
HIGH YIELD BOND
SUSAN MALONE
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with BEA
Associates
M.B.A. - New York University; B.S. - Carnegie Mellon University
BALANCED GROWTH
ASHVIN SYAL, CFA
Portfolio Manager
Joined firm in 1996; Six years prior investment management experience with
Payden & Rygel
M.B.A. - University of California, Los Angeles;
M.M.S. and B.S. - University of Bombay
FULLY DISCRETIONARY
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RISK FACTORS AND SPECIAL CONSIDERATIONS
MUTUAL FUND CONSIDERATIONS IN GENERAL
Prospective investors should know that any mutual fund investment is subject to
market fluctuations and other risks inherent in investing in securities. There
can be no assurance that your investment will increase in value. The value of
your investment will go up and down depending upon market forces and you may not
recoup your original investment. You should consider an investment in any of
the Funds a long-term investment.
DERIVATIVE CONTRACTS AND SECURITIES CONSIDERATIONS
The term "derivative" traditionally applies to certain contracts that "derive"
their value from changes in the value of underlying securities, currencies,
commodities or indices. Investors refer to certain types of securities that
incorporate the performance characteristics of these contracts as derivatives.
Derivatives are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. These include
swap agreements, options, futures, and convertible securities. The Trust seeks
to use derivative contracts and securities to reduce a Fund's volatility and
increase its total performance. While the price reaction of certain derivatives
to market changes may differ from traditional investments such as stocks and
bonds, derivatives do not necessarily present greater market risks than
traditional investments. Derivatives are also subject to credit risks related
to the counterparty's ability to perform, and any deterioration in the
counterparty's creditworthiness could adversely affect the instrument. The
Funds will only use derivatives in manner consistent with their investment
objectives, policies and limitations.
GLOBAL INVESTING CONSIDERATIONS
CURRENCY FLUCTUATIONS. Because the assets in each Funds may be invested in
instruments issued by foreign companies, the principal, income and sales
proceeds may be paid to the Funds in local foreign currencies. A reduction in
the value of local currencies relative to the U.S. dollar could mean a
corresponding reduction in the value of the Funds. The value of a foreign
security generally tends to decrease when the value of the U.S. dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the dollar falls against such currency. The Funds
may incur costs in connection with conversions between currencies.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. Such
instability may result from, among other things, the following: authoritarian
governments; popular unrest associated with demands for improved political,
economic and social conditions; internal insurgencies and terrorist activities;
hostile relations with neighboring countries; and drug trafficking. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ favorably or unfavorably and
significantly from the economy of the United States in such respects as the rate
of growth of gross domestic product, rate of inflation, currency depreciation,
savings rates, fiscal balances, and balance of payments positions. Governments
of many foreign countries continue to exercise substantial control over private
enterprise and own or control many companies. Government actions could have a
significant impact on economic conditions in certain countries which could
affect the value of the securities of the Funds. For example, a foreign country
could nationalize an entire industry. In such a case, the Funds may not be
fairly compensated for their losses and might lose their entire investment in
the country involved.
The economies of certain foreign countries are heavily dependent upon
international trade and accordingly are affected by protective trade barriers
and the economic conditions of their trading partners. The enactment by the
United States or other principal trading partners of protectionist legislation
could have a significant adverse effect on the securities markets of these
countries. Some foreign countries (mostly in Africa and Latin America) are
large debtors of commercial banks, foreign governments, and supranational
organizations. These obligations, as well as future restructurings of debt, may
affect the economic performance and political and social stability of these
countries.
For example, Hong Kong transferred its sovereignty from Great Britain to the
People's Republic of China in 1997. China has espoused policies antagonistic to
free enterprise capitalism and democracy. There can be no assurance that China
will continue to protect property rights in Hong Kong after 1997, although China
has moved toward free enterprise, and has established stock exchanges of its
own.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price
controls may continue to have unpredictable effects on the economies, companies
and securities markets of these countries.
MARKET CHARACTERISTICS
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time. In addition, the
securities markets of some foreign countries are susceptible to being influenced
by large investors trading significant blocks of stocks.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Local commercial, corporation and securities
laws govern the sale and resale of securities, and certain restrictions may
apply. Although brokerage commissions are generally higher than those in the
U.S., the Investment Adviser will seek to achieve the most favorable net
results. In addition, securities settlements and clearance procedures may be
less developed and less reliable than those in the United States. Delays in
settlement could result in temporary periods in which the assets of the Funds
are not fully invested, or could result in a Fund being unable to sell a
security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and
transfer of securities in foreign markets can be less developed than similar
systems in the United States. There may be no standardized process for
registration of securities or a central registration system to track share
ownership. The process for transferring shares may be cumbersome, costly,
time-consuming and uncertain. For example, the share registrar may require a
shareholder to travel to that country to present required documentation before
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buying or selling securities. In some instances, there may be no
requirements to maintain back-up shareholder records. Failure by the share
registrar to properly maintain shareholder records, protect the same against
fire or computer virus, or carry adequate insurance against such occurrences,
potentially could result in a loss of a Fund's investment in those securities.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are in many respects less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect
the true condition of those issuers and securities markets.
LOWER RATED SECURITIES
CONSIDERATIONS
These securities usually offer higher yields than higher rated securities but
are also subject to more risk than higher rated securities. Lower-rated or
unrated debt obligations are more likely to react to developments affecting
market and credit risks that are more high-rated securities, which react
primarily to movements in the past level of interest rates. In the past,
economic downturns or increases in interest rates caused a higher incidence of
default by issuers of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.
THE FUNDS' INVESTMENTS
EQUITY SECURITIES. Equity securities include common stocks, convertible
securities and warrants. The Funds may invest in growth companies, cyclical
companies, companies with smaller market capitalizations, or companies believed
to be undergoing a basic change in operations or markets. Although equity
securities have a history of long-term growth in value, their prices rise and
fall as a result of changes in the company's financial condition as well as
movements in the overall securities markets.
SMALLER ISSUERS. Smaller and medium sized issuers may be less seasoned, have
more limited product lines, markets, financial resources and management depth,
and be more susceptible to adverse market conditions than larger issuers. As a
result, the securities of such smaller issuers may be less actively traded than
those of larger issuers and may also experience greater market volatility.
CONVERTIBLE SECURITIES. A convertible security is a fixed income equity
security that may be converted into a prescribed amount of common stock at a
specified formula. A convertible security entitles the owner to receive
interest until the security matures or is converted. Convertibles have several
unique investment characteristics such as: (a) higher yields than common stocks
but lower yields than straight debt securities; (b) lesser degree of fluctuation
in value than the underlying stock since they have fixed income characteristics;
and (c) potential for capital appreciation if the market price of the underlying
security increases.
CORPORATE DEBT SECURITIES. Corporate debt securities are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligation
(credit risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the credit-worthiness of the
issuer and general market liquidity (market risk). When interest rates decline,
the value of the Funds' debt securities can be expected to rise, and when
interest rates rise, the value of those securities can be expected to decline.
Debt securities with longer maturities tend to be more sensitive to interest
rate movements than those with shorter maturities.
Debt obligations carry a rating of at least BAA from Moody's or BBB from
Standard and Poor's, or a comparable rating from another rating agency or, if
not rated by an agency, determined by the Investment Adviser to be of comparable
quality. Bonds rated BBB or Baa may have speculative characteristics and
changes in economic circumstances are more likely to lead to a weakened
capacity to make interest and principal payments than higher rated bonds. For
a further explanation of these ratings, see the Statement of Additional
Information.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities such as U.S. Treasury bills, notes, bonds, and
certificates issued by the Government National Mortgage Association (GNMA) are
supported by the full faith and credit of the United States. Other U.S.
Government securities, such as securities issued by the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Bank Board, are supported
by the right of the issuer to borrow from the U.S. Treasury. Still others, such
as the Student Loan Marketing Association, are supported only by the credit of
the issuer. U.S. Government securities may include zero coupon securities that
are issued or purchased at a significant discount from face value.
ZERO COUPON SECURITIES. The Income & Growth and Balanced Growth Funds may
invest up to 35% of their net assets in zero coupon securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities. These
securities are sold at a substantial discount from face value and redeemed at
face value at their maturity date without interim payments of principal and
interest. They may be subject to greater volatility than other securities. In
addition, because income is accrued on a current basis, a Fund may have to sell
other portfolio securities to make necessary income distributions.
MORTGAGE-RELATED SECURITIES. Collateralized Mortgage Obligations (CMO's) are
debt obligations collateralized by a pool of mortgage loans or mortgage
passes-through securities. Typically CMOs are collateralized by certificates
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
such as GNMA. GNMA certificates are mortgaged-backed securities representing
part ownership of a pool of mortgage loans, which are issued by lenders such as
mortgage bankers, commercial banks, and savings
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associations, and are either insured by the Federal Housing Administration or
the Veterans Administration.
ASSET BACKED SECURITIES. The non-mortgage-related asset-backed securities in
which the High Yield Bond, Strategic Income, Short-Intermediate and Fully
Discretionary Funds invest include, but are not limited to, interests in
pools of receivables, such as credit card and accounts receivables and motor
vehicle and other installment purchase obligations and leases. Interests in
these pools are not backed by the U.S. Government and may or may not be
secured.
The credit characteristic of asset-backed securities differs in a number of
respects from that of traditional debt securities. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to other debt obligations, and there is a possibility that recoveries
on repossessed collateral may not be available to support payment on these
securities
SOVEREIGN DEBT SECURITIES. The sovereign debt in which the Funds may invest may
be rated below investment grade. These securities usually offer higher yields
than higher rated securities but are also subject to greater risk than higher
rated securities.
BRADY BONDS. Brady bonds represent a type of sovereign debt known as Brady
Bonds. These obligations were created under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady, in which
foreign entities issued these obligations in exchange for their existing
commercial bank loans. Brady Bonds have been issued by Argentina, Brazil, Costa
Rica, Dominican Republic, Mexico, Philippines, Uruguay and Venezuela, and may be
issued by other emerging countries.
INVESTMENT COMPANY SECURITIES. Each Fund may invest up to 10% of its total
assets in the shares of other investment companies. The Funds may invest in
money market mutual funds in connection with the management of their daily cash
positions. The Funds may also make indirect foreign investments through other
investment companies that have comparable investment objectives and policies as
the Funds. In addition to the advisory and operational fees each Fund bears
directly in connection with its own operation, the Funds would also bear their
pro rata portions of each other investment company's advisory and operational
expenses.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
securities that are considered illiquid. An illiquid investment is generally an
investment that is not registered in the under U.S. securities laws, or cannot
be disposed of within seven days in the normal course of business at
approximately the amount at which the Fund values it. Limitations on resale may
adversely affect the marketability of illiquid securities and the Fund may not
be able to dispose of these securities at the desired time and price. A Fund
may bear additional expenses if it has to register these securities under U.S.
securities laws before being resold.
TEMPORARY INVESTMENTS. The Funds may from time to time on a temporary basis to
maintain liquidity or when the Investment Adviser determines that the market
conditions call for a temporary defensive posture, invest all of their assets
in short-term instruments. These temporary investments include: notes issued
or guaranteed by the U.S. government, its agencies or instrumentalities;
commercial paper rated in the highest two rating categories; certificates of
deposit; repurchase agreements and other high grade corporate debt securities.
THE FUNDS' INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements that is
the purchase by the Fund of a security that seller has agreed to buy back,
usually within one to seven days. The seller's promise to repurchase the
security is fully collateralized by securities equal in value to 102% of the
purchase price, including accrued interest. If the seller defaults and the
collateral value declines, the Fund might incur a loss. If the seller declares
bankruptcy, the Fund may not be able to sell the collateral at the desired time.
The Funds enter into these agreements only with brokers, dealers, or banks that
meet credit quality standards established by the Board of Trustees.
SECURITIES SWAPS. Securities swaps represent a technique primarily used to
indirectly participate in the securities market of a country from which a Fund
would otherwise be precluded for lack of an established securities custody and
safekeeping system. The Fund deposits an amount of cash with its custodian (or
the broker, if legally permitted) in an amount equal to the selling price of the
underlying security. Thereafter, the Fund pays or receives cash from the broker
equal to the change in the value of the underlying security.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has
been borrowed from a third party on the expectation that the market price will
drop. If the price of the security drops, the Fund will make a profit by
purchasing the security in the open market at lower price than at which it sold
the security. If the price of the security rises, the Fund may have to cover
its short position at a higher price than the short sale price, resulting in a
loss. A short sale can be covered or uncovered. In a covered short sale, the
Fund either (1) borrows and sells securities it already owns (also known as a
short sale "against the box"), or (2) deposits in a segregated account cash,
U.S. government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk. Accordingly, a Fund will not make uncovered short
sales in an amount exceeding the lesser of 2% of the Fund's net assets or 2% of
the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase or sell
securities for delivery at a future date, generally 15 to 45 days after the
commitment is made. The other party's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous. A 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
securities.
BORROWING. Each Fund may borrow up to 20% of its total assets for temporary,
extraordinary or emergency purposes. Each Fund may also borrow money through
reverse repurchase agreements, uncovered short sales, and other techniques. All
borrowings by a Fund cannot exceed one-third of a Fund's total assets. As a
consequence of borrowing, a Fund will incur obligations to pay interest,
resulting in an increase in expenses.
SECURITIES LENDING. Each Fund may lend securities to financial institutions
such as banks, broker/dealers and other recognized institutional investors in
amounts up to 30% of the Fund's total assets. These loans earn income for the
Fund and are collateralized by cash, securities, letters of credit or any
combination thereof. The
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Fund might experience loss if the financial institution defaults on the
loan.
FOREIGN CURRENCY TRANSACTIONS. Each Fund investing in foreign securities may
enter in to foreign currency transactions either on a spot or cash basis at
prevailing rates or through forward foreign currency exchange contracts in
order to have the necessary currencies to settle transactions. Each Fund may
also enter into foreign currency transactions to protect Fund assets against
adverse changes in foreign currency exchange rates. Such efforts could limit
potential gains that might result from a relative increase in the value of
such currencies, and might, in certain cases, result in losses to a Fund.
OPTIONS. Certain Funds may deal in options on securities, securities indices
and foreign currencies. The Funds may use options to manage stock prices,
interest rate and currency risks. A Fund may not purchase or sell options if
more than 25% of its net assets would be hedged. The Funds may also write
covered call options and secured put options to seek to generate income or lock
in gains on up to 25% of their net assets.
FUTURES AND OPTIONS ON FUTURES. Certain Funds may enter into futures contracts,
or options thereon, involving foreign currency, interest rates, securities, and
securities indices, for hedging purposes only. 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. As a
general rule, no Fund will purchase or sell futures if, immediately thereafter,
more than 25% of its net assets would be hedged.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. When a Fund uses options, futures and
options on futures as hedging devices, there is a risk that the prices of the
hedging vehicles may not correlate perfectly with the prices of the securities
in the portfolio. This may cause the futures contract and any related options
to react differently than the Fund's portfolio securities to market changes. In
addition, the Investment Adviser could be incorrect in its expectations about
the direction or the extent of market movements. In these events, a Fund could
lose money on the futures contracts or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market will exist for these instruments.
NON-HEDGING STRATEGIC TRANSACTIONS (STRATEGIC INCOME FUND). Each Fund's
options, futures and swap transactions will generally be entered into for
hedging purposes - to protect against possible changes in the market values of
securities held in or to be purchased for the Fund's portfolio resulting from
securities markets, currency, or interest rate fluctuations, to protect the
Fund's unrealized gains in the values of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's Portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchase or sale of particular
securities. However, in addition to the hedging transactions referred to above,
the Strategic Income Fund may enter into options, futures and swap transactions
to enhance potential gain in circumstances where hedging is not involved. The
Fund's net loss exposure resulting from transactions entered into for such
purposes will not exceed 5% of the Fund's net assets at any one time and , to
the extent necessary, the Fund will close out transactions in order to comply
with this limitation. Such transactions are subject to the limitations
described above under "Options" and "Futures and Options on Futures."
CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds rated Aa are judged to be 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 other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa 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.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
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AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB - rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B -
Rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
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FOR MORE INFORMATION
Two documents are available that offer further information on the
Nicholas-Applegate Mutual Funds:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management, and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the Funds.
A current SAI has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus.
To request a free copy of the current annual/semi-annual report or SAI , please
call or write:
Nicholas-Applegate Mutual Funds
P.O. Box 82169
San Diego, CA 92138-2169
Telephone: (800) 551-8643
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PRELIMINARY PROSPECTUS
The prospectus contains vital information about the Class Q Shares of these
Funds. For your own benefit and protection, please read it before you invest,
and keep it on hand for future reference.
Please note that these Shares
- are not bank deposits
- are not federally insured
- are not endorsed by any bank or government agency
- are not guaranteed to achieve their investment objectives
THE HIGH YIELD BOND FUND MAY INVEST WITHOUT LIMITATION IN DEBT SECURITIES RATED
BELOW INVESTMENT GRADE, SOMETIMES REFERRED TO AS "JUNK BONDS." THESE
LOWER-RATED SECURITIES ARE SPECULATIVE AND INVOLVE GREATER RISKS, INCLUDING
DEFAULT, THAN HIGHER-RATED SECURITIES. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS."
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
GLOBAL FUNDS
- --------------------------------------------------------------------------------
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries
US FUNDS
- --------------------------------------------------------------------------------
Large Cap Growth
Core Growth
Value
Emerging Growth
Mini Cap
Income & Growth
Balanced Growth
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Fully Discretionary
High Yield Bond
, 1998
------
THIS PRELIMINARY PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT WITHOUT
NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED
PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO
CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF
SUCH JURISDICTION.
1
<PAGE>
TABLE OF CONTENTS
OVERVIEW
A FUND BY FUND LOOK AT GOALS, STRATEGIES, RISKS, AND FINANCIAL HISTORY.
GLOBAL FUNDS
- --------------------------------------------------------------------------------
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries
US FUNDS
- --------------------------------------------------------------------------------
Large Cap
Core Growth
Value
Emerging Growth
Mini Cap
Income & Growth
Balanced Growth
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Fully Discretionary
High Yield Bond
SIMPLIFIED ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Opening an Account
Buying Shares
Signature Guarantees
Exchanging Shares
Selling and Redeeming Shares
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING AND CLOSING AN ACCOUNT IN ANY
FUND
YOUR ACCOUNT
- --------------------------------------------------------------------------------
Transaction Policies
Features and Account Policies
ORGANIZATION AND MANAGEMENT
- -----------------------------------
Investment Adviser Compensation
Administrator Compensation
Distributor
Portfolio Trades
Investment Objectives
Diversification
Portfolio Teams
DETAILS THAT APPLY TO THE FUNDS AS A GROUP.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
- --------------------------------------------------------------------------------
2
<PAGE>
OVERVIEW
FUND INFORMATION
Concise Fund descriptions begin on the next page. Each description provides the
following information:
INVESTMENT OBJECTIVE
The Fund's particular investment goal.
INVESTMENT STRATEGY
The strategy the Fund intends to use in pursuing the investment objective.
PRINCIPAL INVESTMENTS
The primary types of securities in which the Fund invests. Secondary
investments are described in "Risk Factors and Special Considerations" at the
end of the prospectus.
RISK FACTORS
The major risk factors associated with the Fund. Other risk factors are also
described in "Risk Factors and Special Considerations."
INVESTOR EXPENSES
The overall costs borne by an investor in the Class Q Shares, including sales
charges and annual expenses.
FINANCIAL HIGHLIGHTS
A table showing the financial performance for each predecessor Portfolio since
inception.
GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS
The Nicholas-Applegate Mutual Funds (the "Trust") are designed to provide
investors with a well rounded investment program by offering investors various
portfolios each with different investment objectives and policies (each a
"Fund"). The Class Q Shares of each Fund represent interests in an open-end
diversified open-end management investment company (a mutual fund).
Each Fund employs its own strategy and has its own risk/reward profile. Because
you could lose money by investing in these Funds, be sure to read all risk
disclosures carefully before investing.
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS
- those are investing for retirement or other long term goals
- those want higher potential for gain but who are willing to accept
higher risks associated with investing in foreign companies
- those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS
- those who are investing with a shorter time frame
- those who are uncomfortable with an investment that will go up and
down in value
- those who are unable to accept the special risks associated with
foreign investing
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS
- those who are investing for retirement or other long term goals
- those who desire current income
- those who want a high level of liquidity
- those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS
- those who are investing with a shorter time frame
- those who are uncomfortable with an investment that will go up and
down in value
THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
investment adviser to the Funds. Arthur E. Nicholas and 14 other partners with
a staff of approximately 400 employees currently manage over $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.
3
<PAGE>
INTERNATIONAL CORE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout the world,
and systematic disciplines to uncover signs of "change at the margin" - positive
business developments which are not yet fully reflected in a company's stock
price. It gathers financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
The Fund invests in the larger capitalized companies in each country.
Generally, this means issuers in each country whose market capitalizations are
in the top 75% of publicly traded companies as measured by capitalizations in
that country. Under normal conditions, the Fund invests at least 65% of its
total assets in securities of issuers located in at least three countries
outside the U.S. The Fund may invest up to 35% of its total assets in U.S.
issuers.
Under normal conditions, the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of foreign companies
and foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete listing of the portfolio
team, see "Portfolio Teams" on page .
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
As with any international fund, performance also depends upon changing values in
foreign currencies, different political and regulatory environments, and other
overall economic factors in the countries where the Fund invests. For further
explanation, see "Risk Factors and Special Considerations" starting on page____.
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.65%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.65%
- -------------------------
(1) The Investment Adviser has agreed to defers its management fees and to
absorb other operating expenses. Total operating expenses would have been
2,667% and Other expenses would have been 2,567% absent the deferral. See
Investment Adviser Compensation".
4
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$17 $52 $90 $195
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
2/28/97 4/1/97
to to
3/31/97 9/30/97
- ----------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.75
Income from investment operations:
Net investment income (deficit) -- (0.01)
Net realized and unrealized gains (losses)
on securities and foreign currency (0.25) 3.43
- ----------------------------------------------------------------------
Total from investment operations (0.25) 3.42
Less distributions:
Dividends from net investment income -- --
Distributions from capital gains -- --
- ----------------------------------------------------------------------
Net asset value, end of period $12.75 $16.17
- ----------------------------------------------------------------------
TOTAL RETURN: (2.00%) 26.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,020 $1,135,428
Ratio of expenses to average net assets,
after expense reimbursement -- 1.66%*
Ratio of expenses to average net assets,
before expense reimbursement+ 2.667%* 6.16%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement+ -- (0.37%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement+ (2,666%)* (4.88%)*
Portfolio turnover** 75.53% 89.81%
Average commission rate paid** $0.0106 $0.0111
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
5
<PAGE>
WORLDWIDE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout the world,
and systematic disciplines to uncover signs of "change at the margin" - positive
business developments which are not yet fully reflected in a company's stock
price. It gathers financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries, one of
which may be the U.S. The Fund may invest up to 50% of its total assets in U.S.
issuers.
Under normal conditions the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests
the remainder in investment grade debt securities of foreign companies and
foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize it's overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
The securities of small, less well-known companies may be more volatile than
those of larger companies. As with any international fund, performance also
depends upon changing currency values, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. The risks are magnified in countries with emerging markets, since
these countries may have unstable governments and less established markets. For
a further explanation, see "Risk Factors and Special Considerations" starting on
page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.60%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)1 1.60%
- --------------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
34.99% and Other expenses would have been 33.99% absent the deferral. See
"Investment Adviser Compensation".
6
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$16 $50 $87 $190
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
8/31/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.27 $15.00
Income from investment operations:
Net investment income (deficit) (0.04) 0.01 (0.02)
Net realized and unrealized gains (losses)
on securities and foreign currency 0.81 1.72 3.96
- --------------------------------------------------------------------------------
Total from investment operations 0.77 1.73 3.94
Less distributions::
Dividends from net investment income -- --
Distributions from capital gains -- -- --
- --------------------------------------------------------------------------------
Net asset value, end of period $13.27 $15.00 $18.94
- --------------------------------------------------------------------------------
TOTAL RETURN: 6.32% 12.87% 26.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,115 $641,965 $889,973
Ratio of expenses to average net assets,
after expense reimbursement+ 1.60% 1.61% 1.66%*
Ratio of expenses to average net assets,
before expense reimbursement+ 3.233%* 34.99% 6.16%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement+ (0.50%)* (0.91%)* (0.37%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement+ (3,231%)* 34.23% (4.88%)*
Portfolio turnover** 132.20% 181.81% 90.09%
Average commission rate paid** $0.0187 $0.0078 $0.0111
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
7
<PAGE>
INTERNATIONAL SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout the world,
and systematic disciplines to uncover signs of "change at the margin" - positive
business developments which are not yet fully reflected in a company's stock
price. It gather financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
The Fund emphasizes companies in the bottom 75% of publicly traded companies as
measured by market capitalizations in each country ("small cap securities").
The Fund may have less U.S. exposure (up to 35% of its total assets in U.S.
issuers) than the Worldwide Growth Fund.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests 65% of its total assets in small cap
securities of issuers located in at least three different countries outside the
U.S. Under normal conditions, the Fund invests at least 75% of its total assets
in common and preferred stock, warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of foreign companies
and foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
As with any international fund, the Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. In
addition to the risks posed by foreign investing, the securities of smaller,
less well-known companies may be more volatile than larger companies and may
trade less frequently. The information regarding these smaller companies may
also be less available, incomplete or inaccurate. Accordingly, the securities
of the companies in which the Fund invests may be more volatile and speculative
than those of larger companies. The risks are magnified in countries with
emerging markets since these countries may have unstable governments and less
established markets. For further explanation, see "Risk Factors and Special
Considerations" starting on page ____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.65%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)1 1.65%
- -------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
151.33% and Other expenses would have been 150.33% absent the deferral.
See "Investment Adviser Compensation".
8
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$17 $52 $90 $195
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
8/31/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.52 $14.01
Income from investment operations:
Net investment income (deficit) 0.01 (0.06) 0.01
Net realized and unrealized gains (losses)
on securities and foreign currency 1.01 2.01 2.93
- --------------------------------------------------------------------------------
Total from investment operations 1.02 1.95 2.94
Less distributions::
Dividends from net investment income -- -- --
Distributions from capital gains -- (1.46) --
- --------------------------------------------------------------------------------
Net asset value, end of period $13.52 $14.01 $16.95
- --------------------------------------------------------------------------------
TOTAL RETURN: 8.16% 15.03% 20.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $19,082 $42,150 $183,119
Ratio of expenses to average net assets,
after expense reimbursement+ 1.65%* 1.66% 1.66%*
Ratio of expenses to average net assets,
before expense reimbursement+ 531.72%* 151.33% 22.61%*
Ratio of net investment income (deficit)
to average net assets, after
expense reimbursement+ 0.33%* (64%) (0.74%)*
Ratio of net investment income (deficit)
to average net assets, before
expense reimbursement+ 529.11%* (150.28%) (21.69%)*
Portfolio turnover** 141.02% 206.07% 103.72%
Average commission rate paid** $0.0128 $0.0098 $0.0091
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
9
<PAGE>
EMERGING COUNTRIES FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests primarily in equity securities of issuers located in countries
with emerging securities markets - that is, countries with securities markets
which are, in the opinion of the Investment Adviser, emerging as investment
markets but have yet to reach a level of maturity associated with developed
foreign stock markets, especially in terms of participation by foreign
investors. The Investment Adviser seeks issuers in the early stages of
development, growth companies, cyclical companies, or companies believed to be
undergoing a basic change in operations. The Investment Adviser currently
selects portfolio securities from an investment universe of approximately 6,000
foreign issuers in over 20 emerging markets.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries. These
countries include but are not limited to: Argentina, Brazil, Chile, China,
Columbia, the Czech Republic, Greece, Hungary, India, Indonesia, Israel, Jordon,
Malaysia, South Africa, South Korea, Taiwan, Thailand, Italy and Venezuela.
Under normal market conditions, the Fund invests at least 75% of its total
assets in corporate stock (common and preferred), warrants and convertible
securities. It invests the remainder primarily in investment grade bonds of
foreign companies and foreign governments, and their agencies and
instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
As with any fund investing in foreign securities, the Fund's performance also
depends upon changing currency values, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. Emerging countries markets may present greater opportunity for gain,
but also involve greater risk than more developed markets. These countries tend
to have less stable governments and less established markets. The markets tend
to be less liquid and more volatile, and offer less regulatory protection for
investors. The economies of emerging countries may be predominantly based on
only a few industries or dependent on revenue from particular commodities,
international aid or other assistance. For further explanation, see "Risk
Factors and Special Considerations" starting on page .
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.25%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.65%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.90%
- ------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
4.20% and Other expenses would have been 2.95% absent the deferral. See
"Investment Adviser Compensation".
10
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$19 $60 $103 $222
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
8/31/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.18 $16.47
Income from investment operations:
Net investment income (deficit) 0.01 (0.04) 0.03
Net realized and unrealized gains (losses)
on securities and foreign currency 0.67 3.37 3.14
- --------------------------------------------------------------------------------
Total from investment operations 0.68 3.33 3.17
Less distributions::
Dividends from net investment income -- --
Distributions from capital gains -- -- --
- --------------------------------------------------------------------------------
Net asset value, end of period $13.18 $16.47 $19.64
- --------------------------------------------------------------------------------
TOTAL RETURN: 5.44% 25.29% 19.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $350,058 $8,660,367 $26,971,216
Ratio of expenses to average net assets,
after expense reimbursement+ 1.90%* 1.91% 1.91%*
Ratio of expenses to average net assets,
before expense reimbursement+ 44.24%* 4.20% 2.26%*
Ratio of net investment income (deficit)
to average net assets, after
expense reimbursement+ 0.47% (0.87%)* 0.25%*
Ratio of net investment income (deficit)
to average net assets, before
expense reimbursement+ (35.33%) (3.20%) (0.11%)*
Portfolio turnover** 118.21% 176.20%% 119.86%
Average commission rate paid** $0.0022 $0.0021 $0.0022
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
11
<PAGE>
LARGE CAP GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin" - positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes equity securities of U.S. companies with market
capitalizations generally above $3 billion and whose earnings and stock prices
are expected to grow faster than the S&P 500 ("large cap securities").
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
large cap securities, including common and preferred stocks, warrants, and
convertible securities of U.S. companies. It invests the remainder of its
assets primarily in investment grade corporate debt securities, U.S. Government
securities, and securities of foreign issuers. The Fund may also use options
and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets as well as in response to the activities
of individual companies. To the extent the Fund is overweighted in certain
market sectors compared to the S&P 500, the Fund may be more volatile than the
S&P 500. Additionally, to the extent the Fund invests in foreign issuers, the
risks and volatility are magnified since the performance of foreign stocks also
depends on changes in foreign currency values, different regulatory and
political environments, and overall political and economic conditions in
countries where the Fund invests. For further explanation, see "Risk Factors
and Special Considerations" starting on page .
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%
- ------------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. For the fiscal year ending March
31,1998 Total operating expenses would have been 2.00% and Other
expenses are expected to be 1.25% absent the deferral. See "Investment
Adviser Compensation".
12
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------
1 Year 3 Years
- --------------------------------------
$13 $40
- --------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The figures for the period ending September 30, 1997 are unaudited. Please read
in conjunction with the Trust's 1997-1998 Semi-Annual Report.
7/21/97
to
9/30/97
PER SHARE DATA:
Net asset value, beginning of period $12.50
Income from investment operations:
Net investment income (deficit) --
Net realized and unrealized gains (losses)
on securities and foreign currency 0.91
- --------------------------------------------------------------------------------
Total from investment operations 0.91
Less distributions::
Dividends from net investment income --
Distributions from capital gains --
Net asset value, end of period $13.41
- --------------------------------------------------------------------------------
TOTAL RETURN: 38.25%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $24,283
Ratio of expenses to average net assets,
after expense reimbursement+ 1.23%*
Ratio of expenses to average net assets,
before expense reimbursement+ 17.22%*
Ratio of net investment income (deficit)
to average net assets, after
expense reimbursement+ (0.28)%
Ratio of net investment income (deficit)
to average net assets, before
expense reimbursement+ (16.27%)
Portfolio turnover** 269.87%
Average commission rate paid** $0.0599
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
13
<PAGE>
CORE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin" - positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations above $500 million.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder of its assets primarily in preferred
and convertible securities, investment grade debt securities, and securities
issued by the U.S. Government and its agencies and instrumentalities. The Fund
may invest up to 20% of its total assets in foreign securities. The Fund may
also use options and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. The companies in which the Fund
invests may be more subject to volatile market movements than securities of
larger, more established companies. To the extent the Fund invests in foreign
securities, the risks and volatility are magnified since the performance of
foreign stocks also depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations" starting on page .
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%
- ------------------------
(1) The Investment Advisor has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
1.84% and Other expenses would have been 1.09% absent the deferral. See
"Investment Adviser Compensation".
14
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$13 $40 $69 $151
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
<TABLE>
<CAPTION>
6/30/94 4/1/95 4/1/96 4/1/97
to to to to
3/31/95 3/31/96 3/31/97 9/30/97
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.66 $17.99 $18.01
Income from investment operations:
Net investment income (deficit) (0.02) (0.07) (0.04) (0.08)
Net realized and unrealized gains (losses)
on securities and foreign currency 1.18 4.86 0.32 5.53
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.16 4.79 0.28 5.45
Less distributions::
Dividends from net investment income -- -- --
Distributions from capital gains -- (0.46) (0.26) --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $13.66 $17.99 $18.01 $23.46
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN: (9.28%) 35.37% 1.39% 30.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $2,121 $4,724 $13,115 $13,836,183
Ratio of expenses to average net assets,
after expense reimbursement+ 1.24%* 1.23% 1.25% 1.24%
Ratio of expenses to average net assets,
before expense reimbursement+ 3.52%* 2.84% 1.84% 2.04%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ (0.33%)* (0.57%) (0.69%) (0.47%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (1.61%)* (2.18%) (1.28%) (1.27%)*
Portfolio turnover** 98.09% 114.48% 153.20% 99.41%
Average commission rate paid** N/A $0.0593 $0.0582 $0.0581
</TABLE>
- ----------------------
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
15
<PAGE>
VALUE FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin" - positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations generally above $5
billion.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities. It invests the remainder primarily in preferred and
convertible securities, investment grade debt securities, and securities issued
by the U.S. Government and its agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.
The Fund's portfolio is designed to have risk, capitalization and industry
characteristics similar to those of the S&P 500 Index.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
As with any equity fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. The companies in which the Fund will
invest may be more subject to volatile market movements than securities of
larger, more established companies. To the extent the Fund invests in foreign
securities, the risks and volatility are magnified since the performance of
foreign stocks depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations: starting on page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%
- -----------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses for fiscal year
ending March 31, 1998 are estimated to be 3.34% and Other expenses are
estimated to be 2.69% absent the deferral. See "Investment Adviser
Compensation".
16
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- -------------------------------------
1 Year 3 Years
- -------------------------------------
$13 $40
- -------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
17
<PAGE>
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin" - positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations below $500 million at
the time of purchase.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder primarily in preferred and convertible
securities, investment grade debt securities, and securities issued by the U.S.
Government and its agencies and instrumentalities. The Fund may invest up to
20% of its total assets in foreign securities. The Fund may also use options
and futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. Although small-cap stocks have a
history of long-term growth, they tend to be more volatile and speculative than
stocks of larger, more established companies. To the extent the Fund invests in
foreign issuers, the investment risks and volatility are magnified since the
performance of foreign stocks depends on changes in foreign currency values,
different political and regulatory environments, and the overall political and
economic conditions in the foreign countries where the Fund invests. For
further explanation, see "Risk Factors and Special Considerations" starting on
page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.50%
- -------------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
10.79% and Other expenses would have been 9.79% absent the deferral. See
"Investment Adviser Compensation".
18
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- ----------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------
$15 $47 $82 $179
- ----------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
8/1/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
PER SHARE DATA:
Net asset value, beginning of period $12.50 $14.16 $13.19
Income from investment operations:
Net investment income (deficit) (0.03) (0.07) 0.06
Net realized and unrealized gains (losses)
on securities and foreign currency 1.69 (0.77) 6.04
- --------------------------------------------------------------------------------
Total from investment operations 1.66 (0.84) 6.10
Less distributions::
Dividends from net investment income -- -- --
Distributions from capital gains -- (1.13) --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.16 $13.19 $19.29
- --------------------------------------------------------------------------------
TOTAL RETURN: 13.28% (6.03%) 46.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $314 $1,013 $10,481,099
Ratio of expenses to average net assets,
after expense reimbursement+ 1.17%* 1.18% 1.17%*
Ratio of expenses to average net assets,
before expense reimbursement+ 37.86%* 10.79% 2.92%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ (1.05%)* (1.02%) (1.02%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (32.41%)* (10.31%) (2.44%)*
Portfolio turnover** 129.59% 112.90% 46.99%
Average commission rate paid** $0.0523 $0.0520 $0.0531
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
19
<PAGE>
MINI CAP FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin" - positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations generally up to $100
million.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder primarily in preferred and convertible
securities, investment grade debt securities, and securities issued by the U.S.
Government and its agencies and instrumentalities. The Fund may invest up to 20%
of its total assets in foreign securities. The Fund may also use options and
futures contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize it overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
RISK FACTORS
As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. The companies in which the Fund will
invest may be more subject to volatile market movements than securities of
larger, more established companies. To the extent the Fund invests in foreign
securities, the risks and volatility are magnified since the performance of
foreign stocks depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations: starting on page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.25%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.31%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.56%
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
- --------------------------------------------------------------------------------
$16 $49 $85 $185
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- ------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
1.99% and Other expenses would have been 0.74% absent the deferral. See
"Investment Adviser Compensation".
20
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
4/1/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
PER SHARE DATA:
Net asset value, beginning of period $12.50 $15.85 $15.94
Income from investment operations:
Net investment income (deficit) (0.05) (0.17) (0.04)
Net realized and unrealized gains (losses)
on securities and foreign currency 3.40 0.84 9.32
- --------------------------------------------------------------------------------
Total from investment operations 3.35 0.67 9.36
Less distributions::
Dividends from net investment income -- --
Distributions from capital gains -- (0.58) --
- --------------------------------------------------------------------------------
Net asset value, end of period $15.85 $15.94 $25.30
- --------------------------------------------------------------------------------
TOTAL RETURN: 26.80% 3.90% 58.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $25,237 $28,712 $102,223
Ratio of expenses to average net assets,
after expense reimbursement+ 1.55%* 1.56% 1.57%*
Ratio of expenses to average net assets,
before expense reimbursement+ 2.46%* 1.99% 1.88%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ (0.98%)* (1.08%) (1.17%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (1.38%)* (1.30%) (1.48%)*
Portfolio turnover** 106.99% 164.01% 46.43%
Average commission rate paid** $0.0529 $0.0455 $0.0504
- --------------------------
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust
21
<PAGE>
INCOME & GROWTH FUND
INVESTMENT OBJECTIVE
Maximum total return, consisting of long-term capital appreciation and current
income.
INVESTMENT STRATEGY
The Fund invests primarily in convertible securities. The Investment Adviser
evaluates each security's investment characteristics as a fixed income
instrument as well as its potential for capital appreciation. In evaluating
convertibles, the Investment Adviser searches for what it calls "changes at the
margin" - positive business developments which are not yet fully reflected in
the company's stock price. It searches for successful growing companies that
are managing change advantageously and poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
convertible securities. It invests the remainder primarily in common and
preferred stocks, debt securities, and securities issued by the U.S. Government
and its agencies and instrumentalities. The Fund may also use options and
futures contracts as hedging techniques.
At all times, the Fund invests a minimum of 25% of its total assets in common
and preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its total assets in debt
securities rated below investment grade.
The Fund emphasizes companies with market capitalizations above $500 million.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page ____.
RISK FACTORS
Convertible securities have the investment characteristics of both equity and
debt securities. Accordingly, the value of your investment will fluctuate with
movements in the stock and bond markets. The companies in which the Fund
invests may be subject to more volatile market movements than securities of
larger, more established companies. The value of the Fund's debt securities
will change as interest rates fluctuate: if rates go up, the value of debt
securities go down; if rates go down, the value of debt securities go up. In
addition, the lower-rated convertible securities in which the Fund may invest
are considered predominately speculative and are subject to greater volatility
and risk of loss than investment grade securities, particularly in deteriorating
economic periods. For further explanation, see "Risk Factors and Special
Considerations" starting on page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- -------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%
- ---------------
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses would have been 2.90% and
Other expenses would have been 2.15% absent the deferral. See "Investment
Adviser Compensation".
22
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
$13 $40 $69 $151
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Institutional Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8/1/95 4/1/96 4/1/97
TO 3/31/96 TO 3/31/97 TO 9/30/97
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.72 $15.19
Income from investment operations:
Net investment income (deficit) 0.17 0.42 0.47
Net realized and unrealized gains
(losses) on securities and foreign currency 2.12 1.50 2.86
- ---------------------------------------------------------------------------------------------
Total from Investment operations 1.39 1.92 3.25
Less distributions:
Dividends from net investment income 0.17 (0.42) (0.24)
Distributions from capital gains -- (0.03) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $13.72 $15.19 $18.20
- ---------------------------------------------------------------------------------------------
TOTAL RETURN: 11.13% 14.13% 21.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,085 $4,599 $6,293,163
Ratio of expenses to average net assets,
after expense reimbursement+ 1.25%* 1.25% 1.24%
Ratio of expenses to average net assets,
before expense reimbursement+ 9.21%* 2.90% 1.84%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ 3.59%* 3.29% 2.92%*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (4.22%)* 1.61% 2.32%*
Portfolio turnover** 144.97% 166.84% 136.75%
Average commission rate paid** $0.0597 $0.0154 $0.0600
</TABLE>
- ----------------
* Annualized
** For the corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust Fund
23
<PAGE>
BALANCED GROWTH FUND
INVESTMENT OBJECTIVE
A balance of long-term capital appreciation and current income.
INVESTMENT STRATEGY
The Fund's Investment Adviser actively manages a blended portfolio of equity and
fixed income securities with an emphasis on the overall total return. For the
equity portion, the Investment Adviser focuses on a "bottom-up" analysis that
evaluates the financial condition and competitiveness of individual companies.
It primarily uses computer intensive systematic disciplines to uncover "change
at the margin" - positive business developments that are not yet fully reflected
in a company's stock price. The fixed income portion is actively managed to
take advantage of current interest rates and bond market trends by varying the
structure, duration and allocation of fixed income investments from various
business sectors.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund allocates about 60% of its total assets (but
no more than 70% and no less than 50%) to equity securities, with an emphasis on
companies with market capitalizations in excess of $500 million, and about 40%
of its total assets to debt securities issued by corporations and the U.S.
Government and its agencies and instrumentalities. A portion of the Fund 's
total assets (less than 35%) may be invested in debt securities rated below
investment grade. The Fund may invest up to 20% of its total assets in
securities of foreign issuers. The Fund may also use options as hedging
techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page ____.
RISK FACTORS
As with any fund that invests in common stocks and debt obligations, the value
of your investment will fluctuate with movements in the stock and bond markets.
Equity securities in which the Fund invests may be more volatile than securities
of larger, more established companies. The value of the Fund's debt securities
will change as interest rates fluctuate: if rates go up, the value of debt
securities go down; if rates go down, the value of debt securities go up. Debt
securities with longer maturities tend to be more sensitive to interest rate
movements than those with shorter maturities. Lower-rated securities in which
the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. For further explanation, see "Risk Factors and
Special Considerations" starting on page ____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- -------------------------------------------------------------
Total operating expenses (after expense
deferral)(1) 1.25%
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses would have been 126.75% and
Other expenses would have been 126% absent the deferral. See "Investment
Adviser Compensation".
24
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED 1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
$13 $40 $69 $151
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures have been audited by Ernst & Young. L.L.P., with respect to
the fiscal year ended March 31, 1997. Please read in conjunction with the
Trust's 1997 Annual Report and 1997-1998 Semi-Annual Report.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8/1/95 4/1/96 4/1/97
TO 3/31/96 TO 3/31/97 TO 9/30/97
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.69 $13.42
Income from investment operations:
Net investment income (deficit) 0.15 0.24 0.24
Net realized and unrealized gains
(losses) on securities and foreign currency (0.19) 0.73 3.76
- ---------------------------------------------------------------------------------------------
Total from Investment operations (0.34) 0.97 4.00
Less distributions:
Dividends from net investment income (0.15) (0.24) (0.12)
Distributions from capital gains -- -- --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $12.69 $13.42 $17.29
- ---------------------------------------------------------------------------------------------
TOTAL RETURN: 2.77% 7.60% 29.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,231 $72,627 $107,626
Ratio of expenses to average net assets,
after expense reimbursement+ 1.25%* 1.26% 1.26%
Ratio of expenses to average net assets,
before expense reimbursement+ 3,094%* 126.75% 19.37%
Ratio of net investment income (deficit) to
average net assets, after expense reimbursement+ 2.16%* 2.15% 1.59%
Ratio of net investment income (deficit) to
average net assets, before expense reimbursement+ (3.090%)* 123% (16.52%)*
Portfolio turnover** 147.19% 212.95% 136.75%
Average commission rate paid** $0.0594 $0.0586 $0.0600
</TABLE>
- ---------------
* Annualized
** For the corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust Fund
25
<PAGE>
FULLY DISCRETIONARY FIXED INCOME FUND
INVESTMENT OBJECTIVE
Maximum total return.
INVESTMENT STRATEGY
The Fund's Investment Adviser seeks to outperform the total return of an index
of either government/corporate investment grade debt or government/corporate/
mortgage investment grade debt over a full market cycle through an actively
managed diversified portfolio of debt securities. When evaluating any bond, the
Investment Adviser selects bonds based upon a "top down" analysis of economic
trends. Investment philosophy emphasizes interest rate decisions and shifts
among sectors of the bond market. It also analyzes credit quality, the yield to
maturity of the security, and the effect the security will have on the Fund.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets
in investment grade debt securities issued by U.S. and foreign corporations,
U.S. and foreign governments, and their agencies and instrumentalities.
These securities include bonds, notes, mortgage-backed and asset-backed
securities with rates that are fixed, variable or floating. The Fund may invest
up to 20% of its total assets in debt securities rated below investment grade.
For a description of these ratings, see "Corporate Bond Ratings" beginning on
page ____. The Fund may also use options, futures contracts and interest rate
and currency swaps as hedging techniques. The average portfolio duration of the
Fund will range from two to eight years. The Fund may invest up to 30% of its
total assets in securities payable in foreign currencies.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page ____.
RISK FACTORS
As with any fund that invests in bonds, the value of the Fund's investments
fluctuates in response to movements in interest rates. If interest rates go up,
the value of bonds fall; if rates go down, the value of bonds rise. However,
the Investment Adviser expects the Fund's fluctuations to be more moderate than
those of a fund with a longer average duration. The lower-rated debt securities
in which the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. To the extent the Fund invests in foreign
securities, performance also depends upon changing currency values, different
political and economic environments, and other overall economic conditions in
countries where the Fund invests. For further explanation, see "Risk Factors
and Special Considerations" starting on page ____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.45%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- -------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 0.95%
- ---------------
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses would have been 3.74% and
Other expenses would have been 3.29% absent the deferral. See "Investment
Adviser Compensation".
26
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
1 Year 3 Years
- --------------------
$9 $27
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
27
<PAGE>
HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE
High level of current income and capital growth.
INVESTMENT STRATEGY
The Fund invests primarily in lower-rated debt securities commonly referred to
as "junk bonds." When evaluating any bond, the Investment Adviser selects bonds
based upon a combination of both "top-down" analysis of economic trends and
"bottom-up" analysis that evaluates the financial condition and competitiveness
of individual companies. It also analyzes credit quality, the yield to maturity
of the security, and the effect the security will have on the average yield to
maturity of the Fund. The Investment Adviser believes it can lower the risks of
investing in lower-rated debt through these professional management techniques
and through diversification.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund allocates at least 65% of its total assets in
lower-rated debt securities and convertible securities rated below investment
grade. There is no limit on either the portfolio maturity or the acceptable
rating of securities bought by the Fund. For a description of these ratings,
see "Corporate Bond Ratings" beginning on page ____. Securities may bear rates
that are fixed, variable or floating. The Fund may also use options, futures
contracts and interest rate and currency swaps as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page ____.
RISK FACTORS
As with any fund that invests primarily in bonds, the value of the Fund's
investments fluctuates in response to movements in interest rates. When rates
go up, bond prices fall; when rates go down, bond prices rise. Debt securities
with longer maturities tend to be more sensitive to interest rate movements than
those with shorter maturities. Lower-rated securities, while usually offering
higher yields, generally have more risk and volatility than higher-rated
securities because of reduced creditworthiness and greater chance of default.
Periods of high interest rates and recession may adversely affect the issuer's
ability to pay interest and principal. To the extent the Fund invests in
stocks, the value of those investments will fluctuate day to day with movements
in the stock market as well as in response to the activities of individual
companies. The Fund which the Fund invests may be more subject to volatile
market movements than securities of longer, more established companies. To the
extent the Fund invests in foreign securities, performance also depends on
changes in foreign currency values different political and regulatory
environments, and overall economic factors in the countries where the Fund
invests. For further explanation, see "Risk Factors and Special Considerations"
starting on page ____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.60%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.40%
- -------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.00%
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses for the fiscal year ending
March 31, 1998 are estimated to be 1.95% and Other expenses are estimated to be
1.35% absent the deferral. See "Investment Adviser Compensation".
28
<PAGE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED. THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE
AVERAGE ANNUAL RETURN IS 5%.
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
$10 $32 $55 $122
This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.
29
<PAGE>
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<S><C>
OPENING AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
Regular Investment Participants in Qualified Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------------
This is the minimum initial Contact you plan administrator
investment $250,000 or sponsor
- -------------------------------------------------------------------
Use this type of
application New Account Form (Non-Retirement)
- ------------------------------------------------------------------------------------------------------------------------------------
Before completing the Each Fund offers a variety of features, which are described in the "Your Account"
application section of this prospectus. Please read this section before completing the application
- ------------------------------------------------------------------------------------------------------------------------------------
Completing
the application If you need assistance, contact your financial representative, or call us (800) 551-8043.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and send check, payable to:
by CHECK NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
The Trust WILL NOT accept third-party checks.
- ------------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below. You will
If you are sending money need to obtain an account number with the Trust by sending a completed application to:
by BANK WIRE OR ACH NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326. To receive
your account number, call either your financial representative or us at (800) 551-8043.
BUYING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
Regular Investment Participants in Qualified Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------------
This is the minimum $10,000 Contact you plan administrator
subsequent investment or sponsor
- ------------------------------------------------------------------------------------------------------------------------------------
The Trust is generally open on days that the New York Stock Exchange is open. All transactions
The price you will receive received in good order before the market closes receive that day's price.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money Instruct your bank to wire the amount you wish to invest to:
by BANK WIRE STATE STREET BANK & TRUST CO. -- ABA #011000028
DDA #9904-645-0
STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME],[YOUR NAME],[ACCOUNT NAME OR NUMBER]
- ------------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is
If you are sending money active on your bank account. To establish this option, either complete the
by BANK WIRE OR ACH appropriate sections when opening an account, or contact your financial representative,
or call us at (800) 551-8043 for further information. To initiate an ACH
purchase, call the Trust at (800) 551-8043.
EXCHANGING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
Regular Investment Participants in Qualified Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------------
This is the minimum $250,00 Contact your plan administrator or sponsor
exchange amount to open
a new account
- ------------------------------------------------------------------------------------------------------------------------------------
The price you will receive The Trust is generally open on days that the New York Stock Exchange is open. All transactions
received in good order before the market closes receive that day's price
- ------------------------------------------------------------------------------------------------------------------------------------
Things you should know The exchange must be to the Class Q Shares of another Fund and to an account with the same
registration. If opening an account as part of an exchange, you must obtain and read the
prospectus. If you intend to keep money in the Fund you are exchanging from, make sure that you
leave an amount equal to or greater than the Fund's minimum account size (see the "Opening an
Account" section). To protect other investors, the Trust may limit the number of
exchanges you can make. Participants in qualified retirement plans may exchange through
the plan administrator or sponsor and only with those Funds that are included in the plan.
- ------------------------------------------------------------------------------------------------------------------------------------
How to request an Either contact your financial representative, or call the Trust at (800) 551-8043. The Trust will
exchange by PHONE accept a request by phone if this feature was previously established on your account. See the
"Your Account" section for further information.
- ------------------------------------------------------------------------------------------------------------------------------------
How to request an Put your exchange request in writing, including: the name on the account, the name of the Fund
exchange by MAIL and the account number you are exchanging from, the shares or dollar amount you wish to
exchange, and the Fund you wish to exchange to. Mail this request to:
PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
30
<PAGE>
<TABLE>
<S><C>
SELLING OR REDEEMING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
IN WRITING BY PHONE
----------------------------------------------------------------------------------------------------------
Selling shares by phone is a service
option which must be established on your
account prior to making a request. See the
"Your Account" section, or contact your
financial representative or the Trust at
(800) 551-8043 for further information.
The maximum amount which may be requested
Certain requests may require a SIGNATURE by phone, regardless of account size, is
GUARANTEE. See that section below for further $50,000. Amounts greater than that must
information. You may sell up to the full be requested in writing. If you wish to
Things you should know account value. receive your monies by bank wire,
the minimum request is $5,000.
----------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan
administrator/sponsor, you should call them regarding the most efficient way to
sell shares. If you bought shares recently by check, they may not be available to be
sold for up to 15 calendar days from the date of purchase.
Sales by a corporation, trust or fiduciary may have special requirements.
Please call your financial representative, a plan administrator/sponsor or us for
further information.
- ------------------------------------------------------------------------------------------------------------------------------------
The price you will receive The Trust is generally open on days that the New York Stock Exchange is open.
All transactions received in good order before the market closes receive that day's price.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are a participant Makes sales through your plan administrator or sponsor,
in a qualified who is responsible for transmitting orders
retirement plan
- ------------------------------------------------------------------------------------------------------------------------------------
If you want to receive your Please put your request in writing,
monies by BANK WIRE including: the name of the account owners,
account number and the Fund and share Class
you are redeeming from, the share or dollar amount Either contact your financial representative
you wish to sell, signed by all account owners. or call us at (800) 551-8043.
Mail this request to: The proceeds will be sent to the existing
NICHOLAS-APPLEGATE MUTUAL FUNDS, bank wire address listed on the account.
PO BOX 8326, BOSTON, MA 02266 8326.
The check will be sent to the existing bank
wire address listed on the account.
- ------------------------------------------------------------------------------------------------------------------------------------
Either contact your financial representative
or call us at (800) 551-8043.
If you want to receive your The proceeds will be sent to the existing
monies by ACH Please call us at (800) 551-8043. ACH instructions on the account and will
generally be received at your bank two
business days after your request is received.
SIGNATURE GUARANTEE
- ------------------------------------------------------------------------------------------------------------------------------------
A definition A signature guarantee is required of a financial institution to verify the authenticity of an individual's
signature. It can usually be obtained from a broker, commercial or savings bank, or credit union.
- ------------------------------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making a written request for the following reasons:
When you need one 1. When selling more than $50,000 worth of shares;
2. When you want a check or bank wire sent to a name or address that is not currently
listed on the account;
3. To sell shares from an account controlled by a corporation, partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
</TABLE>
31
<PAGE>
YOUR ACCOUNT
TRANSACTION POLICIES
PURCHASE OF SHARES. Class Q Shares are offered at net asset value without a
sales charge to qualified retirement plans, financial and other institutions and
"wrap accounts." The minimum initial investment is $250,000, and the minimum
subsequent investment is $10,000. The Distributor may waive these minimums from
time to time. Certain Funds also offer Class A, B, C and I Shares. You can
obtain more information about these other share Classes from Nicholas-Applegate
Securities at (800) 551-8643.
VALUATION OF SHARES. The net asset value per share (NAV) for Class Q Shares of
the Fund is determined each business day at the close of regular trading on the
New York Stock Exchange (usually 4 p.m. Eastern Time) by dividing a Class' net
assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may
charge you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York stock
Exchange is open, usually Monday-Friday. Buy and sell requests are executed at
the NAV next calculated after your request is received in good order by the
transfer agent or another agent designated by the Trust. Investments by
participants of qualified retirement plans are made through the plan sponsor or
administrator.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund
reserves the right to reject any purchase or to suspend or modify the continuous
offering of its shares. Your financial representative is responsible for
forwarding payment promptly to the transfer agent. The Trust reserves the right
to cancel any buy request if payment is not received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to the Trust,
c/o the Trust's transfer agent,
State Street Bank and Trust Company
Attention: Nicholas-Applegate Mutual Funds
P.O. Box 8326
Boston, MA 02266-8326
Telephone inquiries can be made by calling 1-800-551-8043 or, from outside the
U.S., 1-617-774-5000 (collect).
FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent at the address and telephone number provided above.
RETIREMENT PLANS. You may invest in each Fund through various retirement plans,
including IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans, 457 plans,
and all qualified retirement plans. For further information about any of the
plans, agreements, applications and annual fees, contact the Distributor, your
financial representative or plan sponsor. To determine which retirement plan is
appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. In general, you will receive account statements as follows:
- - After every transaction that affects your account balance.
- - After any changes of name or address of the registered owner(s).
- - In all other circumstances, every quarter.
Every year you will also receive an applicable tax information statement, mailed
by January 31. Participants in qualified retirement plans will receive account
information from their plan sponsor or administrator.
DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends of net investment income as
follows:
ANNUALLY QUARTERLY MONTHLY
- -------- --------- -------
International Core Growth Balanced Growth High Yield Bond
Worldwide Growth Income and Growth FullyDiscretionary
International Small Cap
Emerging Countries
Large Cap Growth
Core Growth
Value
Emerging Growth
Mini Cap
Any net capital gains are distributed annually.
32
<PAGE>
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate
any choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
TAXABILITY OF DIVIDENDS. As long as a Fund meets the requirements for being a
tax-qualified regulated investment company, which each Fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a Fund whether reinvested or taken as
cash, are generally considered taxable. Dividends from a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss on
the transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than the Fund minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Fund may
close out your account and mail you the proceeds. Your account will not be
closed if its drop in value is due to Fund performance.
AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of $250 or
more on a monthly or quarterly basis if you have an account of $15,000 or more
in the Fund. Withdrawal proceeds will normally be received prior to the end of
the month or quarter. See the account application for further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in Class Q Shares of each Fund through automatic withdrawals of specified
amounts from your bank account once an automatic investment plan is established.
See the account application for further details about this service or call the
Transfer Agent at 1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into Class Q Shares of another Fund,
subject to conditions outlined in the Statement of Additional Information and
the applicable provisions of the qualified retirement plan.
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PORTFOLIO TEAMS
EQUITY MANAGEMENT - INTERNATIONAL/GLOBAL
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer - Global Equity Management
Joined firm in 1987; prior investment management experience with
Professional Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S. - University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, EMERGING GROWTH,
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management
experience with Batterymarch Financial Management and
Putnam Management Company
M.B.A. - Harvard University; B.E. - Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES AND VALUE
JOHN J. KANE, PARTNER
Portfolio Manager - U.S. Systematic
Joined firm in 1994; 25 years prior investment
management/economics experience with ARCO Investment
Management Company and General Electric Company
M.A. and B.A. - Columbia University; M.B.A. - University of
California, Los Angeles
WORLDWIDE GROWTH, AND VALUE
AARON HARRIS
Portfolio Manager - Emerging Countries
Joined firm in 1995; 1 year prior investment management
experience at Chemical Bank
B.A. - Princeton University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL
SMALL CAP AND EMERGING COUNTRIES
PEDRO V. MARCAL
Portfolio Manager - Emerging Countries
Joined firm in 1994; 5 years prior investment management
experience with A.B. Laffer, V.A. Canto & Associates, and
A-Mark Precious Metals
B.A. - University of California, San Diego
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL
SMALL CAP AND EMERGING COUNTRIES
ESWAR MENON
Portfolio Manager - Emerging Countries
Joined firm in 1995; 5 years prior investment management
experience with Koeneman Capital Management and
Integrated Device Technology
M.B.A., summa cum laude - University of Chicago;
M.S. - University of California, Santa Barbara;
B.S. - Indian Institute of Technology, Madras
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL
SMALL CAP AND EMERGING COUNTRIES
LORETTA J. MORRIS
Portfolio Manager - International
Joined firm in 1990; 10 years prior investment management
experience with Collins Associates
Attended California State University, Long Beach;
CFA Level II candidate
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH AND INTERNATIONAL
SMALL CAP GROWTH
ALEX MUROMCEW
Portfolio Manager - International
Joined firm in 1996; 6 years prior investment management
experience with Jardine Fleming Securities (Japan); Emerging
Markets Investors Corporation; Teton Partners LP
M.B.A. - Stanford University; B.A. - Dartmouth College
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH AND INTERNATIONAL
SMALL CAP GROWTH
ERNESTO RAMOS, PH.D.
Portfolio Manager - International
Joined firm in 1994; 14 years prior investment management and
quantitative research experience with Batterymarch Financial
Management; Bolt Beranek & Newman Inc.; and Harvard University
Ph.D. - Harvard University; B.S. - Massachusetts Institute of Technology
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH AND
EMERGING COUNTRIES,
JOHN TRIBOLET
Investment Analyst
Joined firm in 1997; 5 years prior experience with Kemper
Securities, Inc. and PaineWebber
M.B.A. - University of Chicago; B.A. - Columbia University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH AND INTERNATIONAL SMALL CAP
JESSICA HILINSKI
Assistant Portfolio Manager
Joined firm in 1996; 3 years prior experience in Eaton Vance
Management and Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
AYLIN UCKUNKAYA
Investment Analyst
Joined firm in 1997; 4 years investment management experience with
Global Securities
B.A. Instanbul University
EMERGING COUNTRIES
JON BORCHARDT
Assistant Portfolio Manager
Joined firm in 1994; 5 years prior investment management
experience with Union Bank
B.S. University of San Francisco
EMERGING COUNTRIES, LATIN AMERICAN FUND
JULIA SZE
Portfolio Manager
Joined firm in 1997; 8 years prior experience with Credit Lyonnais
International Asset Management
M.A. and B.A. Stanford University
PACIFIC RIM FUND
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ORGANIZATION AND MANAGEMENT
INVESTMENT ADVISER COMPENSATION
Each Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement. The Emerging Countries and Mini Cap Funds each pays at the
annual rate of 1.25% of the Fund's net assets. The Worldwide Growth,
International Growth and International Small Cap Funds each pays at the annual
rate of 1.00% on the first $500 million of the Fund's net assets, .90% on the
next 500 million of the Fund's net assets, and .85% on net assets on the Fund in
excess of $1 billion. The Fully Discretionary Fund pays at the annual rate of
0.45% of the first $500 million of the Fund's average net assets, 0.40% of the
next $250 million of net assets, and 0.35% of net assets in excess of $750
million. The High Yield Bond Fund pays at the annual rate of 0.60% of the
Fund's net assets. The Large Cap Growth, Core Growth, Value, Mini Cap, Income &
Growth, and Balanced Growth Funds each pays at the annual rate of 0.75% of the
first $500 million of the Fund's net assets, 0.675% of the next $500 million of
net assets, and 0.65% of net assets in excess of $1 billion.
The Investment Adviser has agreed to waive or defer its management fees payable
by the Funds, and to absorb other operating expenses of the Funds, so that the
expenses for the Class Q Shares of the Funds will not exceed the following
expense ratios on an annual basis through March 31, 1998: Worldwide Growth Fund
1.60%, International Core Growth and International Small Cap Growth Funds -
1.65%, Emerging Countries Funds - 1.90%, Fully Discretionary Fund and High
Yield Bond Funds - 0.95%; Income & Growth, Balanced Growth, Large Cap, Value and
Core Growth Funds - 1.25%; Emerging Growth Fund - 1.50% and Mini-Cap - 1.56%.
Each Fund will reimburse the Investment Adviser for fees deferred or other
expenses paid pursuant to this Agreement in later years in which operating
expenses for the Fund are less than the percentage limitation set forth above
for any such year.
ADMINISTRATOR COMPENSATION
The Funds pay administrative fees for administrative personnel and services
(including certain legal and financial reporting services). Each Fund pays
Nicholas-Applegate Capital Management an annual fee of .10% of net assets. Each
Fund pays Investment Company Administration Corporation (ICAC) an annual fee at
an annual rate ranging from .05% to .01% of average net assets, with a minimum
of $40,000 per Fund.
DISTRIBUTOR:
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8045
PORTFOLIO TRADES
The Investment Adviser is responsible for the Funds' portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
sell shares of the Fund or that provide research services to the Fund, but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (i.e. timeliness and completeness) and favorable price.
The Investment Adviser expects high annual portfolio turnover up to 200%. This
is generally higher than other funds and will result in the Funds incurring
higher brokerage costs.
INVESTMENT OBJECTIVE
Each Fund's investment objective is fundamental and may only be changed with
shareholder approval. The fundamental limitations are described in the
Statement of Additional Information. All other changes may be made by the Board
of Trustees without shareholder approval.
DIVERSIFICATION
All the Funds are diversified.
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EQUITY MANAGEMENT - U.S.
JOHN C. MARSHALL, JR., PARTNER
Chief Investment Officer - Institutional Equity Management
Joined firm in 1989; 8 years prior investment management experience with
Pacific Century Advisers; San Diego Trust & Savings Bank; Howard, Weill,
Labouisse, Fredrichs Inc.
M.B.A. and B.B.A. - Southern Methodist University
CORE GROWTH, LARGE CAP GROWTH
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer - Global Equity Management Joined firm in 1987
M.B.A. and B.S. - University of Southern California
EMERGING GROWTH, MINI CAP, BALANCED GROWTH, INCOME & GROWTH
THOMAS BLEAKLEY
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Twentieth Century Investors and Dell Computer Corporation
M.B.A. - University of Texas - Boston University
EMERGING GROWTH, MINI CAP
SANDRA DURN
Portfolio Manager
Joined firm in 1994; prior experience at Science Solutions, Inc. and San Diego
State University Economics Department (instructor)
M.A. - San Diego State University; B.A. - University of Maryland
INCOME & GROWTH, GLOBAL GROWTH & INCOME
ANDREW B. GALLAGHER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with
Pacific Century Advisors and Sentinel Asset Management
M.B.A. - San Diego State University; B.A. - University of California, Irvine
CORE GROWTH, LARGE CAP GROWTH
RONALD J. KRYSTYNIAK CFA
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with
Pilgrim Baxter & Associates and Peterson Consulting & Company
B.S. - Syracuse University
EMERGING GROWTH, MINI CAP
MAREN LINDSTROM
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with
Societe Generale; Banque D'Orsay; and Prudential Asset Management
M.B.A. - University of California, Los Angeles;
B.A. - University of Michigan
CORE GROWTH, INCOME & GROWTH
JOHN C. MCCRAW
Portfolio Manager
Joined firm in 1992; prior investment management experience with Nations Bank
M.B.A. - University of California, Irvine;
B.A. - Flagler College
EMERGING GROWTH, MINI CAP
MARK STUCKELMAN
Portfolio Manager, U.S. Systematic
Joined firm in 1995; 5 years experience with Wells Fargo Bank Investment
Management Group; Fidelity Management Trust Co.; and BARRA
M.B.A. - University of Pennsylvania/Wharton School; B.A. - University of
California, Berkeley
VALUE
STAN ROGERS
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with
Tennessee Consolidated Retirement System
B.A. - The University of the South
INCOME & GROWTH
THOMAS J. SULLIVAN
Assistant Portfolio Manager
Joined firm in 1994; 2 years prior investment experience with Donaldson,
Lufkin & Jenrette Securities Corp.
B.S. - Rochester Institute of Technology
CORE GROWTH
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FIXED INCOME
FRED S. ROBERTSON, III, PARTNER
Chief Investment Officer - Fixed Income
Joined firm in 1995; 22 years prior investment management experience with
Criterion Investment Management Company and DuPont Chemical Pension Fund
M.B.A. - College of William and Mary; B.S. - Cornell University
BALANCED GROWTH, FULLY DISCRETIONARY
JAMES E. KELLERMAN, PARTNER
Portfolio Manager
Joined firm in 1995; 20 years prior investment management experience with
Criterion Investment Management Company and Brown Brothers Harriman and
Equitable Life Insurance Co.
M.B.A. - St. John's University; B.B.A. - Susquehanna University
BALANCED GROWTH, FULLY DISCRETIONARY
MALCOM S. DAY, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Payden & Rygel
M.B.A. - University of California, Los Angeles;
B.S. - Northern University
BALANCED GROWTH, FULLY DISCRETIONARY
DOUGLAS FORSYTH, CFA
Portfolio Manager
Joined firm in 1994; 3 years prior investment management experience with
AEGON USA
B.B.A. - University of Iowa
HIGH YIELD BOND
JAN FRIEDLI
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with
Stone Capital Management, PIMCO, and the Vanguard Group, Inc.
M.B.A. - University of Chicago, B.S. Villanova University
HIGH YIELD BOND
SUSAN MALONE
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with
BEA Associates
M.B.A. - New York University; B.S. - Carnegie Mellon University
BALANCED GROWTH, HIGH YIELD BOND
ASHVIN SYAL, CFA
Portfolio Manager
Joined firm in 1996; Six years prior investment management experience
with Payden & Rygel
M.B.A. - University of California, Los Angeles;
M.M.S. and B.S. - University of Bombay
FULLY DISCRETIONARY
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RISK FACTORS AND SPECIAL CONSIDERATIONS
MUTUAL FUND CONSIDERATIONS IN GENERAL
Prospective investors should know that any mutual fund investment is subject to
market fluctuations and other risks inherent in investing in securities. There
can be no assurance that your investment will increase in value. The value of
your investment will go up and down depending upon market forces and you may not
recoup your original investment. You should consider an investment in any of
the Funds as a long-term investment.
DERIVATIVE CONTRACTS AND SECURITIES CONSIDERATIONS
The term "derivative" traditionally applies to certain contracts that "derive"
their value from changes in the value of underlying securities, currencies,
commodities or indices. Investors refer to certain types of securities that
incorporate the performance characteristics of these contracts as derivatives.
Derivatives are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. These include
swap agreements, options, futures, and convertible securities. The Trust seeks
to use derivative contracts and securities to reduce the Funds volatility and
increase its total performance. While the price reaction of certain derivatives
to market changes may differ from traditional investments such as stocks and
bonds, derivatives do not necessarily present greater market risks than
traditional investments. Derivatives are also subject to credit risks related
to the counterparty's ability to perform, and any deterioration in the
counterparty's creditworthiness could adversely affect the instrument. The
Funds will only use derivatives in manner consistent with their investment
objectives, policies and limitations.
GLOBAL INVESTING CONSIDERATIONS
CURRENCY FLUCTUATIONS. Because the assets of certain Funds may be invested in
instruments issued by foreign companies, the principal, income and sales
proceeds may be paid to the Funds in local foreign currencies. A reduction in
the value of local currencies relative to the U.S. dollar could mean a
corresponding reduction in the value of the Funds. The value of a foreign
security generally tends to decrease when the value of the U.S. dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the dollar falls against such currency. The Funds
may incur costs in connection with conversions between currencies.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. Such
instability may result from, among other things, the following: authoritarian
governments; popular unrest associated with demands for improved political,
economic and social conditions; internal insurgencies and terrorist activities;
hostile relations with neighboring countries; and drug trafficking. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
Hong Kong transferred its sovereignty from Great Britain to the People's
Republic of China in 1997. China has espoused policies antagonistic to free
enterprise capitalism and democracy. There can be no assurance that China will
continue to protect property rights in Hong Kong after 1997, although China has
moved toward free enterprise, and has established stock exchanges of its own.
The economies of foreign countries may differ favorably or unfavorably and
significantly from the economy of the United States in such respects as the rate
of growth of gross domestic product, rate of inflation, currency depreciation,
savings rates, fiscal balances, and balance of payments positions. Governments
of many foreign countries continue to exercise substantial control over private
enterprise and own or control many companies. Government actions could have a
significant impact on economic conditions in certain countries which could
affect the value of the securities of the Funds. For example, a foreign country
could nationalize an entire industry. In such a case, the Funds may not be
fairly compensated for their losses and might lose their entire investment in
the country involved.
The economies of certain foreign countries are heavily dependent upon
international trade and accordingly are affected by protective trade barriers
and the economic conditions of their trading partners. The enactment by the
United States or other principal trading partners of protectionist legislation
could have a significant adverse effect on the securities markets of these
countries. Some foreign countries (mostly in Africa and Latin America) are
large debtors of commercial banks, foreign governments, and supranational
organizations. These obligations, as well as future restructurings of debt, may
affect the economic performance and political and social stability of these
countries.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price
controls may continue to have unpredictable effects on the economies, companies
and securities markets of these countries.
MARKET CHARACTERISTICS
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time. In addition, the
securities markets of some foreign countries are susceptible to being influenced
by large investors trading significant blocks of stocks.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Local commercial, corporation and securities
laws govern the sale and resale of securities, and certain restrictions may
apply. Although brokerage commissions are generally higher than those in the
U.S., the Investment Adviser will seek to achieve the most favorable net
results. In addition, securities settlements and clearance procedures may be
less developed and less reliable than those in the United States. Delays in
settlement could result in temporary periods in which the assets of the Funds
are not fully invested, or could result in the a Fund being unable to sell a
security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and
transfer of securities in foreign markets can be less developed than similar
systems in the United States. There may be no standardized process for
registration of securities or a central
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registration system to track share ownership. The process for transferring
shares may be cumbersome, costly, time-consuming and uncertain. For example,
the share registrar may require a shareholder to travel to that country to
present required documentation before buying or selling securities. In some
instances, there may be no requirements to maintain back-up shareholder records.
Failure by the share registrar to properly maintain shareholder records, protect
the same against fire or computer virus, or carry adequate insurance against
such occurrences, potentially could result in a loss of a Fund's investment in
those securities.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are in many respects less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect
the true condition of those issuers and securities markets.
LOWER RATED SECURITIES
CONSIDERATIONS
These securities usually offer higher yields than higher rated securities but
are also subject to more risk than higher rated securities.
Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks that are more high-rated securities, which
react primarily to movements in the past level of interest rates. In the past,
economic downturns or increases in interest rates caused a higher incidence of
default by issuers of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.
THE FUNDS' INVESTMENTS
EQUITY SECURITIES. Equity securities include common stocks, convertible
securities and warrants. The Funds may invest in growth companies, cyclical
companies, companies with smaller market capitalizations, or companies believed
to be undergoing a basic change in operations or markets. Although equity
securities have a history of long-term growth in value, their prices rise and
fall as a result of changes in the company's financial condition as well as
movements in the overall securities markets.
SMALLER ISSUERS. Smaller and medium sized issuers may be less seasoned, have
more limited product lines, markets, financial resources and management depth,
and be more susceptible to adverse market conditions than larger issuers. As a
result, the securities of such smaller issuers may be less actively traded than
those of larger issuers and may also experience greater market volatility.
CONVERTIBLE SECURITIES. A convertible security is a fixed income equity
security that may be converted into a prescribed amount of common stock at a
specified formula. A convertible security entitles the owner to receive
interest until the security matures or is converted. Convertibles have several
unique investment characteristics such as: (a) higher yields than common stocks
but lower yields than straight debt securities; (b) lesser degree of fluctuation
in value than the underlying stock since they have fixed income characteristics;
and (c) potential for capital appreciation if the market price of the underlying
security increases.
CORPORATE DEBT SECURITIES. Corporate debt securities are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligation
(credit risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the credit-worthiness of the
issuer and general market liquidity (market risk). When interest rates decline,
the value of the Funds' debt securities can be expected to rise, and when
interest rates rise, the value of those securities can be expected to decline.
Debt Securities with longer maturities tend to be more sensitive to interest
rate movements than those with shorter maturities.
Debt obligations that carry a rating of at least BAA from Moody's or BBB from
Standard and Poor's, or a comparable rating from another rating agency or, if
not rated by an agency, determined by the Investment Adviser to be of comparable
quality. Bonds rated BBB or Baa may have speculative characteristics and
changes in economic circumstances are more likely to lead to a weakened
capacity to make interest and principal payments than higher rated bonds. The
Funds intend to dispose, in an orderly manner, of any security which is
downgraded below investment grade. For a further explanation of these ratings,
see the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities such as U.S. Treasury bills, notes, bonds, and
certificates issued by the Government National Mortgage Association (GNMA) are
supported by the full faith and credit of the United States. Other U.S.
Government securities, such as securities issued by the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Bank Board, are supported
by the right of the issuer to borrow from the U.S. Treasury. Still others, such
as the Student Loan Marketing Association, are supported only by the credit of
the issuer. U.S. Government securities may include zero coupon securities that
are issued or purchased at a significant discount from face value.
ZERO COUPON SECURITIES. The Income & Growth and Balanced Growth Funds may
invest up to 35% of their net assets in zero coupon securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities. These
securities are sold at a substantial discount from face value and redeemed at
face value at their maturity date without interim payments of principal and
interest. They may be subject to greater volatility than other securities. In
addition, because income is accrued on a current basis, a Fund may have to sell
other portfolio securities to make necessary income distributions.
MORTGAGE-RELATED SECURITIES. Collateralized Mortgage Obligations(CMOs) are debt
obligations collateralized by a pool of
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mortgage loans or mortgage passes-through securities. Typically CMOs are
collateralized by certificates issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, such as GNMA. GNMA certificates are
mortgaged-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.
ASSET BACKED SECURITIES. The non-mortgage-related asset-backed securities in
which the Funds invest include, but are not limited to, interests in pools of
receivables, such as credit card and accounts receivables and motor vehicle and
other installment purchase obligations and leases. Interests in these pools are
not backed by the U.S. Government and may or may not be secured.
The credit characteristic of asset-backed securities differs in a number of
respects from that of traditional debt securities. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to other debt obligations, and there is a possibility that recoveries
on repossessed collateral may not be available to support payment on these
securities
SOVEREIGN DEBT SECURITIES. Certain Funds may invest in sovereign debt
securities issued by governments of foreign countries. The sovereign debt in
which the Funds may invest may be rated below investment grade. These
securities usually offer higher yields than higher rated securities but are also
subject to greater risk than higher rated securities.
BRADY BONDS. Brady bonds represent a type of sovereign debt known as Brady
Bonds. These obligations were created under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady, in which
foreign entities issued these obligations in exchange for their existing
commercial bank loans. Brady Bonds have been issued by Argentina, Brazil, Costa
Rica, Dominican Republic, Mexico, Philippines, Uruguay and Venezuela, and may be
issued by other emerging countries.
INVESTMENT COMPANY SECURITIES. Each Fund may invest up to 10% of its total
assets in the shares of other investment companies. The Funds may invest in
money market mutual funds in connection with the management of their daily cash
positions. The Funds may also make indirect foreign investments through other
investment companies that have comparable investment objectives and policies as
the Funds. In addition to the advisory and operational fees each Fund bears
directly in connection with its own operation, the Funds would also bear their
pro rata portions of each other investment company's advisory and operational
expenses.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
securities that are considered illiquid. An illiquid investment is generally an
investment that is not registered in the under U.S. securities laws, or cannot
be disposed of within seven days in the normal course of business at
approximately the amount at which the Fund values it. Limitations on resale may
adversely affect the marketability of illiquid securities and the Fund may not
be able to dispose of these securities at the desired time and price. A Fund
may bear additional expenses if it has to register these securities under U.S.
securities laws before being resold.
TEMPORARY INVESTMENTS. The Funds may from time to time on a temporary basis to
maintain liquidity or when the Investment Adviser determines that the market
conditions call for a temporary defensive posture, invest all of their assets
in short-term instruments. These temporary investments include: notes issued
or guaranteed by the U.S. government, its agencies or instrumentalities;
commercial paper rated in the highest two rating categories; certificates of
deposit; repurchase agreements and other high grade corporate debt securities.
THE FUNDS' INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. The
purchase by the Fund of a security that seller has agreed to buy back, usually
within one to seven days. The seller's promise to repurchase the security is
fully collateralized by securities equal in value to 102% of the purchase price,
including accrued interest. If the seller defaults and the collateral value
declines, the Fund might incur a loss. If the seller declares bankruptcy, the
Fund may not be able to sell the collateral at the desired time. The Funds
enter into these agreements only with brokers, dealers, or banks that meet
credit quality standards established by the Board of Trustees.
SECURITIES SWAPS. Securities swaps represent a technique primarily used to
indirectly participate in the securities market of a country from which a Fund
would otherwise be precluded for lack of an established securities custody and
safekeeping system. The Fund deposits an amount of cash with its custodian (or
the broker, if legally permitted) in an amount equal to the selling price of the
underlying security. Thereafter, the Fund pays or receives cash from the broker
equal to the change in the value of the underlying security.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has
been borrowed from a third party on the expectation that the market price will
drop. If the price of the security drops, the Fund will make a profit by
purchasing the security in the open market at lower price than at which it sold
the security. If the price of the security rises, the Fund may have to cover
its short position at a higher price than the short sale price, resulting in a
loss. A short sale can be covered or uncovered. In a covered short sale, the
Fund either (1) borrows and sells securities it already owns (also known as a
short sale "against the box"), or (2) deposits in a segregated account cash,
U.S. government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk. Accordingly, a Fund will not make uncovered short
sales in an amount exceeding the lesser of 2% of the Fund's net assets or 2% of
the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase or sell
securities for delivery at a future date, generally 15 to 45 days after the
commitment is made. The other party's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous. A 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
securities.
BORROWING. Each Fund may borrow up to 20% of its total assets for temporary,
extraordinary or emergency purposes, such as to provide cash for redemption
requests without having to sell portfolio securities at an inopportune time.
Each Fund may also borrow money through reverse repurchase agreements, uncovered
short sales, and other techniques. All borrowings by a Fund cannot exceed
one-third of a Fund's total assets.
40
<PAGE>
As a consequence of borrowing, a Fund will incur obligations to pay interest,
resulting in an increase in expenses.
SECURITIES LENDING. Each Fund may lend securities to financial institutions
such as banks, broker/dealers and other recognized institutional investors in
amounts up to 30% of the Fund's total assets. These loans earn income for the
Fund and are collateralized by cash, securities, letters of credit or any
combination thereof. The Fund might experience loss if the financial
institution defaults on the loan.
FOREIGN CURRENCY TRANSACTIONS. Each Fund investing in Foreign Securities may
enter into foreign currency transactions either on a spot or cash basis at
prevailing rates or through forward foreign currency exchange contracts in order
to have the necessary currencies to settle transactions.
Each Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates. Such efforts
could limit potential gains that might result from a relative increase in the
value of such currencies, and might, in certain cases, result in losses to a
Fund.
OPTIONS. Certain Funds may deal in options on securities, securities indices
and foreign currencies. The Funds may use options to manage stock prices,
interest rate and currency risks. A Fund may not purchase or sell options if
more than 25% of its net assets would be hedged. The Funds may also write
covered call options and secured put options to seek to generate income or lock
in gains on up to 25% of their net assets.
FUTURES AND OPTIONS ON FUTURES. The Funds (except Balanced Growth) may enter
into futures contracts, or options thereon, involving foreign currency,
interest rates, securities, and securities indices, for hedging purposes only. 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.
As a general rule, no Fund will purchase or sell futures if, immediately
thereafter, more than 25% of its net assets would be hedged.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. When a Fund uses options, futures and
options on futures as hedging devices, there is a risk that the prices of the
hedging vehicles may not correlate perfectly with the prices of the securities
in the portfolio. This may cause the futures contract and any related options
to react differently than the Fund's portfolio securities to market changes. In
addition, the Investment Adviser could be incorrect in its expectations about
the direction or the extent of market movements. In these events, a Fund could
lose money on the futures contracts or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market will exist for these instruments.
CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
AA - Bonds rated Aa are judged to be 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 other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa 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.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
41
<PAGE>
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB - rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B -
Rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
42
<PAGE>
FOR MORE INFORMATION
Two documents are available that offer further information on the
Nicholas/Applegate Mutual Funds:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management, and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the Funds.
A current SAI has been filed with the Securities and
Exchange Commission
and is incorporated by reference into this prospectus.
To request a free copy of the current annual/semi-annual report or SAI , please
call or write:
Nicholas Applegate Mutual Funds
P.O. Box 82169
San Diego, CA 92138-2169
Telephone: (800) 551-8643
43
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Relating to the Reorganization of
NICHOLAS-APPLEGATE MUTUAL FUNDS
600 West Broadway
San Diego, California 92101
Telephone: (800) 551-8045
This Statement of Additional Information, relating specifically to the
proposed reorganization of the A, B, C Qualified and Institutional Portfolios of
Nicholas-Applegate Mutual Funds, consists of this cover page and the following
described documents, each of which is incorporated by reference herein:
(1) The Statement of Additional Information of Nicholas-Applegate Mutual
Funds Class A, B, and C Shares filed with the Securities and Exchange
Commission as part of Post-Effective Amendment No. ___ to Registrant's Form
N-1A Registration Statement on _____________________, 1997;
(2) The Statement of Additional Information of Nicholas-Applegate Mutual
Funds Class Q Shares filed with the Securities and Exchange Commission as
part of Post-Effective Amendment No. ___ to Registrant's Form N-1A
Registration Statement on _____________________, 1997;
(3) The Statement of Additional Information of Nicholas-Applegate Mutual
Funds Class I Shares filed with the Securities and Exchange Commission as
part of Post-Effective Amendment No. ___ to Registrant's Form N-1A
Registration Statement on _____________________, 1997;
(4) The Annual Report of Nicholas-Applegate Mutual Funds Portfolios A, B,
and C for the year ended March 31, 1997, together with the
Nicholas-Applegate Portfolios A, B and C Semi-Annual Report dated September
30, 1997, filed with the Securities and Exchange Commission;
(5) The Annual Report of Nicholas-Applegate Mutual Funds Qualified
Portfolios for the year ended March 31, 1997, together with the
Nicholas-Applegate Advisory Portfolios Semi-Annual Report dated September
30, 1997, filed with the Securities Exchange Commission; and
(6) The Annual Report of Nicholas-Applegate Institutional Portfolios for
the year ended March 31, 1997, together with the Nicholas-Applegate
Institutional Portfolios Semi-Annual Report dated September 30, 1997, filed
with the Securities Exchange Commission.
This Statement of Additional Information is not a prospectus. A Combined
Proxy Statement and Prospectus dated _________________ relating to the
above-referenced matter may be obtained from Nicholas-Applegate Mutual Funds at
the telephone number and address above. This Statement of Additional
Information relates to, and should be read in conjunction with, such Combined
Proxy Statement and Prospectus.
The date of this Statement of Additional Information is ______________.
<PAGE>
PART C
OTHER INFORMATION
Item 15. INDEMNIFICATION
Registrant's trustees, officers, employees and agents are indemnified
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 13.1, 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 7.1,
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 13.19, 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 16. EXHIBITS
(1.1) Certificate of Trust of Registrant (f).
(1.2) Certificate of Amendment to Certificate of Trust of
Registrant (f).
(1.3) Amended and Restated Declaration of Trust of Registrant (f).
(1.4) Certificate of Trustees dated August 6, 1993, establishing
Emerging Growth Portfolio series (f).
(1.5) Certificate of Trustees dated December 15, 1993,
establishing International Growth Portfolio series (f).
(1.6) Amendment No. 2 to Amended and Restated Declaration of Trust
(f).
(1.7) Amendment No. 3 to Amended and Restated Declaration of Trust
(f).
(1.8) Amendment No. 4 to Amended and Restated Declaration of Trust
(f).
(1.9) Amendment No. 5 to Amended and Restated Declaration of Trust
(f).
(1.10) Amendment No. 6 to Amended and Restated Declaration of Trust
(f).
(1.11) Amendment No. 7 to Amended and Restated Declaration of Trust
(f).
(1.12) Form of Amendment No. 8 to Amended and Restated Declaration
of Trust (f).
(1.13) Amendment No. 9 to Amended and Restated Declaration of Trust
(f).
(1.14) Form of Amendment No. 10 to Amended and Restated Declaration
of Trust (b).
<PAGE>
(1.15) Amendment No. 11 to Amended and Restated Declaration of
Trust (i).
(1.16) Form of Amendment No. 12 to Amended and Restated Declaration
of Trust) (i).
(1.17) Amendment No. 13 to Amended and Restated Declaration of
Trust (j).
(1.18) Form of Amendment No. 14 to Amended and Restated Declaration
of Trust (j).
(1.19) Form of Amendment No. 15 to Amended and Restated Declaration
of Trust (l).
(1.20) Amendment No. 16 to Amended and Restated Declaration of
Trust (n).
(2.1) Amended Bylaws of Registrant (f).
(2.2) Amendment to Section 2.5 of Bylaws of Registrant (f).
(3) Not applicable.
(4) Agreement and Plan of Reorganization -- filed herewith as
Exhibit "A" to Part A.
(5) None.
(5.1) Form of Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management, with respect to
Global Blue Chip Fund, Emerging Markets Bond Fund, Pacific
Rim Fund, Greater China Fund and Latin America Fund (n).
(5.2) Form of Sub-Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management-Hong Kong, with
respect to the Pacific Rim Fund and Greater China Fund (n).
(5.3) Form of Sub-Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management-Asia, with respect to
the Pacific Rim Fund and Greater China Fund (n).
(5.4) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class A,
B, C, Q and I shares of Registrant's additional Funds to
Investment Advisory Agreement.
(7.1) Distribution Agreement between Registrant and
Nicholas-Applegate Securities dated as of April 19, 1993
(f).
(7.2) 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 (f).
(7.3) Letter agreement between Registrant and Nicholas-Applegate
Securities dated December 15, 1993, adding International
Growth Portfolio series to Distribution Agreement (f).
(7.4) Letter agreement between Registrant and Nicholas-Applegate
Securities dated April 22, 1994, adding Qualified Portfolio
series to Distribution Agreement (f).
(7.5) 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 (f).
(7.6) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Series B Portfolios to Distribution
Agreement (f).
(7.7) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Fixed Income and Qualified Portfolio
series to Distribution Agreement (f).
(7.8) Form of letter agreement between Registrant and
Nicholas-Applegate Securities, adding Value Institutional
Portfolio series to Distribution Agreement (a).
(7.9) Form of letter agreement between Registrant and
Nicholas-Applegate Securities, adding High Yield Bond and
Strategic Income Institutional Portfolio series to
Distribution Agreement (b).
<PAGE>
(7.10) Form of letter agreement between Registrant and
Nicholas-Applegate Securities adding Large Cap Growth and
Core Growth International Portfolio series to Distribution
Agreement (i).
(7.11) Form of letter agreement between Registrant and
Nicholas-Applegate Securities adding Core Growth
International Portfolio C series to Distribution Agreement
(i).
(7.12) Form of letter agreement between Registrant and
Nicholas-Applegate Securities adding Large Cap Growth A, B,
C and Qualified Portfolio series to Distribution Agreement
(j).
(7.13) Form of letter agreement between Registrant and
Nicholas-Applegate Securities, adding Global Blue Chip Fund,
Emerging Markets Bond Fund, Pacific Rim Fund, Greater China
Fund and Latin America Fund to Distribution Agreement (n).
(7.14) Form of letter agreement between Registrant and
Nicholas-Applegate Securities, adding the Class A, B, C, Q
and I shares of Registrant's additional Funds to
Distribution Agreement.
(8) None.
(9.1) Custodian Services Agreement between Registrant and PNC Bank
dated as of April 1, 1993 (f).
(9.2) Letter agreement between Registrant and PNC Bank dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Custodian Services Agreement (f).
(9.3) Letter agreement between Registrant and PNC Bank dated
August 20, 1993, adding Emerging Growth Portfolio series to
Custodian Services Agreement (f).
(9.4) Letter agreement between Registrant and PNC Bank dated
December 15, 1993, adding International Growth Portfolio
series to Custodian Services Agreement (f).
(9.5) Letter agreement between Registrant and PNC Bank dated April
22, 1994, adding Core Growth Qualified Portfolio series to
Custodian Services Agreement (f).
(9.6) 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 (f).
(9.7) Letter agreement between Registrant and PNC Bank, adding
Series B Portfolios to Custodian Services Agreement (f).
(9.8) Letter agreement between Registrant and PNC Bank, adding
Fixed Income Portfolio series to Custodian Services
Agreement (f).
(9.9) Form of letter agreement between Registrant and PNC Bank
adding Value Institutional Portfolio series to Custodian
Services Agreement (a).
(9.10) Form of letter agreement between Registrant and PNC Bank
adding High Yield Bond and Strategic Income Institutional
Portfolio series to Custodian Services Agreement (b).
(9.11) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth and Core Growth International
Portfolio series to Custodian Services Agreement (i).
(9.12) Form of letter agreement between Registrant and PNC Bank
adding Core Growth International Portfolio C series to
Custodian Services Agreement (i).
(9.13) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth A, B, C and Qualified Portfolio
series to Custodian Services Agreement (j).
(9.14) Form of letter agreement between Registrant and PNC Bank,
adding Global Blue Chip Fund and Emerging Markets Bond Fund
to Custodian Services Agreement (l).
(9.15) Form of letter agreement between Registrant and PNC Bank
with respect to custodian services fees related to the
Global Blue Chip Fund and the Emerging Markets Bond Fund
(m).
(9.16) Form of letter agreement between Registrant and PNC Bank,
adding Pacific Rim Fund, Greater China Fund and Latin
America Fund to Custodian Services Agreement (n).
<PAGE>
(9.17) Form of letter agreement between Registrant and PNC Bank,
adding the Class A, B, C, Q and I shares of Registrant's
additional Funds to Custodian Services Agreement.
(9.18) Form of Sub-Custodian Agreement among Registrant, PNC Bank
and Chase Manhattan Bank, with respect to Global Blue Chip
Fund, Emerging Markets Bond Fund, Greater China Fund,
Pacific Rim Fund and Latin America Fund.
(9.19) Form of letter agreement among Registrant, PNC Bank and
Chase Manhattan Bank, adding the Class A, B, C, Q and I
shares of Registrant's additional Funds to Sub-Custodian
Agreement.
(10.1) Amended Distribution Plan of Registrant (f).
(10.2) Form of further Amendment to Distribution Plan of
Registrant.
(11) Opinion and Consent of Counsel as to legality of the
securities being offered.
(12.1) Opinion and Consent of Counsel as to tax consequences
(Non-Government Income Portfolios).
(12.2) Opinion and Consent of Counsel as to tax consequences
(Government Income Portfolios).
(13.1) Administration Agreement between Registrant and Investment
Company Administration Corporation dated as of April 1, 1993
(f).
(13.2) Form of amended Administration Agreement between Registrant
and Investment Company Administration Corporation.
(13.3) Administrative Services Agreement between Registrant and
Nicholas-Applegate Capital Management dated as of November
18, 1996 (i).
(13.4) Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company dated as of April 1,
1993 (f).
(13.5) 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 (f).
(13.6) 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 (f).
(13.7) 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 (f).
(13.8) 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 (f).
(13.9) 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 (f).
(13.10) Letter agreement between Registrant and State Street Bank
and Trust Company, adding Series B Portfolios to Transfer
Agency and Service Agreement (f).
(13.11) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Fixed Income Portfolio series
to Transfer Agency and Service Agreement (f).
(13.12) 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).
(13.13) 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).
<PAGE>
(13.14) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Large Cap Growth and Core
Growth International Portfolio series to Transfer Agency and
Service Agreement (i).
(13.15) Form of letter agreement between Registrant and State Street
Bank and Trust Company adding Core Growth International
Portfolio C series to Transfer Agency and Service Agreement
(i).
(13.16) Form of letter agreement between Registrant and State Street
Bank and Trust Company adding Large Cap Growth A, B, C and
Qualified Portfolio series to Transfer Agency and Service
Agreement (j).
(13.17) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Global Blue Chip Fund and
Emerging Markets Bond Fund to Transfer Agency and Service
Agreement (l).
(13.18) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Pacific Rim Fund, Greater
China Fund and Latin America Fund to Transfer Agency and
Service Agreement (n).
(13.19) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding the Class A, B, C, Q and I
shares of Registrant's additional Funds to Transfer Agency
and Service Agreement.
(13.20) Shareholder Service Plan between Registrant and
Nicholas-Applegate Securities (f).
(13.21) Form of amended Shareholder Service Plan between Registrant
and Nicholas-Applegate Securities.
(13.22) License Agreement dated as of December 17, 1992, between
Registrant and Nicholas-Applegate Capital Management (f).
(13.23) Accounting Services Agreement between Registrant and PFPC
Inc. dated as of April 1, 1993 (f).
(13.24) Letter agreement between Registrant and PFPC Inc. dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Accounting Services Agreement (f).
(13.25) Letter agreement between Registrant and PFPC Inc. dated
August 20, 1993, adding Emerging Growth Portfolio series to
Accounting Services Agreement (f).
(13.26) Letter agreement between Registrant and PFPC Inc. dated
December 15, 1993, adding International Growth Portfolio
series to Accounting Services Agreement (f).
(13.27) Letter agreement between Registrant and PFPC Inc. dated
April 22, 1994, adding Core Growth Qualified Portfolio
series to Accounting Services Agreement (f).
(13.28) 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 (f).
(13.29) Letter agreement between Registrant and PFPC Inc., adding
Series B Portfolios to Accounting Services Agreement (f).
(13.30) Letter agreement between Registrant and PFPC Inc., adding
Fixed Income Portfolio series to Accounting Services
Agreement (f).
(13.31) Form of letter agreement between Registrant and PFPC Inc.
adding Value Institutional Portfolio series to Accounting
Services Agreement (a).
(13.32) Form of letter agreement between Registrant and PFPC Inc.
adding High Yield Bond and Strategic Income Institutional
Portfolio series to Accounting Services Agreement (b).
(13.33) Form of letter agreement between Registrant and PFPC Inc.
adding Large Cap Growth and Core Growth International
Portfolio series to Accounting Services Agreement (i).
(13.34) Form of letter agreement between Registrant and PFPC Inc.
adding Core Growth International Portfolio C series to
Accounting Services Agreement (i).
<PAGE>
(13.35) Form of letter agreement between Registrant and PFPC Inc.
adding Large Cap Growth A, B, C and Qualified Portfolio
series to Accounting Services Agreement (j).
(13.36) Form of letter agreement between Registrant and PFPC Inc.,
adding Global Blue Chip Fund and Emerging Markets Bond Fund
to Accounting Services Agreement (l).
(13.37) Form of letter agreement between Registrant and PFPC Inc.
with respect to accounting services fees related to the
Global Blue Chip Fund and the Emerging Markets Bond Fund
(m).
(13.38) Form of letter agreement between Registrant and PFPC Inc.,
adding the Pacific Rim Fund, Greater China Fund and Latin
America Fund(n).
(13.39) Form of letter agreement between Registrant and PFPC Inc.
regarding fees for additional Funds under Accounting
Services Agreement.
(13.40) Form of letter agreement between Registrant and PFPC Inc.,
adding the Class A, B, C, Q and I shares of Registrant's
additional Funds to Accounting Services Agreement.
(13.41) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated September 27, 1993 regarding
expense reimbursements (f).
(13.42) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated December 15, 1993, adding
International Growth Portfolio series to agreement regarding
expense reimbursements (f).
(13.43) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated April 22, 1994, adding Qualified
Portfolio series to agreement regarding expense
reimbursements (f).
(13.44) 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 (f).
(13.45) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Series B Portfolios to agreement
regarding expense reimbursement (f).
(13.46) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Qualified and Fixed Income
Portfolio series to agreement regarding expense
reimbursement (f).
(13.47) Letter agreement between Registrant and Nicholas-Applegate
Capital Management revising expense reimbursement agreement
with respect to Government Income Portfolios (f).
(13.48) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Value
Institutional Portfolio series to agreement regarding
expense reimbursement (a).
(13.49) 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).
(13.50) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Large Cap
Growth and Core Growth International Portfolio series to
agreement regarding expense reimbursement (i).
(13.51) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Core Growth
International Portfolio C series to agreement regarding
expense reimbursement (i).
(13.52) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Large Cap
Growth A, B, C and Qualified Portfolio series to agreement
regarding expense reimbursement (j).
(13.53) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Global Blue
Chip Fund, Emerging Markets Bond Fund, Pacific Rim Fund,
Greater China Fund and Latin America Fund to agreement
regarding expense reimbursement (n).
<PAGE>
(13.54) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class A,
B, C, Q and I shares of Registrant's additional Funds to
agreement regarding expense reimbursement.
(13.55) Credit Agreement among Registrant, Chemical Bank and certain
other banks dated April 10, 1996 (f).
(13.56) First Amendment Agreement to Credit Agreement dated as of
April 9, 1997 among Registrant, The Chase Manhattan Bank,
and certain other banks (l).
(13.57) Form of Second Amendment Agreement to Credit Agreement among
Registrant, The Chase Manhattan Bank, and certain other
banks (n).
(14) Not applicable.
(15) Not applicable.
(16.1) Limited Power of Attorney of Fred C. Applegate.
(16.2) Limited Power of Attorney of Arthur B. Laffer.
(16.3) Limited Power of Attorney of Charles E. Young.
(17.1) Declaration of Rule 24f-2.
(17.2) Proxy Cards.
(18) Multi-Class Plan.
- -------------------------------------------------------
(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. 32 to Registrant's Form N-1A
Registration Statement on June 3, 1996 and incorporated herein by
reference.
(g) Filed as an Exhibit to Amendment No. 37 to Registrant's Form N-1A
Registration Statement on October 15, 1996 and incorporated herein by
reference.
(h) Filed as an Exhibit to Amendment No. 38 to Registrant's Form N-1A
Registration Statement on October 25, 1996 and incorporated herein by
reference.
(i) Filed as an Exhibit to Amendment No. 40 to Registrant's Form N-1A
Registration Statement on January 3, 1997 and incorporated herein by
reference.
(j) Filed as an Exhibit to Amendment No. 42 to Registrant's Form N-1A
Registration Statement on May 1, 1997 and incorporated herein by
reference.
(k) Filed as an Exhibit to Amendment No. 44 to Registrant's Form N-1A
Registration Statement on May 22, 1997 and incorporated herein by
reference.
(l) Filed as an Exhibit to Amendment No. 45 to Registrant's Form N-1A
Registration Statement on July 14, 1997 and incorporated herein by
reference.
<PAGE>
(m) Filed as an Exhibit to Amendment No. 47 to Registrant's Form N-1A
Registration Statement on July 28, 1997 and incorporated herein by
reference.
(n) Filed as an Exhibit to Amendment No. 49 to Registrant's Form N-1A
Registration Statement on September 2, 1997 and incorporated herein by
reference.
Item 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
offering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as amended,
the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial
bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on behalf of the Registrant in the City
of San Diego, State of California, on the 3rd day of December, 1997.
NICHOLAS-APPLEGATE MUTUAL FUNDS
By S/ John D. Wylie
-------------------------------------
John D. Wylie
President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
S/ John D. Wylie Principal Executive December 3, 1997
------------------------ Officer
John D. Wylie
S/ Thomas Pindelski Principal Financial and
------------------------ Accounting Officer December 3, 1997
Thomas Pindelski
Fred C. Applegate* Trustee December 3, 1997
- -------------------------
Fred C. Applegate
Arthur B. Laffer* Trustee December 3, 1997
------------------------
Arthur B. Laffer
Charles E. Young* Trustee December 3, 1997
------------------------
Charles E. Young
*s/ E. Blake Moore, Jr.
------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
<PAGE>
EXHIBIT INDEX
NICHOLAS-APPLEGATE MUTUAL FUNDS
FORM N-14 REGISTRATION STATEMENT
FILE NO. 811-7428
Exhibit No. Title of Exhibit
----------- ----------------
(5.4) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class A,
B, C, Q and I shares of Registrant's additional Funds to
Investment Advisory Agreement.
(7.14) Form of letter agreement between Registrant and
Nicholas-Applegate Securities, adding the Class A, B, C, Q
and I shares of Registrant's additional Funds to
Distribution Agreement.
(9.17) Form of letter agreement between Registrant and PNC Bank,
adding the Class A, B, C, Q and I shares of Registrant's
additional Funds to Custodian Services Agreement.
(9.18) Form of Sub-Custodian Agreement among Registrant, PNC Bank
and Chase Manhattan Bank, with respect to Global Blue Chip
Fund, Emerging Markets Bond Fund, Greater China Fund,
Pacific Rim Fund and Latin America Fund.
(9.19) Form of letter agreement among Registrant, PNC Bank and
Chase Manhattan Bank, adding the Class A, B, C, Q and I
shares of Registrant's additional Funds to Sub-Custodian
Agreement.
(10.2) Form of further Amendment to Distribution Plan of
Registrant.
(11) Opinion and Consent of Counsel as to legality of the
securities being offered.
(12.1) Opinion and Consent of Counsel as to tax consequences
(Non-Government Income Portfolios).
(12.2) Opinion and Consent of Counsel as to tax consequences
(Government Income Portfolios).
(13.2) Form of amended Administration Agreement between Registrant
and Investment Company Administration Corporation.
(13.19) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding the Class A, B, C, Q and I
shares of Registrant's additional Funds to Transfer Agency
and Service Agreement.
(13.21) Form of amended Shareholder Service Plan between Registrant
and Nicholas-Applegate Securities.
(13.39) Form of letter agreement between Registrant and PFPC Inc.,
adding the Class A, B, C, Q and I shares of Registrant's
additional Funds to Accounting Services Agreement.
(13.40) Form of letter agreement between Registrant and PFPC Inc.
regarding fees for additional Funds under Accounting
Services Agreement.
(13.54) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class A,
B, C, Q and I shares of Registrant's additional Funds to
agreement regarding expense reimbursement.
(16.1) Limited Power of Attorney of Fred C. Applegate.
<PAGE>
(16.2) Limited Power of Attorney of Arthur B. Laffer.
(16.3) Limited Power of Attorney of Charles E. Young.
(17.1) Declaration of Rule 24f-2.
(17.2) Proxy Cards.
(18) Multi-Class Plan.
<PAGE>
Exhibit 5.4
_____________, 199_
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
This will confirm our agreement that the Investment Advisory Agreement
between us dated ___________, 1997 is hereby amended by adding thereto the
series set forth on Exhibit A as Funds thereunder. The annual advisory fee with
respect to each such Fund shall be as set forth on Exhibit A.
In all other respects, the Investment Advisory Agreement will remain
in full force and effect. Please sign this letter below to confirm your
agreement with this amendment.
Very truly yours,
------------------------
E. Blake Moore, Jr.
Secretary
AGREED:
Nicholas-Applegate Capital Management
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner
By:
------------------------
E. Blake Moore, Jr.
Secretary
<PAGE>
EXHIBIT A
NICHOLAS-APPLEGATE CORE GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE LARGE CAP GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE MINI CAP GROWTH FUND: 1.25% of the Fund's average net assets.
NICHOLAS-APPLEGATE EMERGING GROWTH FUND: 1.00% of the Fund's average net assets.
NICHOLAS-APPLEGATE INCOME & GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE BALANCED GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE WORLDWIDE GROWTH FUND: 1.00% of the first $500 million of the
Fund's average net assets, .90% of the next $500 million of net assets, and .85%
of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE INTERNATIONAL GROWTH FUND: 1.00% of the first $500 million of
the Fund's average net assets, 0.90% of the next $500 million of net assets, and
0.80% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE EMERGING COUNTRIES FUND: 1.25% of the Fund's average net
assets.
NICHOLAS-APPLEGATE GLOBAL GROWTH & INCOME FUND: .85% of the Fund's average net
assets.
NICHOLAS-APPLEGATE INTERNATIONAL SMALL CAP GROWTH FUND: 1.00% of the first $500
million of the Fund's average net assets, .90% of the next $500 million of net
assets, and .85% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE MONEY MARKET FUND: .25% of the first $500 million of the
Fund's average net assets, and .2275% of net assets in excess of $500 million.
NICHOLAS-APPLEGATE VALUE FUND: 0.75% of the first $500 million of the Fund's
average net assets, 0.675% of the next $500 million of net assets, and 0.65% of
net assets in excess of $1 billion.
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND: 0.60% of the Fund's average net assets.
NICHOLAS-APPLEGATE STRATEGIC INCOME FUND: 0.60% of the Fund's average net
assets.
NICHOLAS-APPLEGATE SHORT-INTERMEDIATE FIXED INCOME FUND: 0.30% of the first $250
million of the Fund's average net assets and 0.25% of the net assets in excess
of $250 million.
NICHOLAS-APPLEGATE FULLY DISCRETIONARY FIXED INCOME FUND: 0.45% of the first
$500 million of the Fund's average net assets, 0.40% of the next $250 million of
net assets, and 0.35% of net assets in excess of $750 million.
<PAGE>
Exhibit 7.14
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
_____________, 199_
Nicholas-Applegate Securities
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
This will confirm that the Distribution Agreement between us dated April
19, 1993, as previously amended, is hereby further amended to delete all series
A, B, C and Qualified Portfolios therefrom. This will further confirm that all
Institutional Portfolio series have been renamed to substitute the phrase "Fund"
for the phrase "Institutional Portfolio", and that such series now have Class A,
B, C, Q and I shares, all of which are covered by the Distribution Agreement.
In all other respect, the Distribution Agreement, as previously amended,
will remain in full force and effect. Please sign this letter below to confirm
your agreement with this amendment.
Very truly yours,
E. Blake Moore, Jr.
Secretary
AGREED:
Nicholas-Applegate Securities
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner
By:
---------------------
E. Blake Moore, Jr.
Secretary
<PAGE>
Exhibit 9.17
Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, CA 92101
_______________ __, 199_
PNC Bank, National Association
Airport Business Center
International Court 2
200 Stevens Drive
Lester, Pennsylvania 19113
Ladies and Gentlemen:
Reference is made to the Custodian Services Agreement between us dated as
of April 1, 1993 (the "Agreement").
This is to inform you that we have completed our reorganization from a
"master-feeder" structure to a "multi-class" structure. As a result of this
reorganization, each of our various Institutional Portfolio series has been
renamed to replace the phrase "Institutional Portfolio" with the phrase "Fund,"
and the former shareholders of each Institutional Portfolio now hold Class I
shares of the Fund. The Funds will continue as Portfolios under the Agreement.
In addition, the A, B, C and Qualified Portfolio series which previously
corresponded to each Institutional Portfolio series have been dissolved, and the
shareholders of such Portfolios now hold Class A, B, C and Q shares of the
corresponding Fund. Accordingly, the previous A, B, C and Qualified Portfolio
series are hereby deleted as Portfolios under the Agreement.
Please indicate your acceptance of this amendment by signing the letter
below and returning a copy to us. Thank you for your assistance regarding this
matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
AGREED:
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------
Title:
------------------------
<PAGE>
Exhibit 9.18
SUB-CUSTODIAN AGREEMENT
AGREEMENT dated as of September 26, 1997 among THE CHASE MANHATTAN
BANK, N.A. ("Bank"), NICHOLAS-APPLEGATE MUTUAL FUNDS (the "Fund") and PNC BANK,
NATIONAL ASSOCIATION ("Company").
WITNESSETH:
WHEREAS, the Company has entered into a Custodian Agreement with the
Fund, a Delaware business trust, to provide domestic custody services; and
WHEREAS, the Company and the Fund wish to retain Bank to provide
certain foreign sub-custodian services to the Company and the Fund for the
benefit of the Fund and certain of its series of shares of beneficial interest
("Portfolios"), and Bank is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. CUSTODY ACCOUNT. The Bank agrees to establish and maintain (a) a
separate custody account for each Portfolio of the Fund designated on Appendix A
("Custody Account") for any and all stocks, shares, bonds, debentures, notes,
mortgages or other obligations for the payment of money and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property (hereinafter called "Securities")
from time to time received by the Bank or any sub-custodian (as defined in the
second paragraph of Section 3 hereof) for the account of the designated
Portfolio; and (b) a separate deposit account or accounts in the name of each
designated Portfolio ("Deposit Account") for any and all cash and cash
equivalents in any currency received by the Bank or any sub-custodian for the
account of the designated Portfolio, which cash shall not be subject to
withdrawal by draft or check. The term "Property" as used herein shall mean all
Securities, cash, cash equivalents and other assets held by the Portfolios.
2. MAINTENANCE OF PROPERTY ABROAD. Securities in a Custody Account
shall be held in the country or other jurisdiction as shall be specified from
time to time in Instructions (as defined in Section 9 hereof), provided that
such country or other jurisdiction shall be one in which the principal trading
market for such Securities is located or the country or other jurisdiction in
which such Securities are to be presented for payment or are acquired for the
Custody Account, and cash in a Deposit Account shall be credited to an account
in such country or other jurisdiction in which such cash may be legally
deposited or is the legal currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or non-interest
bearing accounts as may be available for the particular currency. To the extent
Instructions are issued and the Bank can comply with such Instructions, the Bank
is authorized to maintain cash balances on deposit for the Fund on behalf of
each designated Portfolio with itself or one of its affiliates at such
reasonable rates of interest as may from time to time be paid on such accounts,
or in non-interest bearing accounts as the Fund may direct, if acceptable to the
Bank.
3. ELIGIBLE FOREIGN CUSTODIANS AND SECURITIES DEPOSITORIES. The
Company andthe Board of Trustees of the Fund authorize the Bank to hold the
Securities in the Custody Account(s) and the
<PAGE>
cash in the Deposit Account(s) in custody and deposit accounts, respectively,
which have been established by the Bank with one of its branches, a branch of a
qualified U.S. bank, an eligible foreign custodian or an eligible foreign
securities depository; provided, however, that prior to the establishment of
accounts with any such branch, eligible foreign custodian or foreign securities
depository, the Company and the Board of Trustees of the Fund have approved the
use of, and the Bank's contract with, such branch or eligible foreign custodian
or eligible foreign securities depository by resolution, and Instructions to
such effect have been provided to the Bank. Furthermore, if a Bank's branch, a
branch of a qualified U. S. bank or an eligible foreign custodian is selected to
act as the Bank's sub-custodian to hold any Property and such selection is
approved by the Board of Trustees of the Fund, such entity is authorized to hold
such Property in its account with any eligible foreign securities depository in
which it participates so long as such foreign securities depository has been
approved by the Board of Trustees of the Fund. For purposes of this Agreement
(a) "qualified U.S. bank" shall mean a qualified U.S. bank as defined in Rule
17f-5 under the Investment Company Act of 1940, as amended ("Rule 17f-5");
(b) "eligible foreign custodian" shall mean (i) a banking institution or trust
company incorporated or organized under the laws of a country other than the
United States that is regulated as such by that country's government or an
agency thereof and that has shareholders' equity in excess of $200 million in
U.S. currency (or a foreign currency equivalent thereto) or (ii) a
majority-owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a country
other than the United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereto); and (c)
"eligible foreign securities depository" shall mean a securities depository or
clearing agency, incorporated or organized under the laws of a country other
than the United States, which operates (i) the central system for handling of
securities or equivalent book-entries in that country or (ii) a transnational
system for the central handling of securities or equivalent book-entries.
Hereinafter the term "sub-custodian" will refer to any Bank branch,
any branch of a qualified U.S. bank, any eligible foreign custodian or any
eligible foreign securities depository with which the Bank has entered into an
agreement of the type contemplated hereunder regarding Securities and/or cash
held in or to be acquired for a Custody Account or a Deposit Account and which
has been approved by the Company and the Board of Trustees of the Fund. If,
after the initial approval of the sub-custodians by the Board of Trustees of the
Fund in connection with this Agreement, the Bank wishes to appoint other
sub-custodians to hold the Fund's or any Portfolio's Property, it will so notify
the Company and the Fund and will provide them with information reasonably
necessary to determine any such new sub-custodian's eligibility under Rule
17f-5, including a copy of the proposed agreement with such sub-custodian. Such
appointment shall not become effective until each of the Company and the Board
of Trustees of the Fund has provided Instructions indicating its approval.
If the Bank intends to remove any sub-custodian previously approved,
it shall so notify the Fund and the Company, both of which shall have the right
to approve such removal, and upon such removal, shall move the Property
deposited with such sub-custodian to another sub-custodian previously approved
or to a new sub-custodian, provided that the appointment of any new
sub-custodian will be subject to the approval and other requirements set forth
in the preceding
-2-
<PAGE>
paragraph. The Bank shall take steps as may be required to remove any
sub-custodian which has ceased to meet the requirements of Rule 17f-5.
4. USE OF SUB-CUSTODIANS. With respect to Property which is
maintained by the Bank in the physical custody of a sub-custodian pursuant to
Section 3:
A. The Bank will identify on its books as belonging to each
designated Portfolio any Property held by such sub-custodian.
B. In the event that a sub-custodian permits any of the
Securities placed in its care to be held in an eligible foreign securities
depository, such sub-custodian will be required by its agreement with the Bank
to identify on its books such Securities as being held for the account of the
Bank as a custodian for its customers.
C. Any Securities in a Custody Account held by a sub-custodian
of the Bank will be subject only to the instructions of the Bank or its agents;
and any Securities held in an eligible foreign securities depository for the
account of a sub-custodian will be subject only to the instructions of such
sub-custodian.
D. The Bank will only deposit Securities in an account with a
sub-custodian which includes exclusively the assets held by the Bank for its
customers, and the Bank will cause such account to be designated by such
sub-custodian as a special custody account for the exclusive benefit of
customers of the Bank.
E. Any agreement the Bank shall enter into with a sub-custodian
with respect to the holding of Securities shall require that (i) the Securities
are not subject to any right, charge, security interest, lien or claim of any
kind in favor of such sub-custodian or its creditors except for a claim of
payment for its safe custody or administration and (ii) beneficial ownership of
such Securities is freely transferable without the payment of money or value
other than for safe custody or administration; provided, however, that the
foregoing shall not apply to the extent that any of the above-mentioned rights,
charges, etc. result from any compensation or other expenses arising with
respect to the safekeeping of Securities pursuant to such agreement.
F. The Bank shall allow independent public accountants of the
Fund such access to the records of the Bank relating to Property held in a
Custody Account and a Deposit Account as is reasonably requested by such
accountants in connection with their examination of the books and records
pertaining to the affairs of the Fund. The Bank shall, subject to restrictions
under applicable law, also obtain from any sub-custodian with which the Bank
maintains the physical possession of any Property an undertaking to permit
independent public accountants of the Fund such reasonable access to the records
of such sub-custodian as is reasonably requested in connection with their
examination of the books and records pertaining to the affairs of the Fund or to
supply a verifiable confirmation of the contents of such records. The Bank
shall furnish the Fund and the Company such reports (or portions thereof) of the
Bank's external auditors as relate directly to the Bank's system of internal
accounting controls applicable to the Bank's duties under this Agreement.
-3-
<PAGE>
G. The Bank will supply to the Fund, care of its investment
adviser, and the Company at least monthly a statement in respect to any Property
in a Custody and a Deposit Account held by each sub-custodian, including an
identification of the entity having possession of such Property, and the Bank
will send to the Fund and the Company an advice or notification of any transfers
of Property to or from the Custody Account and Deposit Account, indicating, as
to Property acquired for an investment portfolio of the Fund, the identity of
the entity having physical possession of such Property. In the absence of the
filing in writing with the Bank by the Fund of exceptions or objections to any
such statement within one hundred twenty (120) days of the Fund's receipt of
such statement, or within one hundred twenty days (120) days after the date that
a material defect is reasonably discoverable, the Fund shall be deemed to have
approved such statement; and in such case or upon written approval of the Fund
of any such statement the Bank shall, to the extent permitted by law and
provided the Bank has met the standard of care in Section 12 hereof, be
released, relieved and discharged with respect to all matters and things set
forth in such statement as though such statement has been settled by the decree
of a court of competent jurisdiction in an action in which the Company and the
Fund and all persons having any equity interest in the Fund were parties.
H. The Bank hereby warrants to the Fund and the Company that in
its opinion, after due inquiry, the established procedures to be followed by
each of its branches, each branch of a qualified U.S. bank, each eligible
foreign custodian and each eligible foreign securities depository holding
Securities of the Fund pursuant to this Agreement afford protection for such
Securities at least equal to that afforded by the Bank's established procedures
with respect to similar Securities held by the Bank (and its securities
depositories) in New York.
I. The Bank hereby warrants to the Fund and the Company that as
of the date of this Agreement it is maintaining a sufficient Bankers Blanket
Bond and hereby agrees to notify the Fund and the Company in the event its
Bankers Blanket Bond is canceled or otherwise lapses.
J. The Bank agrees to comply with all applicable requirements
of federal and other securities laws, rules and regulations with respect to all
duties to be performed by the Bank hereunder.
5. DEPOSIT ACCOUNT PAYMENTS. Subject to the provisions of Section
7, the Bank shall make, or cause its sub-custodian to make, payments of cash
credited to a Deposit Account only:
A. in connection with the purchase of Securities for a
designated Portfolio and the delivery of such Securities to, or the crediting of
such Securities to the particular Custody Account of, the Bank or its
sub-custodian, each such payment to be made at prices as confirmed by
Instructions from Authorized Persons (as defined in Section 10 hereof);
B. for the purchase or redemption of shares of beneficial
interest of the designated Portfolio involved and the delivery to, or crediting
to the account of, the Bank or its sub-custodian of such shares to be so
purchased or redeemed;
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C. for the payment for the account of the designated Portfolio
involved of dividends, interest, taxes, management, administrative,
distribution, shareholder service and transfer agency fees, capital
distributions or other operating expenses;
D. for the payments to be made in connection with the
conversion, exchange or surrender of Securities held in a Custody Account;
E. for other proper purposes of the designated Portfolio
involved; or
F. upon the termination of this Custody Agreement as
hereinafter set forth.
All payments of cash for a purpose permitted by subsection (a), (b), (c) or (d)
of this Section 5 will be made only upon receipt by the Bank of Instructions
from Authorized Persons which shall specify the purpose for which the payment is
to be made and the applicable subsection of this Section 5. In the case of any
payment to be made for the purpose permitted by subsection (e) of this Section
5, the Bank must first receive a certified copy of a resolution of the Board of
Trustees of the Fund adequately describing such payment, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such payment
shall be made. Any payment pursuant to subsection (f) of this Section 5 will be
made in accordance with Section 17 hereof.
In the event that any payment for a designated Portfolio made under
this Section 5 exceeds the funds available in that Portfolio's Deposit Account,
the Bank may, in its discretion, advance the Fund on behalf of that Portfolio an
amount equal to such excess and such advance shall be deemed a loan from the
Bank to that Portfolio payable on demand, bearing interest at the rate of
interest customarily charged by the Bank on similar loans. If the Bank causes a
Deposit Account to be credited on the payable date for interest, dividends or
redemptions, the designated Portfolio involved will promptly return to the Bank
any such amount or property so credited upon oral or written notification that
neither the Bank nor its sub-custodian can collect such amount or property in
the ordinary course of business. The Bank or its sub-custodian, as the case may
be, shall have no duty or obligation to institute legal proceedings, file a
claim or proof of claim in any insolvency proceeding or take any other action
with respect to the collection of such amount or property beyond its ordinary
collection procedures.
6. CUSTODY ACCOUNT TRANSACTIONS. Subject to the provisions of
Section 7, Securities in a Custody Account will be transferred, exchanged or
delivered by the Bank or its sub-custodians only:
A. upon sale of such Securities for the designated Portfolio
involved and receipt by the Bank or its sub-custodian of payment therefor, each
such payment to be in the amount confirmed by Instructions from Authorized
Persons;
B. when such Securities are called, redeemed or retired, or
otherwise become payable;
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C. in exchange for or upon conversion into other Securities
alone or other Securities and cash pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment;
D. upon conversion of such Securities pursuant to their terms
into other Securities;
E. upon exercise of subscription, purchase or other similar
rights represented by such Securities;
F. for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
G. for the purpose of redeeming in kind shares of beneficial
interest of the designated Portfolio involved against delivery to the Bank or
its sub-custodian of such shares to be redeemed;
H. for other proper purposes of the designated Portfolio
involved; or
I. upon the termination of this Custody Agreement as
hereinafter set forth.
All transfers, exchanges or deliveries of Securities in a Custody Account for a
purpose permitted by either subsection (a), (b), (c), (d), (e) or (f) of this
Section 6 will be made, except as provided in Section 8 hereof, only upon
receipt by the Bank of Instructions from Authorized Persons which shall specify
the purpose of the transfer, exchange or delivery to be made and the applicable
subsection of this Section 6. In the case of any transfer or delivery to be
made for the purpose permitted by subsection (g) of this Section 6, the Bank
must first receive Instructions from Authorized Persons specifying the shares
held by the Bank or its sub-custodian to be so transferred or delivered and
naming the person or persons to whom transfers or delivery of such shares shall
be made. In the case of any transfer, exchange or delivery to be made for the
purpose permitted by subsection (h) of this Section 6, the Bank must first
receive from the Company a certified copy of a resolution of the Board of
Trustees of the Fund adequately describing such transfer, exchange or delivery,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom delivery of such Securities shall be made. Any transfer or delivery
pursuant to subsection (i) of this Section 6 will be made in accordance with
Section 17 hereof.
7. CUSTODY ACCOUNT PROCEDURES. With respect to any transaction
involving Securities held in or to be acquired for a Custody Account, the Bank
in its discretion may cause the Deposit Account for the designated Portfolio
involved to be credited on the contractual settlement date with the proceeds of
any sale or exchange of Securities from the particular Custody Account and to be
debited on the contractual settlement date for the cost of Securities purchased
or acquired for the particular Custody Account. The Bank may reverse any such
credit or debit if the transaction with respect to which such credit or debit
was made fails to settle within a reasonable period, determined by the Bank in
its discretion, after the contractual settlement date, except that if any
Securities delivered pursuant to this Section 7 are returned by the recipient
thereof, the Bank may cause any such credits and debits to be reversed at any
time. With respect to any transactions as to which the Bank does not determine
so to credit or debit the particular Deposit Account, the proceeds from the sale
or exchange of Securities will be credited and the cost of such Securities
purchased or acquired will be
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debited to the particular Deposit Account on the date such proceeds or
Securities are received by the Bank.
Notwithstanding the preceding paragraph, settlement and payment for
Securities received for, and delivery of Securities out of, a Custody Account
may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering Securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such Securities from such purchaser or dealer.
8. ACTIONS OF THE BANK. Until the Bank receives Instructions from
Authorized Persons to the contrary, the Bank will, or will instruct its
sub-custodian, to:
A. present for payment any Securities in a Custody Account
which are called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon presentation to the
extent that the Bank or sub-custodian is aware of such opportunities for
payment, and hold cash received upon presentation of such Securities in
accordance with the provisions of Sections 2, 3 and 4 hereof;
B. in respect of Securities in a Custody Account, execute in
the name of the Fund on behalf of the designated Portfolio involved such
ownership and other certificates as may be required to obtain payments in
respect thereof;
C. exchange interim receipts or temporary Securities in a
Custody Account for definitive Securities;
D. collect and receive for the account of the designated
Portfolio all income, dividends, distributions, coupons, option premiums, other
payments and similar items, and promptly advise the Fund and the Company of such
receipt and credit such income, as collected, to the designated Portfolio's
Deposit Account;
E. endorse and deposit for collection, in the name of the Fund
and the designated Portfolio, checks, drafts, or other orders for the payment of
money;
F. (if applicable) convert monies received with respect to
Securities of foreign issue into United States dollars or any other currency
necessary to effect any transaction involving the Securities whenever it is
practicable to do so through customary banking channels, using any method or
agency available, including, but not limited to, the facilities of the Bank, its
subsidiaries, affliates or sub-custodians;
G. reclaim taxes withheld by foreign issuers where reclaim is
possible, provided that Bank has been provided with all documentation it may
require.
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9. INSTRUCTIONS. As used in this Agreement, the term "Instructions"
means instructions of the Fund or the Company received by the Bank via
telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess or
electronic instruction system acceptable to the Bank which the Bank believes in
good faith to have been given by Authorized Persons or which are transmitted
with proper testing or authentication pursuant to terms and conditions which the
Bank may specify.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the designated Portfolio
involved and the Company will hold the Bank harmless for the Company's or the
Fund's (i) failure to send such confirmation in writing, or (ii) the failure of
such confirmation to conform to the telephone Instructions received. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until cancelled or superseded. If the Bank requires test arrangements,
authentication methods or other security devices to be used with respect to
Instructions, any Instructions given by the Fund or the Company thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Bank may put into effect and
modify from time to time. The Fund and the Company shall safeguard any
testkeys, identification codes or other security devices which the Bank shall
make available to them. The Bank may electronically record any Instructions
given by telephone, and any other telephone discussions, with respect to a
Custody Account.
10. AUTHORIZED PERSONS. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of the Company or of the
Fund as have been designated by a resolution of the Board of Trustees of the
Fund, a certified copy of which has been provided to the Bank, to act on behalf
of the Fund in the performance of any acts which Authorized Persons may do under
this Agreement. Such persons shall continue to be Authorized Persons until such
time as the Bank receives Instructions from Authorized Persons that any such
officer or agent is no longer an Authorized Person.
11. NOMINEES. Securities in a Custody Account which are ordinarily
held in registered form may be registered in the name of the Bank's nominee or,
as to any Securities in the possession of an entity other than the Bank, in the
name of such entity's nominee. The Fund on behalf of each designated Portfolio
involved agrees to hold any such nominee harmless from any liability as a holder
of record of such Securities, but not if such liability is a result of such
nominee's negligence. The Bank may without notice to the Company or the Fund
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Fund. In the event that any
Securities registered in the name of the Bank's nominee or held by one of its
sub-custodians and registered in the name of such sub-custodian's nominee are
called for partial redemption by the issuer of such Security, the Bank may
allot, or cause to be allotted, the called portion to the respective beneficial
holders of such class of security in any manner the Bank deems to be fair and
equitable.
12. STANDARD OF CARE.
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A. The Bank shall be obligated to perform only such duties as
are set forth in this Agreement or expressly contained in Instructions given to
the Bank which are consistent with the provisions of this Agreement.
1. The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
Property. The Bank shall be liable to the Fund and the
Company for any loss which shall occur as the result of the
failure of a sub-custodian or an eligible foreign securities
depository to exercise reasonable care with respect to the
safekeeping of such Property to the same extent that the
Bank would be liable to the Fund and the Company if the Bank
were holding such Property in New York. In the event of any
loss to the Fund or the Company by reason of the failure of
the Bank or its sub-custodian or an eligible foreign
securities depository to exercise reasonable care, the Bank
shall be liable to the Fund or the Company only to the
extent of the Fund's or Company's direct damages and
expenses to be determined based on, but not limited to, the
market value of the Property which is the subject of the
loss at the date of discovery of such loss and without
reference to any special conditions or circumstances.
2. The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent (other
than as provided herein) which it or a sub-custodian
appoints and uses unless such appointment and use were made
or done negligently or in bad faith.
3. The Bank shall be indemnified by, and without liability to,
the designated Portfolio involved and the Company for any
action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement
if such act or omission was in good faith and without
negligence. In performing its obligations under this
Agreement, the Bank may rely on the genuineness of any
document which it believes in good faith and without
negligence to have been validly executed.
4. The Fund, on behalf of each designated Portfolio, agrees to
cause such Portfolio to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and
any related expenses with respect to income from or Property
in such Portfolio's Custody Account and Deposit Account.
5. The Bank, at its own expense, shall be entitled to rely, and
may act upon the advice of reasonably qualified counsel (who
may be counsel for the Fund or the Company) on all matters
and shall be without liability for any action reasonably
taken or omitted in good faith and without negligence
pursuant to such advice.
6. The Bank need not maintain any insurance for the exclusive
benefit of the Fund or Company.
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7. Without limiting the foregoing, the Bank shall not be liable
for any loss which results from:
a. the general risk of investing, or
b. subject to Section 12(a)(i) hereof, investing or
holding Property in a particular country including, but
not limited to, losses resulting from nationalization,
expropriation or other governmental actions; regulation
of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market
conditions which prevent the orderly execution of
securities transactions or affect the value of
Property.
8. No party shall be liable to the other for any loss due to
forces beyond its control including but not limited to
strikes or work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
B. Consistent with and without limiting the first paragraph of
this Section 12, it is specifically acknowledged that the Bank shall have no
duty or responsibility to:
1. Question Instructions or make any suggestions to the Fund,
Company or an Authorized Person regarding such Instructions;
2. Supervise or make recommendations with respect to
investments or the retention of Securities;
3. Subject to Section 12(a)(ii) hereof, evaluate or report to
the Fund, Company or an Authorized Person regarding the
financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant
to this Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
C. The Bank shall provide to the Company and the Fund, on an
annual basis, a report confirming that the arrangements hereunder remain in
compliance with the rules of the Securities and Exchange Commission governing
such arrangements, and information regarding changes in the law which affects
any of the sub-custodians, and shall promptly inform the Fund in the event that
the Bank learns of any material adverse change in the financial condition of any
sub-custodian.
13. COMPLIANCE WITH SECURITIES AND EXCHANGE COMMISSION RULES AND
ORDERS. Except to the extent the Bank has specifically agreed pursuant to this
Agreement or in an exemptive order to comply with a condition of Rule 17f-5 or
any interpretation or exemptive order promulgated thereunder by or under the
authority of the Securities and Exchange Commission, the Fund shall be solely
responsible to assure that the maintenance of Securities and cash under this
Agreement complies with such Rule 17f-5.
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14. CORPORATE ACTION. Whenever the Bank or its sub-custodian
receives information concerning the Securities which requires discretionary
action by the beneficial owner of the Securities (other than a proxy), such as
subscription rights, bonus issues, stock repurchase plans and rights offerings,
or legal notices or other material intended to be transmitted to securities
holders ("Corporate Actions"), the Bank will give the Company notice of such
Corporate Actions to the extent that the Bank's central corporate actions
department has actual knowledge of a Corporate Action in time to notify its
customers, and the Company will forward such notice to the Fund.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank or its sub-custodians will
endeavor to obtain Instructions from the Fund, Company or its Authorized Person,
but if Instructions are not received in time for the Bank to take timely action,
or actual notice of such Corporate Action was received too late to seek
Instructions, the Bank is authorized to sell such rights entitlement or
fractional interest and to credit the applicable Deposit Account with the
proceeds and to take any other action it deems, in good faith, to be appropriate
in which case, provided it has met the standard of care in Section 12 hereof, it
shall be held harmless by the Fund on behalf of the designated Portfolio
involved for any such action.
The Bank will deliver proxies to the Company or its designated agent
pursuant to special arrangements which may have been agreed to in writing
between the parties hereto. Such proxies shall be executed in the appropriate
nominee name relating to Securities in a Custody Account registered in the name
of such nominee but without indicating the manner in which such proxies are to
be voted; and where bearer Securities are involved, proxies will be delivered in
accordance with instructions from Authorized Persons.
15. FEES AND EXPENSES. The Fund agrees to pay to the Bank from time
to time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and the Bank's out-of-pocket
or incidental expenses, including (but without limitation) reasonable legal
fees. The Fund hereby agrees on behalf of the designated Portfolios to cause
the designated Portfolio to hold the Bank harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expenses related
thereto, which may be imposed, or assessed with respect to such Portfolio's
Custody Account, and also agrees on behalf of the designated Portfolios to cause
the designated Portfolios to hold the Bank, its sub-custodians, and their
respective nominees harmless from any liability as a record holder of Securities
in such Portfolio's Custody Account. The Bank is authorized to charge any
account of the designated Portfolio involved for such items and the Bank shall
have a lien on Securities in such Portfolio's Custody Account and on cash in
such Portfolio's Deposit Account for any amount owing to the Bank in connection
with such investment portfolio from time to time under this Agreement.
16. EFFECTIVENESS. This Agreement shall be effective on the date
first noted above.
17. TERMINATION. This Agreement may be terminated by the Fund, the
Company or the Bank upon 60 days' prior written notice to the others, sent by
registered mail, provided that any termination by the Company shall be
authorized by a resolution of the Board of Trustees of the Fund, and provided
further, that such resolution shall specify the names of persons to whom the
Bank shall
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deliver the Securities in each Custody Account and to whom the cash in each
Deposit Account shall be paid. If notice of termination is given by the Bank,
the Fund or the Company shall, within 60 days following the giving of such
notice, deliver to the Bank the names of the persons to whom the Bank shall
deliver such Securities and cash. If within 60 days following the giving of a
notice of termination by the Bank, the Bank does not receive from the Fund or
the Company the names of the persons to whom the cash in each Deposit Account
shall be paid and to whom the Securities in each Custody Account shall be
delivered, the Bank, at its election, may deliver such Securities and pay such
cash to a bank or trust company doing business in the State of New York and
qualified as a custodian under the Investment Company Act of 1940 to be held and
disposed of pursuant to the provisions of this Agreement, or to Authorized
Persons, or may continue to hold such Securities and cash until the names of the
persons to whom the cash in each Deposit Account shall be paid and to whom the
Securities in each Custody Account shall be delivered is provided to the Bank.
The obligations of the parties hereto regarding the use of reasonable care,
indemnities and payment of fees and expenses shall survive the termination of
this Agreement, and the obligations of each designated Portfolio to indemnify
and/or hold harmless other persons or entities under this Agreement shall be the
several (and not the joint or joint and several) obligation of each Portfolio.
18. NOTICES. Any notice or other communication from the Fund or the
Company to the Bank shall be in writing and shall be delivered, sent by
registered or certified mail, return receipt requested, or communicated by
telegram, telex or facsimile transmission addressed to the office of the Bank at
1211 Avenue of the Americas (33rd floor), New York, New York, 10036, Attention:
Global Custody Division, or such other address as may hereafter be given to the
Fund or the Company in accordance with the notice provisions hereunder, and any
notice from the Bank to the Fund or the Company shall be in writing and shall be
delivered, sent by registered or certified mail, return receipt requested, or
communicated by telegram, telex or facsimile transmission addressed to the Fund
and to the Company at the addresses appearing below their signatures to this
Agreement, or as the same may hereafter be changed on the Bank's records in
accordance with notice hereunder from the Fund or the Company.
19. GOVERNING LAW AND SUCCESSORS AND ASSIGNS. This Agreement shall
be governed by the law of the State of New York (without regard to principles of
conflicts of law) and shall not be assignable by any party, but shall bind the
successors and assigns of the Fund, the Company and the Bank.
20. HEADINGS. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
21. COUNTERPART EXECUTION. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one agreement.
22. CONFIDENTIALITY. Bank agrees on behalf of itself and its
employees to treat confidentially all records and other information relative to
the Fund and its prior, present, or potential shareholders, and relative to the
Company and its prior, present, or potential customers, except, after prior
notification to and approval in writing by the Fund or the Company, as the case
may be, which
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approval may not be withheld where Bank may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Fund or
the Company.
23. LIMITATIONS ON LIABILITY. Pursuant to the Fund's Declaration of
Trust, no trustee, officer, employee or agent of the Fund shall be subject to
any personal liability whatsoever, in his or her official or individual
capacity, to any person, including the Bank or any sub-custodian, other than to
the Fund or its shareholders, in connection with Fund property or the affairs of
the Fund, save only that arising from his or her bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duty to such person; and
all such persons shall look solely to the Fund property for satisfaction of
claims of any nature against a trustee, officer, employee or agent of the Fund
arising in connection with the affairs of the Fund. Moreover, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a designated Portfolio shall be enforceable against the
assets and property of Portfolio only, and not against the assets and property
of any other series or Portfolio.
24. OWNERSHIP OF RECORDS. The books and records pertaining to the
Fund and each designated Portfolio, which are in the possession of the Bank or
any sub-custodian, shall be the property of the Fund. Such books and records
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
Authorized Persons, shall have access to such books and records at all times
during the Bank's or any sub-custodian's business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
the Bank or the sub-custodian to the Fund or to an Authorized Person of the
Fund, at the Fund's expense.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNBC BANK, NATIONAL ASSOCIATION
By:
--------------------------------------------------------
Address for record:
Airport Business Center
200 Stevens Drive
Lester, PA 19113
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THE CHASE MANHATTAN BANK, N.A.
By:
--------------------------------------------------------
Address for record:
270 Park Avenue
New York, NY 10036
NICHOLAS-APPLEGATE MUTUAL FUNDS
By:
--------------------------------------------------------
Address for record:
600 West Broadway, 30th Floor
San Diego, CA 92101
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APPENDIX A
LIST OF DESIGNATED PORTFOLIOS
Nicholas-Applegate Pacific Rim Fund
Nicholas-Applegate Greater China Fund
Nicholas-Applegate Latin America Fund
Nicholas-Applegate Global Blue Chip Fund
Nicholas-Applegate Emerging Markets Bond Fund
In addition, any series or portfolio established by the Fund in the future
in respect of which the Fund and the Company wish to have the Bank agree in
writing to serve as sub-custodian.
Dated: September 26, 1997
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Exhibit 9.19
___________, 199_
Nicholas-Applegate Mutual Funds
600 West Broadway, 30th Floor
San Diego, California 92101
The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas, 32nd Floor
New York, New York 10036
Attention: Global Custody Division
PNC Bank, National Association
Airport Business Center
International Court 2
200 Stevens Drive
Lester, Pennsylvania 19113
Ladies and Gentlemen:
Reference is made to the Sub-Custodian Agreement dated as of September 26,
1997 among Nicholas-Applegate Mutual Funds and you (the "Agreement").
Pursuant to Appendix A to the Agreement, we wish to add the Funds listed on
attachment 1 to the Agreement. Please indicate your acceptance of this addition
by signing two copies of this letter below and returning them to us. Thank you
for your assistance regarding this matter.
Very truly yours,
E. Blake Moore, Jr.
Secretary
AGREED:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------
Title:
---------------------------
THE CHASE MANHATTAN BANK, N.A.
By:
------------------------------
Title:
---------------------------
<PAGE>
ATTACHMENT 1
Nicholas-Applegate Core Growth Fund
Nicholas-Applegate Large Cap Growth Fund
Nicholas-Applegate Mini Cap Growth Fund
Nicholas-Applegate Emerging Growth Fund
Nicholas-Applegate Income & Growth Fund
Nicholas-Applegate Balanced Growth Fund
Nicholas-Applegate Worldwide Growth Fund
Nicholas-Applegate International Growth Fund
Nicholas-Applegate Emerging Countries Fund
Nicholas-Applegate Global Growth & Income Fund
Nicholas-Applegate International Small Cap Growth Fund
Nicholas-Applegate Value Fund
Nicholas-Applegate Fully Discretionary Fixed Income Fund
Nicholas-Applegate Strategic Income Fund
Nicholas-Applegate Short-Intermediate Fixed Income Fund
Nicholas-Applegate High Yield Bond Fund
Nicholas-Applegate Money Market Fund
<PAGE>
Exhibit 10.2
NICHOLAS-APPLEGATE MUTUAL FUNDS
DISTRIBUTION PLAN
INTRODUCTION
The Board of Trustees (the "Board") of Nicholas-Applegate Mutual Funds
(the "Trust") has approved the adoption of the Distribution Plan (the "Plan")
set forth below with respect to the distribution of shares of beneficial
interest (the "Shares") of its various series currently and hereafter in effect
(each a "Fund" and collectively the "Funds"), including the Class A, B and C
Shares of each Fund, if any. This Plan is designed to conform to the
requirements of Rule 12b-1 promulgated under the Investment Company Act of 1940,
as amended (the "Act").
The Trust on behalf of each Fund has entered into a distribution
agreement (the "Distribution Agreement") pursuant to which the Trust will employ
the Distributor to distribute Shares of the Fund. Under the Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of Class A Shares of the
Fund and contingent deferred sales charges with respect to redemptions of the
Class B Shares and certain redemptions of the Class A and C shares of the Fund.
Under this Plan, the Trust on behalf of each Fund (or, in the case of Funds with
multiple Classes, on behalf of each Class of each Fund) intends to compensate
the Distributor for expenses incurred, and services and facilities provided, by
the Distributor in distributing Shares of the Fund (or the various Classes
thereof, as the case may be).
THE PLAN
The material aspects of the Plan are as follows:
SECTION 1. The Funds will pay the Distributor for: (a) expenses
incurred in connection with advertising and marketing shares of the Funds
including but not limited to any advertising or marketing via radio, television,
newspapers, magazines, telemarketing or direct mail solicitations; (b) periodic
payments of fees for distribution assistance made to one or more securities
dealers, or other industry professionals, such as investment advisers,
accountants, estate planning firms and the Distributor itself (collectively
"Service Organizations") in respect of the average daily value of the Shares of
each Fund or Class thereof, as the case may be, beneficially owned by persons
("Clients") for whom the Service Organization is the dealer of record or holder
of record or with whom the Service Organization has a servicing relationship,
and (c) expenses incurred in preparing, printing and distributing the Funds'
prospectuses and statements of additional information (except those used for
regulatory purposes or for distribution to existing shareholders of the Funds).
SECTION 2. While this Plan is in effect the Distributor will be
compensated by each Fund (or each Class thereof, as the case may be) for such
distribution expenses that are incurred, and services and facilities that are
provided, in connection with Shares of the Fund or Class on a monthly basis, at
the annual rate set forth in Schedule A hereto which is based on the Fund's
average daily net assets during such month (or the average daily net assets of
each Class thereof, as the case may be). These monthly payments to the
Distributor will be made in accordance with and subject to the conditions set
forth below. For the purposes of determining the amounts payable under the
Plan, the value of a Fund's or Class' net assets shall be computed in the manner
specified in the Fund's prospectus and statement of additional information as
then in effect for the computation of the value of the Fund's net assets.
-1-
<PAGE>
The distribution fees payable to the Distributor are designed to
compensate the Distributor for the expenses it incurs and the services it
renders in distributing shares of the Funds. However, because this Plan is a
compensation plan, the distribution fees are payable even if the amount paid
exceeds the Distributor's actual expenses. If in any year the Distributor's
expenses incurred in connection with the distribution of Shares of a Fund or
Class, as the case may be, exceed the distribution fees paid by the Fund or
Class, the Distributor will recover such excess only if this Plan with respect
to the Fund or Class continues to be in effect in some later year when the
distribution fees exceed the Distributor's expenses. There is no limit on the
periods during which unreimbursed expenses may be carried forward, although the
Trust is not obligated to repay any unreimbursed expenses for a Fund or Class
thereof that may exist at such time, if any, as this Plan terminates or is not
continued with respect to the Fund or Class. No interest, carrying or finance
charge will be imposed on any amounts carried forward.
Payment made out of or charged against the assets of a particular Fund
or Class must be in payment for distribution expenses incurred on behalf of such
Fund or Class and which are described herein.
SECTION 3. Payments by the Distributor to a Service Organization
described in this Plan shall be subject to compliance by the Service
Organization with the terms of a selling group agreement between the Service
Organization and the Distributor. If an investor in a Fund ceases to be a
client of a Service Organization that has entered into a selling group agreement
with the Distributor, but continues to hold shares of the Fund, the Distributor
will be entitled to receive similar payments in respect of the distribution
assistance provided with respect to such investor.
SECTION 4. The Distributor shall provide the Board, at least
quarterly, with a written report of all amounts expended pursuant to this Plan.
The report shall state the purposes for which the amounts were expanded.
SECTION 5. This Plan shall not take effect with respect to a Fund
or Class until it has been approved by a vote of a majority of the outstanding
voting securities (as defined in the Act) of the Shares of the Fund or Class,
which may be by vote of the initial shareholder of the Fund's Shares; provided,
however, that no such approval shall be required with respect to a Fund or Class
of Shares of a Fund if the Plan takes effect with respect to a Fund or Class of
Shares prior to any public offering of Shares or the sale of such Shares to
persons who are not affiliated persons of the Trust, promoters of the Trust or
affiliated persons of such promoter. If so approved (or if no such approval is
required), this Plan, unless earlier terminated in accordance with its terms,
shall continue in full force and effect thereafter shall continue automatically
for successive annual periods provided such continuance is approved by a
majority of the Board, including a majority of the Trustees who are not
"interested persons" (as defined in the Act) of the Trust and who have no direct
or indirect financial interest in the operation of this Plan or in any
agreements entered into in connection with this Plan (the "Disinterested
Trustees"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the continuance of the Plan.
SECTION 6. This Plan may be amended at any time by the Board
provided that (i) any amendment to increase materially the costs which any Fund
or Class may bear for distribution pursuant to this Plan shall be effective only
upon approval by a vote of a majority of the outstanding voting securities of
the respective Fund or Class, and (ii) any material amendments of the terms of
this Plan shall become effective only upon approval by a majority of the Board
and a majority of the Disinterested Trustees pursuant to a vote cast in person
at a meeting called for the purpose of voting on the Plan.
-2-
<PAGE>
SECTION 7. This Plan is terminable, as to any Fund or Class,
without penalty at any time by (i) vote of the majority of the Disinterested
Trustees, or (ii) vote of a majority of the outstanding voting securities of
such Fund or Class.
SECTION 8. The Board has adopted this Plan as of March 29, 1993,
as amended on February 10, 1995 and November 14, 1997.
-3-
<PAGE>
SCHEDULE A
DISTRIBUTION FEES
Each Fund will pay the Distributor a distribution fee for the expenses
incurred, and the services and facilities provided, by the Distributor under the
Plan at the following annual rates:
1. For Class A Shares, an amount equal to 0.25% of each such Class'
average daily net asset value.
2. For Nicholas-Applegate Money Market Fund, an amount equal to
0.15% of such Fund's average daily net asset value.
3. For Class B and C Shares, an amount equal to 0.75% of each such
Class' average daily net asset value.
-4-
<PAGE>
Exhibit 11
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071
_____________, 1998
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
We have acted as counsel to Nicholas-Applegate Mutual Funds, a
Delaware business trust (the "Trust"), in connection with the proposed
reorganization of the Trust pursuant to which (a) each of the A, B, C and
Qualified Portfolios of the Trust will receive its pro rata portion of the
assets of the corresponding master fund of Nicholas-Applegate Investment Trust,
a Delaware business trust, upon dissolution of such trust, and (b) transfer
those assets to the corresponding fund of the Trust (each, a "Fund" and,
collectively, the "Funds") in exchange for Class A, B, C or Q shares of such
Fund. The Class A, B, C and Q shares of beneficial interest of the Funds issued
in connection with the reorganization (the "Shares") will be registered on a
Form N-14 Registration Statement (the "Registration Statement") to be filed by
the Trust with the Securities and Exchange Commission.
We have examined originals or certified copies, or copies otherwise
identified to our satisfaction as being true copies, of various trust records of
the Trust and such other instruments and documents as we have deemed necessary
in order to render this opinion. We have assumed the genuineness of all
signatures, the authenticity of all documents examined by us and the correctness
of all statements of fact contained in those documents.
On the basis of the foregoing, we are of the opinion that the Shares
being registered under the Securities Act of 1933 in the Registration Statement
will be legally and validly issued, fully paid and non-assessable by the Trust
upon transfer of the assets of the A, B, C and Qualified Portfolios to the
corresponding Funds pursuant to the terms of the Agreement and Plan of
Reorganization included in the Registration Statement.
<PAGE>
Nicholas-Applegate Mutual Funds
December 3, 1997
Page 2
We hereby consent to the filing of this opinion with and as part of
the Registration Statement.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
Exhibit 12.1
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Los Angeles, California 90071
_____________, 1998
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
Re: Reorganization of Nicholas-Applegate Mutual Funds:
A, B, C, Qualified Portfolios/Institutional Portfolios
------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion as counsel for Nicholas-Applegate
Mutual Funds, a Delaware business trust (the "Trust"), with respect to certain
Federal income tax matters in connection with the reorganization by and between
the A, B, C and Qualified portfolios of the Trust other than the Government
Income A, B, C, and Qualified portfolios (each a "Portfolio" and, collectively,
the "Portfolios") and the corresponding Institutional portfolios of the Trust
(each an "Institutional Portfolio" and, collectively, the "Funds"), each a
separate series of the Trust, pursuant to the Agreement and Plan of
Reorganization dated _________, 199__, by and among the Trust on behalf of the
Portfolios and on behalf of the Funds (the "Reorganization Agreement"). This
opinion adopts the applicable defined terms therein.
This opinion also addresses certain Federal income tax consequences of
the distribution of the assets (the "Partnership Distribution") of certain
series of Nicholas-Applegate Investment Trust (the "Master Trust") to the Trust
(and the Portfolios therein). Within the Master Trust there are several
portfolio series in which the Portfolios invest, each with a different
investment focus (collectively, the "Master Funds"). This opinion is rendered
in connection with the distribution described in that certain resolution of the
Board of Trustees of the Master Trust dated November 14, 1997 (the
"Resolution").
This letter and the opinions expressed herein are for delivery to the
Portfolios and the Funds and may be relied upon only by the Portfolios and the
Funds and by the shareholders of the Portfolios and the Funds. This opinion
also may be disclosed by the Portfolios, the Funds or any such shareholder in
connection with an audit or other
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 2
administrative proceeding before the Internal Revenue Service (the "Service")
affecting the Portfolios, the Funds or such shareholder or in connection with
any judicial proceeding relating to the Federal, state or local tax liability of
the Portfolios, the Funds or any such shareholder.
For purposes of this opinion we have assumed the truth and accuracy of
the following facts:
The Trust and the Master Trust were each organized under the laws of
the State of Delaware on December 18, 1992, and each is validly existing and in
good standing under the laws of that State. The Trust and the Master Trust are
each duly registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company.
Each of the Portfolios is a series of the Trust duly established under
the law of the State of Delaware and is validly existing under the laws of that
State. Each of the Portfolios has only one class of shares of beneficial
interest ("shares"), which is widely held. Each of the Portfolios' shares sold
have been sold pursuant to an effective Registration Statement of the Trust
filed under the Securities Act of 1933, as amended (the "1933 Act"), except for
any shares sold pursuant to an applicable exemption thereunder. Each of the
Portfolios has an authorized capital of an unlimited number of shares, and each
outstanding share of each of the Portfolios is fully paid, non-assessable, fully
transferable and has full voting rights.
Each of the Institutional Portfolios is a series of the Trust duly
established under the laws of the State of Delaware and is validly existing
under the laws of that State. Each of the Institutional Portfolios currently
has only one class of shares, which is widely held. Each of the Institutional
Portfolios' shares sold have been sold pursuant to an effective Registration
Statement of the Trust filed under the 1933 Act, except for any shares sold
pursuant to an applicable exemption thereunder. Each of the Institutional
Portfolios has an authorized capital of an unlimited number of shares, and each
outstanding share of the Funds is fully paid, non-assessable, fully transferable
and has full voting rights. The shares of each of the Institutional Portfolios
issued pursuant to the Reorganization Agreement will be fully paid,
non-assessable, freely transferable and have full voting rights.
For valid business purposes, the following transaction will take place
in accordance with the laws of the State of Delaware and pursuant to the
Reorganization Agreement and the Resolution:
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 3
(a) On the date of the closing (the "Closing Date"), the Master Trust
will distribute all of the assets of the Master Funds to the corresponding
Portfolios of the Trust (the "Partnership Distribution").
(b) On the Closing Date, the Trust will cause the Portfolios to
transfer substantially all of their assets, including all assets received from
the corresponding Master Funds of the Master Trust, to the corresponding Funds,
and each Fund will assume all of the liabilities of the corresponding Portfolio.
In exchange therefor, the Trust will cause each Fund to deliver to each such
Portfolio a number of the Fund's Class A, B, C, or Q shares, as applicable,
which is equal to an amount as determined by Section 2.1 of the Reorganization
Agreement.
(c) The Trust will liquidate each Portfolio and will distribute all
of the Fund shares to the shareholders of such Portfolio in proportion to their
respective interests in the Portfolio.
(d) The Portfolios will wind up and dissolve as soon as practicable
thereafter.
In rendering the opinions stated below, we have examined and relied
upon the following, assuming the truth and accuracy of any statements contained
therein:
(1) The Reorganization Agreement.
(2) The Proxy Statement, included as part of the Trust's Registration
Statement on Form N-14 as filed with the Securities and Exchange
Commission on December __, 1997.
(3) The current Prospectuses and Statements of Additional Information
of the Trust, dated ________, 1998.
(4) The Amended and Restated Declaration of Trust of the Trust, dated
December 17, 1992, as amended.
(5) The Resolution of the Board of Trustees of the Master Trust dated
November 14, 1997.
(6) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred
to in this letter.
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 4
For purposes of rendering the opinions stated below, we have in
addition relied upon the following representations by the Trust on behalf of the
Portfolios and/or the Funds, as applicable:
(A) The aggregate fair market value of the shares of the Funds
received by the shareholders of the Portfolios will be approximately equal to
the aggregate fair market value of the Portfolios' assets surrendered in the
exchange. The shareholders of the Portfolios will receive no consideration
other than the Fund shares in exchange for their Portfolio shares.
(B) To the best of the knowledge of the management of the Trust and
the Portfolios, there is no plan or intention on the part of any shareholder of
any Portfolio to sell, exchange, or otherwise dispose of a number of Fund shares
received in the transaction that would reduce any Portfolio shareholders'
ownership of corresponding Fund shares to a number of shares having a value, as
of the date of the transaction, of less than 50% of the value of all of the
formerly outstanding shares of that particular Portfolio as of the same date.
For purposes of this representation, shares of a Portfolio exchanged for cash or
other property, surrendered by dissenters, or exchanged for cash in lieu of
fractional shares of the corresponding Fund, have been treated as outstanding
shares of the Portfolio on the date of the transaction. Further, in making this
representation, the Trust and the Portfolios have considered both shares of the
Portfolios and shares of the Funds that were sold, redeemed, or otherwise
disposed of by the shareholders of the Portfolios (except for shares which were
required to be redeemed by the Portfolios in the ordinary course of their
respective businesses as series of an investment company).
(C) Each Fund will acquire at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross assets
held by the corresponding Portfolio immediately prior to the transaction. For
purposes of this representation, amounts used by the Portfolios to pay their
reorganization expenses, amounts paid by the Portfolios to shareholders who
receive cash or other property, and all redemptions and distributions (except
for distributions and redemptions occurring in the ordinary course of the
Portfolios' business as a management investment company) made by the Portfolios
immediately preceding the transfer have been included as assets of the
Portfolios held immediately prior to the transaction.
(D) The Funds have no plan or intention to reacquire any of their
shares issued in the transaction, except in the normal course of redemptions by
their shareholders.
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 5
(E) The Funds have no plan or intention to sell or otherwise dispose
of any of the assets of the Portfolios acquired in the transaction, except for
dispositions made in the ordinary course of their business as series of an
investment company.
(F) In pursuance of the plan of reorganization, the Portfolios will
distribute as soon as practicable the shares of the Funds they receive in the
transaction.
(G) The liabilities of each Portfolio assumed by the corresponding
Fund and the liabilities to which the transferred assets of such Portfolio are
subject (i) were incurred by the Portfolio in the ordinary course of its
business, and (ii) do not exceed the tax basis of the assets transferred to each
corresponding Fund.
(H) The Portfolios have continued their historic business enterprise
in a substantially unchanged manner and have not disposed of and/or acquired
assets in order to satisfy the investment objectives of the Funds.
(I) Following the transaction, the Funds will continue the historic
business of the Portfolios or use a significant portion of the Portfolios'
historic business assets in a business.
(J) The Portfolios, the Funds and the shareholders of the Portfolios
will pay their respective expenses, if any, incurred in connection with the
transaction. The Funds will pay or assume only those expenses of the Portfolios
that are solely and directly related to the transaction in accordance with the
guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187.
(K) There is no indebtedness existing between the Portfolios and the
Funds that was issued, acquired, or will be settled at a discount.
(L) The Portfolios and the Funds have been at all times prior to the
Closing Date, and will be at the Closing Date, regulated investment companies as
defined in Section 851 of the Internal Revenue Code of 1986, as amended
(the "Code").
(M) The Funds do not own, directly or indirectly, nor have they owned
during the past five years, directly or indirectly, any shares of the
Portfolios.
(N) The fair market value of the assets of the Portfolios transferred
to the Funds will equal or exceed the sum of the liabilities assumed by the
Funds, plus the amount of liabilities, if any, to which the transferred assets
are subject.
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 6
(O) The Portfolios are not under the jurisdiction of a court in a
case under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a Federal or state court.
For purposes of rendering the opinions stated below, we have in
addition relied upon the following representations by the Master Trust:
(A) Each of the Master Funds is classified as a partnership and not
as an association taxable as a corporation for Federal income tax purposes.
(B) At the time of the Partnership Distribution, the Master Funds
will have no liabilities (within the meaning of Section 752 of the Code).
(C) The tax basis of each Portfolio in the corresponding Master Fund
is greater than the amount of cash that will be received in the Distribution.
(D) The Master Funds are "investment partnerships" within the meaning
of Code Section 731(c)(3)(C)(i).
(E) Each Portfolio is an "eligible partner" within the meaning of
Code Section 731(c)(3)(C)(iii).
(F) The Master Funds, at the time of the Distribution, will not
possess any "unrealized receivables" or "inventory items" within the meaning of
Code Sections 751(c) and 751(d), respectively.
(G) Any assets other than cash contributed to the Master Funds by the
Portfolios have been disposed of by the Master Funds prior to the date of the
Distribution.
(H) No Portfolio of the Trust will receive solely cash in the
Distribution.
Our opinions set forth in this letter are based upon the Code,
regulations of the Treasury Department, published administrative announcements
and rulings of the Service and court decisions, all as of the date of this
letter. Based on the foregoing facts and representations, and provided that the
transaction will take place in accordance with the terms of the Reorganization
Agreement, and further provided that the Portfolios distribute their remaining
assets as soon as practicable, we are of the opinion that:
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 7
1. No gain or loss will be recognized by any Portfolio upon the receipt
by the Portfolio of substantially all of the assets of the
corresponding Master Fund;
2 The transfer of substantially all of the assets and liabilities of
each Portfolio to the corresponding Fund in exchange for shares of
such Fund, and the distribution of such shares to the Portfolio
shareholders in liquidation of the Portfolio, will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended;
3. No gain or loss will be recognized by any Fund upon the receipt of the
assets of a Portfolio solely in exchange for Fund Shares;
4. No gain or loss will be recognized by any Portfolio upon the transfer
of its assets to its corresponding Fund in exchange for Fund Shares or
upon the distribution of Fund Shares to Portfolio shareholders in
exchange for their Portfolio shares;
5. No gain or loss will be recognized by any Portfolio shareholders upon
exchange of their Portfolio shares for Fund Shares;
6. The tax basis of the assets of each Portfolio acquired by each Fund
will be the same as the tax basis of such assets to the Portfolio
immediately prior to the Reorganization;
7. The tax basis of Fund Shares received by each shareholder of each
Portfolio pursuant to the Reorganization will be the same as the tax
basis of the Portfolio shares held by such shareholder immediately
prior to the Reorganization;
8. The holding period of the assets of each Portfolio by each Fund will
include the period during which those assets were held by the
Portfolio and the corresponding Master Fund; and
9. The holding period of the Fund Shares to be received by each Portfolio
shareholder will include the period during which the Portfolio shares
exchanged therefor were held by such shareholder.
The opinions set forth above represent our conclusions as to the
application of Federal income tax law existing as of the date of this letter to
the transactions described in the Proxy Statement, and we can give no assurance
that legislative enactments,
<PAGE>
Nicholas-Applegate Mutual Funds
____________ 1998
Page 8
administrative changes or court decisions may not be forthcoming which would
require modifications or revocations of our opinions expressed herein.
Moreover, there can be no assurance that positions contrary to our opinions will
not be taken by the Service, or that a court considering the issues would not
hold contrary to such opinions. Further, all the opinions set forth above
represent our conclusions based upon the documents and facts referred to above.
Any material amendments to such documents or changes in any significant facts
would affect the opinions referred to herein. Although we have made such
inquiries and performed such investigation as we have deemed necessary to
fulfill our professional responsibilities, we have not undertaken an independent
investigation of the facts referred to in this letter.
We express no opinion as to any Federal income tax issue or other matter
except those set forth above.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT 12.2
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Los Angeles, California 90071
_____________, 1998
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
Re: Reorganization of Nicholas-Applegate Mutual Funds:
Government A, B, C, Qualified Portfolios/Fully Discretionary
Fixed Income Institutional Portfolio
------------------------------------
Ladies and Gentlemen:
You have requested our opinion as counsel for Nicholas-Applegate Mutual
Funds, a Delaware business trust (the "Trust"), with respect to certain Federal
income tax matters in connection with the reorganization by and between the
Government Income A, B, C and Qualified Portfolios of the Trust (each a
"Government Income Portfolio" and, collectively, the "Government Income
Portfolios") and the Fully Discretionary Fixed Income Institutional Portfolio of
the Trust (the "Fully Discretionary Portfolio"), pursuant to the Agreement and
Plan of Reorganization dated _________, 199__, by and among the Trust on behalf
of the Government Income Portfolios and on behalf of the Fully Discretionary
Portfolio (the "Reorganization Agreement"). This opinion adopts the applicable
defined terms therein.
This opinion also addresses certain Federal income tax consequences of the
distribution of the assets (the "Partnership Distribution") of certain series of
the Nicholas-Applegate Investment Trust (the "Master Trust") to the Trust (and
the portfolios therein). Within the Master Trust there are several portfolio
series in which the Government Income Portfolios and Fully Discretionary
Portfolio invest, each with a different investment focus (collectively, the
"Master Funds"). This opinion is rendered in connection with the distribution
described in that certain resolution of the Board of Trustees of the Master
Trust dated November 14, 1997 (the "Resolution").
This letter and the opinions expressed herein are for delivery to the
Government Income Portfolios and the Fully Discretionary Portfolio and may be
relied upon only by the Government Income Portfolios and the Fully Discretionary
Portfolio and by the shareholders of the Government Income Portfolios and the
Fully Discretionary Portfolio. This opinion also may be disclosed by the
Government Income Portfolios, the Fully Discretionary Portfolio or
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 2
any such shareholder in connection with an audit or other administrative
proceeding before the Internal Revenue Service (the "Service") affecting the
Government Income Portfolios, the Fully Discretionary Portfolio or such
shareholder or in connection with any judicial proceeding relating to the
Federal, state or local tax liability of the Government Income Portfolios, the
Fully Discretionary Portfolio or any such shareholder.
For purposes of this opinion we have assumed the truth and accuracy of
the following facts:
The Trust and the Master Trust were each organized under the laws of
the State of Delaware on December 18, 1992, and each is validly existing and in
good standing under the laws of that State. The Trust and the Master Trust are
each duly registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company.
Each of the Government Income Portfolios and the Fully Discretionary
Portfolio is a series of the Trust duly established under the law of the State
of Delaware and is validly existing under the laws of that State. Each of the
Government Income Portfolios and the Fully Discretionary Portfolio currently has
only one class of shares of beneficial interest ("shares"), which is widely
held. Each of the Government Income Portfolios' shares and the Fully
Discretionary Portfolio's shares sold have been sold pursuant to an effective
Registration Statement of the Trust filed under the Securities Act of 1933, as
amended (the "1933 Act"), except for any shares sold pursuant to an applicable
exemption thereunder. Each of the Government Income Portfolios and the Fully
Discretionary Portfolio has an authorized capital of an unlimited number of
shares, and each outstanding share of each of the Government Income Portfolios
and the Fully Discretionary Portfolio is fully paid, non-assessable, fully
transferable and has full voting rights.
For valid business purposes, the following transaction will take place
in accordance with the laws of the State of Delaware and pursuant to the
Reorganization Agreement and the Resolution:
(a) On the date of the closing (the "Closing Date"), the Master Trust
will distribute all of the assets of the Master Funds to the corresponding
Government Income Portfolios and the Fully Discretionary Portfolio of the Trust
(the "Partnership Distribution").
(b) On the Closing Date, the Trust will cause the Government Income
Portfolios to transfer substantially all of their assets, including all assets
received from the corresponding Master Fund of the Master Trust, to the Fully
Discretionary Portfolio, and the Fully Discretionary Portfolio will assume all
of the liabilities of the Government Income Portfolios.
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 3
In exchange therefor, the Trust will cause the Fully Discretionary Portfolio to
deliver to each such Government Income Portfolio a number of the Fully
Discretionary Portfolio's Class A, B, C, or Q shares, as applicable, which is
equal to an amount as determined by Section 2.1 of the Reorganization Agreement.
(c) The Trust will liquidate each Government Income Portfolio and
will distribute all of the Fully Discretionary Portfolio shares to the
shareholders of such Government Income Portfolio in proportion to their
respective interests in the Government Income Portfolio.
(d) The Government Income Portfolios will wind up and dissolve as
soon as practicable thereafter.
In rendering the opinions stated below, we have examined and relied
upon the following, assuming the truth and accuracy of any statements contained
therein:
(1) The Reorganization Agreement.
(2) The Proxy Statement, included as part of the Trust's Registration
Statement on Form N-14 as filed with the Securities and Exchange
Commission on December __, 1997.
(3) The current Prospectuses and Statements of Additional Information
of the Trust, dated ________, 1998.
(4) The Amended and Restated Declaration of Trust of the Trust, dated
December 17, 1992, as amended.
(5) The Resolution of the Board of Trustees of the Master Trust dated
November 14, 1997.
(6) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred
to in this letter.
For purposes of rendering the opinions stated below, we have in
addition relied upon the following representations by the Trust on behalf of the
Government Income Portfolios and/or the Fully Discretionary Portfolio, as
applicable:
(A) The aggregate fair market value of the shares of the Fully
Discretionary Portfolio received by the shareholders of the Government Income
Portfolios will be
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 4
approximately equal to the aggregate fair market value of the Government Income
Portfolios' assets surrendered in the exchange. The shareholders of the
Government Income Portfolios will receive no consideration other than the Fully
Discretionary Portfolio shares in exchange for their Government Income
Portfolios shares.
(B) To the best of the knowledge of the management of the Trust, the
Government Income Portfolios, and the Fully Discretionary Portfolio, there is no
plan or intention on the part of any shareholder of any Government Income
Portfolio to sell, exchange, or otherwise dispose of a number of Fully
Discretionary Portfolio shares received in the transaction that would reduce any
Government Income Portfolio shareholders' ownership of corresponding Fully
Discretionary Portfolio shares to a number of shares having a value, as of the
date of the transaction, of less than 50% of the value of all of the formerly
outstanding shares of that particular Government Income Portfolio as of the same
date. For purposes of this representation, shares of a Government Income
Portfolio exchanged for cash or other property, surrendered by dissenters, or
exchanged for cash in lieu of fractional shares of the Fully Discretionary
Portfolio, have been treated as outstanding shares of the Government Income
Portfolio on the date of the transaction. Further, in making this
representation, the Trust and the Government Income Portfolios have considered
both shares of the Government Income Portfolios and shares of the Fully
Discretionary Portfolio that were sold, redeemed, or otherwise disposed of by
the shareholders of the Government Income Portfolios (except for shares which
were required to be redeemed by the Government Income Portfolios in the ordinary
course of their respective businesses as series of an investment company).
(C) The Fully Discretionary Portfolio will acquire at least 90% of
the fair market value of the net assets and at least 70% of the fair market
value of the gross assets held by each of the Government Income Portfolios
immediately prior to the transaction. For purposes of this representation,
amounts used by the Government Income Portfolios to pay their reorganization
expenses, amounts paid by the Government Income Portfolios to shareholders who
receive cash or other property, and all redemptions and distributions (except
for distributions and redemptions occurring in the ordinary course of the
Government Income Portfolios' business as a management investment company) made
by the Government Income Portfolios immediately preceding the transfer have been
included as assets of the Government Income Portfolios held immediately prior to
the transaction.
(D) The Fully Discretionary Portfolio has no plan or intention to
reacquire any of its shares issued in the transaction, except in the normal
course of redemptions by its shareholders.
(E) The Fully Discretionary Portfolio has no plan or intention to
sell or otherwise dispose of any of the assets of the Government Income
Portfolios acquired in the transaction,
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 5
except for dispositions made in the ordinary course of its business as a series
of an investment company.
(F) In pursuance of the plan of reorganization, the Government Income
Portfolios will distribute as soon as practicable the shares of the Fully
Discretionary Portfolio they receive in the transaction.
(G) The liabilities of each Government Income Portfolio assumed by
the Fully Discretionary Portfolio and the liabilities to which the transferred
assets of such Government Income Portfolio are subject (i) were incurred by the
Government Income Portfolio in the ordinary course of its business, and (ii) do
not exceed the tax basis of the assets transferred to the Fully Discretionary
Portfolio.
(H) The Government Income Portfolios have continued their historic
business enterprise in a substantially unchanged manner and have not disposed of
and/or acquired assets in order to satisfy the investment objectives of the
Fully Discretionary Portfolio.
(I) Following the transaction, the Fully Discretionary Portfolio will
continue the historic business of the Government Income Portfolios or use a
significant portion of the Government Income Portfolios' historic business
assets in a business.
(J) The Government Income Portfolios, the Fully Discretionary
Portfolio and the shareholders of the Government Income Portfolios will pay
their respective expenses, if any, incurred in connection with the transaction.
The Fully Discretionary Portfolio will pay or assume only those expenses of the
Government Income Portfolios that are solely and directly related to the
transaction in accordance with the guidelines established in Rev. Rul. 73-54,
1973-1 C.B. 187.
(K) There is no indebtedness existing between the Government Income
Portfolios and the Fully Discretionary Portfolio that was issued, acquired, or
will be settled at a discount.
(L) The Government Income Portfolios and the Fully Discretionary
Portfolio have been at all times prior to the Closing Date, and will be at the
Closing Date, regulated investment companies as defined in Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
(M) The Fully Discretionary Portfolio does not own, directly or
indirectly, nor have they owned during the past five years, directly or
indirectly, any shares of the Government Income Portfolios.
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 6
(N) The fair market value of the assets of the Government Income
Portfolios transferred to the Fully Discretionary Portfolio will equal or exceed
the sum of the liabilities assumed by the Fully Discretionary Portfolio plus the
amount of liabilities, if any, to which the transferred assets are subject.
(O) The Government Income Portfolios are not under the jurisdiction
of a court in a case under Title 11 of the United States Code or a receivership,
foreclosure, or similar proceeding in a Federal or state court.
For purposes of rendering the opinions stated below, we have in
addition relied upon the following representations by the Master Trust:
(A) Each of the Master Funds is classified as a partnership and not
as an association taxable as a corporation for Federal income tax purposes.
(B) At the time of the Partnership Distribution, the Master Funds
will have no liabilities (within the meaning of Section 752 of the Code).
(C) The tax basis of each Government Income Portfolio and the Fully
Discretionary Portfolio in the corresponding Master Fund is greater than the
amount of cash that will be received in the Partnership Distribution.
(D) The Master Funds are "investment partnerships" within the meaning
of Code Section 731(c)(3)(C)(i).
(E) Each Government Income Portfolio and the Fully Discretionary
Portfolio is an "eligible partner" within the meaning of Code Section
731(c)(3)(C)(iii).
(F) The Master Funds, at the time of the Partnership Distribution,
will not possess any "unrealized receivables" or "inventory items" within the
meaning of Code Sections 751(c) and 751(d), respectively.
(G) Any assets other than cash contributed to the Master Funds by the
Government Income Portfolios and the Fully Discretionary Portfolio have been
disposed of by the Master Funds prior to the date of the Partnership
Distribution.
(H) No Government Income Portfolio of the Trust will receive solely
cash in the Partnership Distribution.
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 7
Our opinions set forth in this letter are based upon the Code,
regulations of the Treasury Department, published administrative announcements
and rulings of the Service and court decisions, all as of the date of this
letter. Based on the foregoing facts and representations, and provided that the
transaction will take place in accordance with the terms of the Reorganization
Agreement, and further provided that the Government Income Portfolios distribute
their remaining assets as soon as practicable, we are of the opinion that:
10. No gain or loss will be recognized by any Government Income
Portfolio or the Fully Discretionary Portfolio upon the receipt
by the Government Income Portfolio and the Fully Discretionary
Portfolio of substantially all of the assets of the corresponding
Master Fund;
11. The transfer of substantially all of the assets and liabilities
of each Government Income Portfolio to the Fully Discretionary
Portfolio in exchange for Fully Discretionary Portfolio shares,
and the distribution of those shares to the Government Income
Portfolio shareholders in liquidation of the Government Income
Portfolio, will constitute a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as
amended;
12. No gain or loss will be recognized by the Fully Discretionary
Portfolio upon the receipt of the assets of a Government Income
Portfolio solely in exchange for Fully Discretionary Portfolio
shares;
13. No gain or loss will be recognized by any Government Income
Portfolio upon the transfer of its assets to the Fully
Discretionary Portfolio in exchange for Fully Discretionary
Portfolio shares or upon the distribution of Fully Discretionary
Portfolio shares to Government Income Portfolio shareholders in
exchange for their Government Income Portfolio shares;
14. No gain or loss will be recognized by any Government Income
Portfolio shareholders upon exchange of their Government Income
Portfolio shares for Fully Discretionary Portfolio shares;
15. The tax basis of the assets of each Government Income Portfolio
acquired by the Fully Discretionary Portfolio will be the same as
the tax basis of such assets to the Government Income Portfolio
immediately prior to the Reorganization;
16. The tax basis of Fully Discretionary Portfolio shares received by
each shareholder of each Government Income Portfolio pursuant to
the Reorganization will be the same as the tax basis of the
Government Income
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 8
Portfolio shares held by such shareholder immediately prior to
the Reorganization;
17. The holding period of the assets of each Government Income
Portfolio acquired by the Fully Discretionary Portfolio will
include the period during which those assets were held by the
Government Income Portfolio and the corresponding Master Fund;
and
18. The holding period of the Fully Discretionary Portfolio shares to
be received by each Government Income Portfolio shareholder will
include the period during which the Government Income Portfolio
shares exchanged therefor were held by such shareholder.
The opinions set forth above represent our conclusions as to the
application of Federal income tax law existing as of the date of this letter to
the transactions described in the Proxy Statement, and we can give no assurance
that legislative enactments, administrative changes or court decisions may not
be forthcoming which would require modifications or revocations of our opinions
expressed herein. Moreover, there can be no assurance that positions contrary
to our opinions will not be taken by the Service, or that a court considering
the issues would not hold contrary to such opinions. Further, all the opinions
set forth above represent our conclusions based upon the documents and facts
referred to above. Any material amendments to such documents or changes in any
significant facts would affect the opinions referred to herein. Although we
have made such inquiries and performed such investigation as we have deemed
necessary to fulfill our professional
<PAGE>
Nicholas-Applegate Mutual Funds
_________,1998
Page 9
responsibilities, we have not undertaken an independent investigation of the
facts referred to in this letter.
We express no opinion as to any Federal income tax issue or other
matter except those set forth above.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
Exhibit 13.2
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of the ____ day of ___________, 1998, by and
between NICHOLAS-APPLEGATE MUTUAL FUNDS, a Delaware business trust, (the
"Trust"), and INVESTMENT COMPANY ADMINISTRATION CORPORATION, a Delaware
corporation (the "Administrator").
WITNESSETH:
WHEREAS, the Trust is a diversified open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Trust wishes to retain the Administrator to provide certain
administrative services in connection with the management of the Trust's
operations and the Administrator is willing to furnish such services;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints the Administrator to provide
certain administrative services, hereinafter enumerated, in connection with the
management of the operations of the Trust and its various series for the period
and on the terms set forth in this Agreement. The Administrator hereby accepts
such appointment and agrees in performing its services hereunder to comply with
all relevant provisions of the 1940 Act, applicable rules and regulations
thereunder, and other applicable law, the Trust's Declaration of Trust and
Bylaws, prospectuses and statements of additional information, and the
instructions of the Board of Trustees of the Trust.
2. SERVICES ON A CONTINUING BASIS. The Administrator will perform on a
regular basis (daily, weekly or as otherwise appropriate) all administrative
services required for the operation of the Trust (other than those services
provided by the Trust's adviser, distributor, custodian, transfer agent,
accounting agent, independent accountants and legal counsel) including, without
limitation, the following:
(A) prepare and coordinate reports and other materials to be supplied to
the Board of Trustees of the Trust as the officers of the Trustees of the Trust
may request;
(B) prepare, coordinate and/or supervise the preparation and filing of the
following filings required by the federal securities laws (including, without
limitation, periodic reports on Form N-SAR and Notices under 1940 Act Rule 24f-
2): periodic financial reports, shareholder reports and other regulatory reports
or filings required of the Trust;
-1-
<PAGE>
(C) supervise and monitor the preparation of all required filings necessary
to maintain the Trust's qualification and/or registration to sell shares of the
series of the Trust in all states where the Trust currently sells, or intends to
sell, shares of its series;
(D) coordinate the preparation, printing and mailing of all materials
(including, without limitation, Annual Reports and prospectuses) required to be
sent to shareholders;
(E) coordinate the preparation and payment of Trust related expenses;
(F) monitor and oversee the activities of the Trust's servicing agents
(including, without limitation, its transfer agent, custodian, and fund
accountants);
(G) monitor the calculation of the net asset value per share of each series
on each business day, and review and adjust as necessary the Trust's daily
expense accruals;
(H) monitor the Trust's daily, monthly and periodic compliance with respect
to the 1940 Act, Internal Revenue Code, Board of Trustees and prospectus
guidelines, restrictions and policies;
(I) send periodic information (including, without limitation, performance
figures) to service organizations that compile and track investment company
information;
(J) assist the Trust's custodian, investment adviser, and sub-advisers,
accounting agent, counsel and auditors as required to carry out the business and
operations of the Trust;
(K) oversee the maintenance by the Trust's custodian and accounting agent
of the books and records pertaining to the Trust under the 1940 Act, and
maintain such other books and records (other than those required to be
maintained by the Trust's adviser and sub-advisers) as may be required by law or
may be required for the proper operation of the Trust (which other books and
records shall be the property of the Trust, shall be surrendered promptly to the
Trust upon its request, and shall be preserved for the periods required by the
1940 Act).
(L) perform such additional services as may be agreed upon by the Trust and
the Administrator.
3. RESPONSIBILITY OF THE ADMINISTRATOR. The Administrator shall be under
no duty to take any action on behalf of the Trust or its series except as set
forth herein or as may be agreed to by the Administrator in writing. In the
performance of its duties hereunder, the Administrator shall be obligated to
exercise reasonable care and diligence and to act in good faith and to use its
best efforts. Without limiting the generality of the foregoing or any other
provision of this Agreement, the Administrator shall not be liable for delays or
errors or loss of data occurring by reason of circumstances beyond the
Administrator's control.
-2-
<PAGE>
4. RELIANCE UPON INSTRUCTIONS. The Trust agrees that the Administrator
shall be entitled to rely upon any instructions, oral or written, actually
received by the Administrator from the Board of Trustees of the Trust or from a
person duly authorized by the Board of Trustees to give oral or written
instructions on behalf of the Trust, and, subject to the provisions of Section 3
hereof, shall incur no liability to the Trust or the Trust's Advisor in acting
upon such oral or written instructions, provided such instructions reasonably
appear to have been received from a person duly authorized by the Board of
Trustees of the Trust to give oral or written instructions on behalf of the
Trust.
5. CONFIDENTIALITY. The Administrator agrees on behalf of itself and its
employees to treat confidentially all records and other information relative to
the Trust and its series and all prior, present or potential shareholders of
each series of the Trust, except after prior notification to, and approval of
release of information in writing by, the Trust, which approval shall not be
unreasonably withheld where the Administrator may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Trust.
6. EQUIPMENT FAILURES. In the event of equipment failures or the
occurrence of events beyond the Administrator's control which render the
performance of the Administrator's functions under this Agreement impossible,
the Administrator shall take reasonable steps to minimize service interruptions
and is authorized to engage the services of third parties to prevent or remedy
such service interruptions at no cost to the Trust.
7. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in this
Agreement, the Administrator shall pay all expenses incurred by it in performing
its services and duties hereunder as Administrator except for postage,
telephone, courier and messenger services, copying, costs of attending meetings
of the Board of Trustees and other travel specific to the requirements of the
Trust, and any filing or other fees paid by the Administrator to federal or
state securities authorities or self-regulatory organizations under applicable
laws or regulations. The Trust will bear all other expenses incurred in the
operation of the Trust (other than those borne by its custodian, investment
adviser and sub-advisers, distributor, accounting agent and transfer agent),
including, without limitation, taxes, interest, brokerage fees and commissions,
fees of disinterested Trustees, SEC fees, state blue sky and registration and
qualification fees, advisory fees, charges of the custodians, transfer agents
and accounting agents, insurance premiums, outside auditing and legal expenses,
costs of maintaining Trust existence, shareholder services expenses, costs of
printing and distributing prospectuses and supplements and amendments thereto
necessary for the continued effective registration of the Trust shares under
federal and state securities laws, costs of printing and distributing
prospectuses and supplements and amendments thereto for existing shareholders of
the Trust, and costs of shareholders' reports and meetings. It is understood
that certain distribution and shareholder servicing expenses may be paid by the
Trust as provided in any plan which may in the sole discretion of the Trust be
adopted in accordance with Rule 12b-1 under the 1940 Act or otherwise, and that
such expenses will be paid apart from any fees paid under this Agreement.
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<PAGE>
8. COMPENSATION. As compensation for services rendered to the Trust by the
Administrator during the term of this Agreement, the Trust will pay the
Administrator monthly a fee at an annual rate of 0.05% of the first $100 million
of the Trust's average net assets, 0.04% of the next $150 million, 0.03% of the
next $300 million, 0.02% of the next $300 million and 0.01% thereafter, subject
to a $40,000 annual minimum per series of the Trust.
9. INDEMNIFICATION. The Trust agrees to indemnify and hold harmless the
Administrator and its officers, directors and employees from all taxes, filing
fees, charges, expenses, assessments, claims and liabilities (including without
limitation, liabilities arising under the Securities Act of 1933, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities laws,
all as amended from time to time) and expenses, including (without limitation)
reasonable attorneys fees and disbursements, arising directly or indirectly from
any action or thing which the Administrator takes or does or omits to take or do
at the request of or in reliance upon the advice of the Board of Trustees of the
Trust, provided that the Administrator will not be indemnified against any
liability to the Trust, the shareholders of any series of the Trust or to any
third party (or any expenses incident to such liability) arising out of the
Administrator's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement. The Administrator
agrees to indemnify and hold harmless the Trust and each of its Trustees,
officers, and employees and shareholders from all claims and liabilities
(including without limitation, liabilities under the Securities Act of 1933, the
Securities Exchange Act of 1934, the 1940 Act, and any state and foreign
securities laws, all as amended from time to time) and expenses, including
(without limitation) reasonable attorneys fees and disbursements, arising
directly or indirectly from any action or thing which the Administrator takes or
does or omits to take or do which is in violation of this Agreement or not in
accordance with instructions properly given to the Administrator, or arising out
of the Administrator's own willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under this Agreement.
Pursuant to the Trust's Declaration of Trust, no Trustee, officer, employee
or agent of the Trust shall be subject to any personal liability whatsoever, in
his or her official or individual capacity, to any person, including the
Administrator, other than to the Trust or its shareholders, in connection with
Trust property or the affairs of the Trust, save only that arising from his or
her bad faith, willful misfeasance, gross negligence or reckless disregard of
his or her duty to such person; and all such persons shall look solely to the
Fund property for satisfaction of claims of any nature against a Trustee,
officer, employee or agent of the Trust arising in connection with the affairs
of the Trust. Moreover, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series shall be enforceable against the assets and property of such series only,
and not against the assets and property of any other series of the Trust.
10. DURATION AND TERMINATION. This Agreement shall continue until
termination by the Trust (through the Board of Trustees) or the Administrator on
60 days' written notice to the other. All notices and other communications
hereunder shall be in writing.
-4-
<PAGE>
11. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
12. NOTICES. All notices and other communications shall be in writing and
personally delivered, sent by registered or certified mail, return receipt
requested, or communicated by telegram, telex or facsimile transmissions, (i) if
to the Administrator, at 2025 E. Financial Way, Suite 101, Glendora, CA 91741,
Facsimile: (626) 852-1039 or (ii) if to the Trust, at 600 West Broadway, San
Diego, CA 92101, Facsimile: (619) 687-8099, or such other address as a party may
specify by written notice to the other party. Each such notice shall be treated
as having been given when personally delivered or transmitted by telegram, telex
or facsimile transmission or, if mailed, on the earlier of actual receipt or
three days after deposit in the U.S. mail.
13. MISCELLANEOUS. This Agreement, together with any exhibits, appendices
or attachments hereto, embodies the entire agreement and understanding between
the parties thereto with respect to the services to be performed hereunder, and
supersedes all prior agreements and understandings, relating to the subject
matter hereof. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement shall be deemed
to be a contract made in California and governed by California law (without
regard to principles of conflicts of law). If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement will not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors; provided, however, that this Agreement may not be
assigned by any party without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first written
above.
NICHOLAS-APPLEGATE MUTUAL FUNDS
By:
-------------------------------------
Title:
----------------------------------
INVESTMENT COMPANY ADMINISTRATION
CORPORATION
By:
-------------------------------------
Title:
----------------------------------
5
<PAGE>
Exhibit 13.19
Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, California 92101
_________________, 199_
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Ladies and Gentlemen:
Reference is made to the Transfer Agency and Service Agreement between us
dated as of April 1, 1993 (the "Agreement").
This is to inform you that we have completed our reorganization from a
"master-feeder" structure to a "multi-class" structure. As a result of this
reorganization, each of our various Institutional Portfolio series has been
renamed to replace the phrase "Institutional Portfolio" with the phrase "Fund,"
and the former shareholders of each Institutional Portfolio now hold Class I
shares of the Fund. The Funds will continue as Portfolios under the Agreement.
In addition, the A, B, C and Qualified Portfolio series which previously
corresponded to each Institutional Portfolio series have been dissolved, and the
shareholders of such Portfolios now hole Class A, B, C and Q shares of the
corresponding Fund. Accordingly, the previous A, B, C and Qualified Portfolio
series are hereby deleted as Portfolios under the Agreement.
Please indicate your acceptance of this amendment by signing the letter
below and returning a copy to us. Thank you for your assistance regarding this
matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
<PAGE>
AGREED:
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------
Title:
------------------------
<PAGE>
Exhibit 13.21
NICHOLAS-APPLEGATE MUTUAL FUNDS
SHAREHOLDER SERVICE PLAN
INTRODUCTION
The Board of Trustees (the "Board") of Nicholas-Applegate Mutual
Funds, a Delaware business trust (the "Trust"), has approved this Shareholder
Service Plan (this "Plan"), with respect to the shares of beneficial interest
("Shares") of its various series (each a "Fund") currently and hereafter in
effect, including the Class A, B, C and Q Shares of each Fund, if any.
THE PLAN
The material aspects of the Plan are as follows:
SECTION 1. The Funds will pay Nicholas-Applegate Securities (the
"Distributor"), the distributor of shares of beneficial interest (the "Shares")
of the Funds, for expenses incurred in connection with non-distribution
shareholder services provided by the Distributor to securities broker-dealers,
retirement plan sponsors and administrators, and other securities professionals
("Service Organizations") and/or beneficial owners of Shares of each Fund or
Class thereof, as the case may be, including but not limited to shareholder
servicing provided by the Distributor at facilities dedicated to Fund use,
provided that such shareholder servicing is not duplicative of the servicing
otherwise provided on behalf of the Funds.
SECTION 2. The Funds will also reimburse the Distributor for fees
paid by the Distributor to Service Organizations (which may include the
Distributor itself) for the provision of support services to their clients
("Clients") who are beneficial owners of Shares of the Funds or Classes thereof,
as the case may be. Such services may include: (a) establishing and maintaining
accounts and records relating to Clients who invest in Shares of the Funds or
Classes; (b) aggregating and processing purchase, exchange and redemption
requests for Shares from Clients and placing net purchase and redemption orders
with respect to the Shares; (c) investing, or causing to be invested, the assets
of Clients' accounts in Shares pursuant to specific or pre-authorized
instructions; (d) processing dividend and distribution payments from the Trust
on behalf of Clients; (e) providing information periodically to Clients showing
their positions in Shares; (f) arranging for bank wires; (g) responding to
Client inquiries relating to the services performed by Service Organizations;
(h) providing subaccounting services with respect to Shares beneficially owned
by Clients or the information to the Trust necessary for subaccounting services;
(i) preparing any necessary tax reports or forms on behalf of Clients; (j) if
required by law, forwarding shareholder communications from the Funds
-1-
<PAGE>
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Clients; (k) assisting
Clients in changing dividend options, account designations and addresses; and
(l) providing such other similar services as the Distributor may reasonably
request to the extent the Service Organization is permitted to do so under
applicable statutes, rules or regulations.
SECTION 3. While this Plan is in effect, the Distributor will be
paid for such shareholder servicing expenses that are incurred in connection
with Shares of the Funds or Classes, as the case may be, on a monthly basis, at
the annual rates set forth in Schedule A hereto which are based on each Fund's
average daily net assets during such month (or the average daily net assets of
each Class thereof, as the case may be). These monthly payments to the
Distributor may be amended or discontinued at any time by the Board, in its sole
discretion.
SECTION 4. The monthly payments to the Distributor under this Plan
shall be made in accordance with, and subject to, the following conditions:
(a) if in any month the Distributor expends or is due more
monies than can be immediately paid under this Plan, due to the
percentage limitation noted therein, the unpaid amount shall be
carried forward from month to month while this Plan is in effect until
such time, if ever, when it can be paid in accordance with the
provisions of Sections 1, 2 and 3; provided, however, that no
interest, carrying or finance charge will be imposed on any amounts
carried forward;
(b) if in any month the Distributor does not expend the entire
amount then available under Section 1,2 and 3, and assuming that no
unpaid amounts have been carried forward and remain unpaid under such
sections, then the amount not expended shall be considered a credit
and may be drawn upon from month to month by the Distributor to permit
payment under Sections 1, 2 and 3 when necessary in the future;
(c) notwithstanding any provision of items (a) and (b) above, no
amounts payable or credit due pursuant to this Plan for any fiscal
year may be carried over for payment or utilized as a credit, as the
case may be, beyond the end of such year. In addition, any amount
being carried forward during any given year will be extinguished in
the event this Plan is terminated in that year;
(d) payments made out of or charged against the assets of a
particular Fund or Class must be in payment for shareholder servicing
expenses incurred on behalf of such Fund or Class; and
(e) payments made pursuant to Sections 1, 2 and 3 must be for
the shareholder servicing expenses described therein.
-2-
<PAGE>
Payments to a Service Organization under this Plan shall be subject to
compliance by the Service Organization with the terms of a shareholder service
agreement between the Service Organization and the Distributor. If an investor
in a Fund ceases to be a Client of a Service Organization that has entered into
a shareholder service agreement with the Distributor, but continues to hold
Shares of the Fund, the Distributor will be entitled to receive similar payments
in respect of any shareholder servicing provided with respect to such investor.
SECTION 5. For purposes of determining the amounts payable under
this Plan, the value of a Fund's or Class' net assets shall be computed in the
manner specified in the Fund's prospectus and statement of additional
information as then in effect for the computation of the value of the Fund's net
assets.
SECTION 6. The Distributor shall provide the Board, at least
quarterly, with a written report of all amounts expended pursuant to this Plan.
The report shall state the purpose for which the amounts were expended.
SECTION 7. This Plan shall continue in full force and effect upon
approval and adoption by the Board and shall continue thereafter automatically
for successive annual periods provided such continuance is approved by a
majority of the Board, including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940, as
amended) of the Trust and who have no direct or indirect financial interest in
the operation of this Plan or in any agreements entered into in connection with
this Plan (the "Disinterested Trustees"), pursuant to a vote cast in person at a
meeting called for the purpose of voting on the continuance of the Plan. This
Plan may be amended at any time by the Board, provided that any material
amendments of the terms of this Plan shall become effective only upon the
approval by a majority of the Board and a majority of the Disinterested Trustees
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the Plan. This Plan is terminable, as to any Fund or Class, without penalty
at any time by the Board.
SECTION 8. The Board has adopted this Plan as of March 29, 1993,
as amended on February 11, 1994 and November 14, 1997.
-3-
<PAGE>
SCHEDULE A
SHAREHOLDER SERVICE FEES
The Distributor will be reimbursed by the Funds for the services and
facilities provided by the Distributor pursuant to the Plan at the following
annual rates:
1. For Class A Shares, up to 0.10% of the average daily net asset
value of the Shares of each such Class.
2. For the Class B Shares, up to 0.25% of the average daily net
asset value of the Shares of each such Class.
3. For the Class Q Shares, up to 0.25% of the average daily net asset
value of the Shares of each such Class.
4. For Shares of the Money Market Fund, up to 0.10% of the average
daily net asset value of the Shares of the Fund.
<PAGE>
Exhibit 13.39
Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, CA 92101
____________, 199_
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
Ladies and Gentlemen:
Reference is made to the Accounting Services Agreement between us
dated as of April 1, 1993 (the "Agreement").
This is to inform you that we have completed our reorganization from a
"master-feeder" structure to a "multi-class" structure. As a result of this
reorganization, each of our various Institutional Portfolio series has been
renamed to replace the phrase "Institutional Portfolio" with the phrase "Fund,"
and the former shareholders of each Institutional Portfolio now hold Class I
shares of the Fund. The Funds will continue as Portfolios under the Agreement.
In addition, the A, B, C and Qualified Portfolio series which
previously corresponded to each Institutional Portfolio series have been
dissolved, and the shareholders of such Portfolios now hold Class A, B, C and Q
shares of the corresponding Fund. Accordingly, the previous A, B, C and
Qualified Portfolio series are hereby deleted as Portfolios under the Agreement.
Please indicate your acceptance of this addition by signing the letter
below and returning a copy to us. Thank you for your assistance regarding this
matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
<PAGE>
AGREED:
PFPC INC.
By:
---------------------------
Title:
------------------------
<PAGE>
Exhibit 13.40
July __, 1997
NICHOLAS-APPLEGATE MUTUAL FUNDS
Re: Accounting Services Fees
------------------------
Dear Sir/Madam:
This letter constitutes our agreement with respect to compensation to
be paid to PFPC Inc. ("PFPC") under the terms of an Accounting Services
Agreement dated April 1, 1993 between PFPC and Nicholas-Applegate Mutual Funds
("you" or the "Fund") as amended from time to time (the "Agreement") relating to
the Funds set forth on the attached list (each individually a "Portfolio" and
together the "Portfolios"). Pursuant to Paragraph 11 of that Agreement, and in
consideration of services to be provided, each Portfolio will pay PFPC annual
accounting and servicing fees, to be calculated daily and paid monthly. Each
Portfolio will also reimburse PFPC for its out-of-pocket expenses incurred on
behalf of that Portfolio, including, but not limited to, postage, telephone,
telex, federal express, overnight delivery services, daily report
transmissions, record retention/storage and outside independent pricing service
charges.
The annual accounting fee shall be payable in equal monthly
installments of $3,250 with respect to each Portfolio of the Fund PLUS .030% of
each Portfolio's average daily net assets from $100 million to $250 million;
.020% of each Portfolio's average daily net assets from $250 million to $500
million; and .015% of each Portfolio's average daily net assets over $500
million.
The annual servicing fee shall be $3,000 per month per Portfolio, plus
a class-level servicing fee of $1,000 per month for each class of a multi-class
Portfolio. The aggregate servicing fees for all of the Portfolios and classes
combined shall be allocated daily to each Portfolio based on its net assets
relative to the total net assets of all Portfolios in the Fund. Each Portfolio
shall pay its pro-rata share of the aggregate servicing fee on a monthly basis.
The fee for the period from the date hereof until the end of that
calendar year shall be prorated according to the proportion which such period
bears to the full annual period commencing on the date hereof.
<PAGE>
If the foregoing accurately sets forth our agreement, and you intend
to be legally bound thereby, please execute a copy of this letter and return it
to us.
Very truly yours,
PFPC INC.
By:
---------------------------------
Title:
Accepted:
NICHOLAS-APPLEGATE MUTUAL FUNDS
By:
------------------------
Title:
<PAGE>
Exhibit 13.54
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
______________, 199_
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
This will confirm that as a result of our recent reorganization, the
expense limitation letter agreement between us dated September 27, 1993, as
previously amended, is hereby further amended to change the references to
"Portfolios" therein to "Funds" and to add to Appendix A thereof the Percentage
Limitations attached hereto as Exhibit A with respect to the various Classes of
the Funds.
The Percentage Limitations will continue until March 31, 1999, unless
voluntarily extended by you, and will be subject to the reimbursement provisions
in the Funds' prospectuses.
In all other respects, the expense limitation letter agreement, as
previously amended, will remain in full force and effect. Please sign this
letter below to confirm your agreement with these amendments.
Very truly yours,
E. Blake Moore, Jr.
Secretary
AGREED:
Nicholas-Applegate Capital Management
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner
By:
-------------------------------------
E. Blake Moore, Jr.
Secretary
-1-
<PAGE>
EXHIBIT A
Name of Fund and Class Percentage Limitation
- ---------------------- ---------------------
Core Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00
Large Cap Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00
Mini Cap Growth Fund, Class I 1.56
Emerging Growth Fund, Class A 1.95
Class B 2.60
Class C 2.60
Class Q 1.50
Class I 1.17
Income & Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00
Balanced Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00
-2-
<PAGE>
Name of Fund and Class Percentage Limitation
- ---------------------- ---------------------
Worldwide Growth Fund, Class A 1.85
Class B 2.50
Class C 2.50
Class Q 1.60
Class I 1.35
International Growth Fund, Class A 1.95
Class B 2.60
Class C 2.60
Class Q 1.65
Class I 1.40
Emerging Countries Fund, Class A 2.25
Class B 2.90
Class C 2.90
Class Q 1.90
Class I 1.65
Global Growth & Income Fund, Class I 1.35
International Small Cap Growth Fund, Class A 1.95
Class B 2.60
Class C 2.60
Class Q 1.65
Class I 1.40
Money Market Fund 1.10
Value Fund, Class I 1.00
High Yield Bond Fund, Class I 0.75
Strategic Income Fund, Class I 0.75
Short-Intermediate Fixed Income Fund, Class I 0.35
Fully Discretionary Fixed Income Fund, Class A 0.45
-3-
<PAGE>
Exhibit 16.1
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints E. Blake Moore, Jr. and Charles Field, and each of them
acting alone, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Registration Statement of Nicholas-Applegate
Mutual Funds, a Delaware business trust, on Form N-14 under the Securities Act
of 1933, as amended, and any or all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
DATED: December 1, 1997
/s/ Fred C. Applegate
-----------------------------------
Fred C. Applegate
<PAGE>
Exhibit 16.2
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints E. Blake Moore Jr. and Charles Field, and each of them
acting alone, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Registration Statement of Nicholas-Applegate
Mutual Funds, a Delaware business trust, on Form N-14 under the Securities Act
of 1933, as amended, and any or all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
DATED: December 1, 1997
/s/ Arthur B. Laffer
--------------------------------
Arthur B. Laffer
<PAGE>
Exhibit 16.3
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints E. Blake Moore, Jr. and Charles Field, and each of them
acting alone, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Registration Statement of Nicholas-Applegate
Mutual Funds, a Delaware business trust, on Form N-14 under the Securities Act
of 1933, as amended, and any or all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
DATED: December 1, 1997
/s/ Charles E. Young
----------------------------------
Charles E. Young
<PAGE>
Exhibit 17.1
As filed with the Securities and Exchange Commission
on December 21, 1992
Registration No. __________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. __ [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. __
(Check appropriate box or boxes)
__________________
NICHOLAS-APPLEGATE MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
501 WEST BROADWAY, SUITE 2000
SAN DIEGO, CALIFORNIA 92101
(Address of Principal Executive Offices, including Zip Code)
ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
501 WEST BROADWAY, SUITE 2000
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.
__________________
Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that the registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
__________________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant is
registering an indefinite number of shares by this registration statement.
___________________
Page one of ___ pages.
Exhibit Index is at page ___.
December 4, 1997
<PAGE>
Exhibit 17.2
PROXY
GOVERNMENT INCOME PORTFOLIO
SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS
SPECIAL MEETING OF SHAREHOLDERS - _____________, 1998
The undersigned hereby appoints as proxies John D. Wylie and E. Blake
Moore, Jr. and each of them (with power of substitution) to vote for the
undersigned all the shares of beneficial interest of the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will be
voted as instructed. Unless indicated to the contrary, this proxy shall be
deemed to indicate authority to vote "FOR" all proposals. This proxy is
solicited on behalf of the Board of Trustees of Nicholas-Applegate Mutual Funds.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy and return it in the enclosed envelope to
---------------------------------------
This proxy will not be voted unless it is dated and
signed exactly as instructed below.
Sign exactly as name appears hereon.
- ------------------------------------
Signature
- ------------------------------------
Signature if held jointly
Date: ________________________, 1997
If the shares are held jointly, each shareholder named should sign. If only one
signs, his or her signature will be binding. If the shareholder is a
corporation, the President or Vice President should sign in his or her own name,
indicating his or her title. If the shareholder is a partnership, a partner
should sign in his or her own name, indicating that he or she is a Partner.
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The Board of Trustees recommends a vote "FOR" for all Proposals.
1. PROPOSAL 1 IS NOT APPLICABLE.
2. Approval of the reorganization of the A, B, C and Qualified Government
Income Portfolios of Nicholas-Applegate Mutual Funds (the "Trust")
pursuant to the proposed Agreement and Plan of Reorganization.
FOR _____ AGAINST _____ ABSTAIN _____
3. To elect Trustees of the Trust. The nominees are:
FRED C. APPLEGATE, ARTHUR B. LAFFER, CHARLES E. YOUNG, ARTHUR E.
NICHOLAS, DANN V. ANGELOFF, WALTER E. AUCH, THEODORE J. COBURN,
DARLENE DEREMER AND GEORGE F. KEANE
FOR _____ WITHHOLD _____ FOR ALL EXCEPT _____
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST ABOVE.
4. Ratification of the selection of Ernst & Young L.L.P. as independent
public accountants for the fiscal year ending March 31, _______.
FOR _____ AGAINST _____ ABSTAIN _____
Please sign and date the reverse side of this card
<PAGE>
PROXY
NICHOLAS-APPLEGATE MUTUAL FUNDS
ALL PORTFOLIOS EXCEPT GOVERNMENT INCOME PORTFOLIOS
SPECIAL MEETING OF SHAREHOLDERS - _____________, 1998
The undersigned hereby appoints as proxies John D. Wylie and E. Blake
Moore, Jr. and each of them (with power of substitution) to vote for the
undersigned all the shares of beneficial interest of the undersigned at the
aforesaid meeting and any adjournment thereof with all the power the undersigned
would have if personally present. The shares represented by this proxy will be
voted as instructed. Unless indicated to the contrary, this proxy shall be
deemed to indicate authority to vote "FOR" all proposals. This proxy is
solicited on behalf of the Board of Trustees of Nicholas-Applegate Mutual Funds.
YOUR VOTE IS IMPORTANT
Please date and sign this proxy and return it in the enclosed envelope to
---------------------------------------
This proxy will not be voted unless it is dated and
signed exactly as instructed below.
Sign exactly as name appears hereon.
- ------------------------------------
Signature
- ------------------------------------
Signature if held jointly
Date: ________________________, 1997
If the shares are held jointly, each shareholder named should sign. If only one
signs, his or her signature will be binding. If the shareholder is a
corporation, the President or Vice President should sign in his or her own name,
indicating his or her title. If the shareholder is a partnership, a partner
should sign in his or her own name, indicating that he or she is a Partner.
<PAGE>
Please indicate your vote by an "X" in the appropriate box below.
The Board of Trustees recommends a vote "FOR" all Proposals.
1. Approval of an amendment to the Declaration of Trust of
Nicholas-Applegate Mutual Funds (the "Trust") to permit the Board of
Trustees of the Trust to create multiple classes of the Institutional
Portfolios.
FOR _____ AGAINST _____ ABSTAIN _____
ONLY SHAREHOLDERS OF INSTITUTIONAL PORTFOLIOS OF THE TRUST MAY VOTE ON
PROPOSAL 1.
2. Approval of the reorganization of the Trust pursuant to an Agreement
and Plan of Reorganization, from a "master feeder" structure to a
"multi-class" structure.
FOR _____ AGAINST _____ ABSTAIN _____
ONLY SHAREHOLDERS OF A, B, C, QUALIFIED AND INSTITUTIONAL PORTFOLIOS
OF THE TRUST MAY VOTE ON PROPOSAL 2.
3. To elect Trustees of the Trust. The nominees are:
FRED C. APPLEGATE, ARTHUR B. LAFFER, CHARLES E. YOUNG, ARTHUR E.
NICHOLAS, DANN V. ANGELOFF, WALTER E. AUCH, THEODORE J. COBURN,
DARLENE DEREMER AND GEORGE F. KEANE
FOR _____ WITHHOLD _____ FOR ALL EXCEPT _____
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST ABOVE.
4. Ratification of the selection of Ernst & Young L.L.P. as independent
public accountants for the fiscal year ending March 31, _______.
FOR _____ AGAINST _____ ABSTAIN _____
Please sign and date the reverse side of this
<PAGE>
Exhibit 18
THE NICHOLAS-APPLEGATE MUTUAL FUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") has been prepared, pursuant to the
requirements of rule 18f-3(d) under the Investment Company Act of 1940
("Investment Company Act" or "Act"), in connection with the offer and sale of
shares of the various series of Nicholas-Applegate Mutual Funds (the "Trust").
Each series other than the Money Market Fund (each a "Fund" and collectively the
"Funds") is a multiple class fund within the meaning of rule 18f-3.
In accordance with the requirements of rule 18f-3, this Plan describes
the differences among the classes of shares that are issued by the Funds,
including the distribution arrangement that pertains to each class, the methods
of allocating expenses relating to those differences, and the conversion
features or exchange privileges relating to the classes.
I. BACKGROUND
The Trust is an open-end investment company registered under the
Investment Company Act. The Trust currently has 17 series, and may have other
Funds in the future. Each Fund has differing investment objectives and
policies.
Each Fund currently offers up to five classes of shares -- Class A, B,
C, Q, and I, although certain Funds currently have only Class I shares. The
classes of each Fund represent interests in the same portfolio of investments
held by the Fund and, except as described below, are identical in all respects.
The classes differ in the following respects: (1) in the shareholder service
plan attributable to Class A, B, C and Q shares but not Class I shares; (2) in
the distribution plan attributable to Class A, B and C shares but not Class Q or
I shares; (3) in the expenses that may be incurred by or allocated to one class
as compared to another, and in the expense limitations applicable to one class
as compared to the others; (4) in the substantially greater minimum investment
required to purchase Class Q and I shares than the other classes of shares; (5)
in the types of investors eligible to purchase Class Q and I shares; and (6) in
the voting rights accorded to each class. These differences are discussed below
in more detail.
II. DISCUSSION OF DIFFERENCES
A. SALES LOADS
An investor in Class A shares pays a front-end sales charge ranging up
to 5.25% of the offering price, subject to certain quantity discounts and
eligibility for purchases at net asset value, as described in the Funds'
prospectuses. In addition, the Funds may impose
-1-
<PAGE>
a contingent deferred sales charge on redemption of Class A shares purchased
within one year without a front-end sales charge as a result of the purchase of
more than $1 million. An investor in Class B or C shares pays no front-end sales
charge. However, the Funds impose a contingent deferred sales charge on
redemptions of Class B shares redeemed within six years of purchase, at rate
declining from 5% to zero over the period. In addition, the Funds may impose a
contingent deferred sales charge on redemptions of Class C shares purchased
within one year, similar to the charge imposed on Class A shares.
B. DISTRIBUTION PLAN ARRANGEMENTS
Class A, B and C shares of the Funds are subject to a Rule 12b-1
Distribution Plan. Pursuant to the Rule 12b-1 Distribution Plan, Class A shares
of the Funds pay the Fund's Distributor an annual fee of up to 0.25% of the
average net assets of the Fund attributable to Class A shares, and Class B and C
shares pay the Distributor an annual fee of up to 0.75% of the average net
assets attributable to Class B and C shares, respectively.
C. SHAREHOLDER SERVICE ARRANGEMENTS
Class A, B, C and Q shares are subject to a Shareholder Service Plan
(the "Service Plan"). Pursuant to the Service Plan, shares of each such Class
of a Fund pay the Fund's Distributor an annual fee of up to 0.25% of the average
net assets of the Fund attributable to the shares of the Class.
D. MINIMUM INVESTMENTS.
In general, the minimum initial investment in Class A, B and C shares
is $2,000, and the minimum additional investment is $100, subject to certain
waivers described in the Funds' prospectuses. In general, the minimum initial
investment in Class Q and I shares is $250,000, and the minimum additional
investment is $10,000, subject to certain waivers described in the Funds'
prospectuses.
E. ELIGIBLE INVESTORS.
In general, any investor may purchase Class A, B and C shares of the
Funds, which are offered primarily through broker dealers who are not affiliated
with the Distributor. Class Q shares are offering primarily to qualified
retirement plans, certain financial institutions, and asset allocation programs
through the Distributor and unaffiliated broker-dealers. Class I shares are
available only to institutions and certain asset allocation programs through the
Distributor.
F. EXPENSE LIMITATIONS.
The Fund's Adviser has guaranteed that, for so long as it acts as
investment adviser to a Fund, the total expenses of the various Classes of
shares of the Fund, including
-2-
<PAGE>
advisory fees (but excluding interest, taxes, portfolio transaction expenses,
blue sky fees, 12b-1 plan fees and extraordinary expenses), will not exceed a
specified percentage of the Class' average daily net assets on an annualized
basis. Each Class will reimburse the Adviser for fees foregone or other
expenses paid by the Adviser in any fiscal year pursuant to the expense
guarantee at a later date, without interest, so long as such reimbursement will
not cause the annual expense ratio for the year in which it is made to exceed
the amount of the expense guarantee. No Class will be required to repay any
unreimbursed amounts to the Adviser upon termination of its investment
management contract with respect to the Fund.
The expense limitation for Class I shares will generally be lower than
for the other Classes of shares by the amount of the Service Plan and
Distribution Plan fees attributable to the other Classes. The expense
limitation for Class Q shares will generally be lower than for the Class A, B
and C shares by the amount of the Distribution Plan fees attributable to the
Class A, B and C shares. The expense limitation for Class A shares will
generally be lower than for the Class B and C shares as a result of lower
Distribution Plan fees. The net income attributable to the various Classes of
shares and the dividends payable on the various Classes of shares will vary as a
result of the differing applicable expenses and expense limitations.
G. PAYING FOR EXPENSES
1. EXPENSES ALLOCATED TO A PARTICULAR CLASS
Certain expenses of a Fund will be allocated solely to a particular
class of shares of the Fund because they relate only to the expenses of that
class. Such expenses include:
(a) distribution expenses associated with distribution of Class A, B and C
shares of the Funds for which distribution plan fees will be assessed,
and shareholder servicing expenses associated with the servicing of
Class A, B, C and Q shareholders of the Funds for which a shareholder
servicing fee will be assessed;
(b) incremental transfer agent fees identified by the transfer agent as
being attributable to a specific class;
(c) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxies to
shareholders of a particular class;
(d) blue sky registration fees incurred by a particular class;
(e) SEC registration fees incurred by a particular class;
-3-
<PAGE>
(f) the expenses of administrative personnel and services as required to
support the shareholders of a particular class;
(g) accounting expenses relating to a particular class;
(h) litigation or other legal expenses relating to a particular class;
(i) trustees' fees and expenses incurred as a result of issues relating to
a particular class;
(j) any other incremental expenses subsequently identified that should be
properly allocated to a particular class of shares.
2. EXPENSES ALLOCATED TO ALL CLASSES
Other expenses of a Fund will be allocated to all classes of shares of
the Fund in accordance with the requirements of rule 18f-3(c). These include
the management fee paid to the Adviser to the Fund; the custodial fee; and
certain other expenses of the Fund. These expenses will be allocated to each
class of a Fund based on the net asset value of such class in relation to the
net asset value of the Fund.
H. CONVERSION FEATURES AND EXCHANGE PRIVILEGES
Shareholders of any Class of a Fund may exchange their shares for
shares of the same Class of any of the other Funds, or for shares of the Money
Market Fund, at the respective net asset values determined after receipt of the
request in good order. Class B shares will automatically convert to Class A
shares approximately seven years after purchase, at the respective net asset
values on the date of conversion. If a shareholder who has exchanged Class B or
C shares for shares of the Money Market Fund seeks to redeem his Money Market
Fund shares before satisfying the applicable holding period with respect to the
Class A, B or C shares, the redemption proceeds will be subject to the
applicable contingent deferred sales charge, if any. If a shareholder seeks to
acquire Class A shares of any Fund, or shares of the Money Market Fund, through
exchange for shares of any other Class, the shareholder will be required to pay
the applicable sales charge of the Fund into which the shares are exchanged.
I. VOTING OF CLASS SHARES
The voting rights of each shareholder of a Fund are the same, except
that A, B and C shares will have the exclusive right to vote on matters relating
to the Distribution Plan, to the extent that such a shareholder vote is required
by the Investment Company Act or otherwise requested. Rule 12b-1 adopted by the
Securities and Exchange Commission under the Investment Company Act requires
that (i) any amendment of the Distribution Plan to increase materially the costs
which a Class of shares of a Fund may bear for distribution
-4-
<PAGE>
services under the Plan must be approved by a vote of a majority of the
outstanding shares of that Class of the Fund; and (ii) the Distribution Plan may
be terminated at any time with respect to any Class of shares of a Fund by the
vote of a majority of the outstanding shares of the Class. Each shareholder is
entitled to one vote for each full share held and fractional votes for
fractional shares held.
Shareholders will vote in the aggregate and not by class or series,
except as noted above and where otherwise required by law (or when permitted by
the Board of Trustees).
Adopted as of November 14, 1997
-5-
