<PAGE>
As filed with the Securities and Exchange Commission
on May 2, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. __
POST-EFFECTIVE AMENDMENT NO. 40
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 42
(Check appropriate box or boxes)
------------------
NICHOLAS-APPLEGATE MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Address of Principal Executive Offices, including Zip Code)
ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Name and Address of Agent for Service)
COPY TO: ROBERT E. CARLSON
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. FLOWER STREET, TWENTIETH FLOOR
LOS ANGELES, CALIFORNIA 90071
__________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.
------------------
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on __________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on ____________ pursuant to paragraph (a)(i)
[X ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii), of Rule 485
--------------
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares by this Registration Statement.
Registrant filed a Notice under such Rule for its fiscal year ended March 31,
1996 on May 30, 1996. This Registration Statement has been executed by the
trustees and principal officers of the Registrant and of Nicholas-Applegate
Investment Trust.
------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
N-1A ITEM NO.
- -------------
LOCATION
--------
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Synopsis ............................. Overview; International Core
Growth Portfolios A, B & C;
Worldwide Growth Portfolios A,
B & C; International Small Cap
Growth Portfolios A, B & C;
Emerging Countries Portfolios
A, B & C; Large Cap Growth
Portfolios A, B & C; Core
Growth Portfolios A, B & C;
Emerging Growth Portfolios A,
B & C; Income & Growth
Portfolios A, B & C; Balanced
Growth Portfolios A, B & C;
Government Income Portfolios
A, B & C; Money Market
Portfolio
Item 3. Condensed Financial Information ....... International Core Growth
Portfolios A, B & C; Worldwide
Growth Portfolios A, B & C;
International Small Cap Growth
Portfolios A, B & C; Emerging
Countries Portfolios A, B & C;
Large Cap Growth Portfolios A,
B & C; Core Growth Portfolios
A, B & C; Emerging Growth
Portfolios A, B & C; Income &
Growth Portfolios A, B & C;
Balanced Growth Portfolios A,
B & C; Government Income
Portfolios A, B & C; Money
Market Portfolio
Item 4. General Description of Registrant...... Overview; International Core
Growth Portfolios A, B & C;
Worldwide Growth Portfolios A,
B & C; International Small Cap
Growth Portfolios A, B & C;
Emerging Countries Portfolios
A, B & C; Large Cap Growth
Portfolios A, B & C; Core
Growth Portfolios A, B & C;
Emerging Growth Portfolios A,
B & C; Income & Growth
Portfolios A, B & C; Balanced
Growth Portfolios A, B & C;
Government Income Portfolios
A, B & C; Money Market
Portfolio; Master/Feeder
Structure; Risk Factors and
Special Considerations
Item 5. Management of Fund..................... Master/Feeder Structure;
Portfolio Teams
Item 6. Capital Stock and Other Securities..... Your Account; Distribution of
Shares
Item 7. Purchase of Securities Being Offered... Your Account; Distribution of
Shares
Item 8. Redemption of Repurchase............... Your Account
Item 9. Pending Legal Proceedings.............. Not Applicable
PART B
Item 10. Cover Page............................. Cover Page
Item 11. Table of Contents...................... Table of Contents
Item 12. General Information and History........ General Information
Item 13. Investment Objectives and Policies..... Investment Objectives and
Policies; Investment
Restrictions
<PAGE>
Item 14. Management of the Fund................. Trustees and Officers;
Administrators; Distributor
Item 15. Control Persons and Principal
Holders of Securities................... Principal Holders of
Securities
Item 16. Investment Advisory and
Other Services.......................... Administrators; Investment
Adviser; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent,
Independent Auditors and Legal
Counsel
Item 17. Brokerage Allocation and
Other Practices......................... Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities..... Miscellaneous
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered............. Purchase and Redemption of
Portfolio Shares; Shareholder
Services
Item 20. Tax Status............................. Dividends, Distributions and
Taxes
Item 21. Underwriters........................... Distributor
Item 22. Calculation of Performance Data........ Performance Information
Item 23. Financial Statements................... Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE>
Nicholas | Applegate-Registered Trademark-
MUTUAL FUNDS
- -------------------------------------------------------------------------------
PROSPECTUS
This prospectus contains vital information about these portfolios. For your
own benefit and protection, please read it before you invest, and keep it on
hand for future reference.
Please note that these Portfolios:
- - 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
There is no assurance that the Money Market Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
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 A, B & C
PORTFOLIOS
INTERNATIONAL CORE GROWTH
WORLDWIDE GROWTH
INTERNATIONAL SMALL CAP GROWTH
EMERGING COUNTRIES
U.S. A, B & C PORTFOLIOS
LARGE CAP
CORE GROWTH
EMERGING GROWTH
INCOME & GROWTH
BALANCED GROWTH
GOVERNMENT INCOME
AND THE
MONEY MARKET PORTFOLIO
July __, 1997
<PAGE>
[Left side: visual of globe]
TABLE OF CONTENTS
OVERVIEW
GLOBAL PORTFOLIOS
International Core Growth
Worldwide Growth
International Small Cap
Emerging Countries
U.S. PORTFOLIOS
Large Cap
Core Growth
Emerging Growth
Income & Growth
Balanced Growth
Government Income
Money Market
DISTRIBUTION OF SHARES
Choosing A Portfolio
How Sales Charges Are Calculated
Contingent Deferred Sales Charges
Sales Charge Reductions and Waivers
YOUR ACCOUNT
Transaction Policies
Dividends and Account Policies
Opening an Account
Adding to an Account
Selling or Redeeming Shares
Exchanging Shares
ORGANIZATION AND MANAGEMENT
Master/Feeder Structure
Investment Adviser Compensation
Administrator Compensation
Portfolio Teams
RISK FACTORS AND SPECIAL CONSIDERATIONS
<PAGE>
OVERVIEW
- -------------------------------------------------------------------------------
FUND INFORMATION
Concise Portfolio descriptions begin on the next page. Each description
provides the following information:
GOAL AND STRATEGY. The Fund's particular investment goals and the strategies
it intends to use in pursuing those goals.
PORTFOLIO SECURITIES. 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."
PORTFOLIO MANAGEMENT. The individuals who manage the Fund.
EXPENSES. The overall costs borne by an investor in the Portfolio, including
sales charges and annual expenses.
FINANCIAL HIGHLIGHTS. A table showing the financial performance for each
Portfolio since inception.
GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS
The Portfolios of Nicholas-Applegate Mutual Funds (the "Trust") are designed
to provide investors with a well rounded investment program. Each Portfolio
invests in a corresponding fund (the "Fund") of Nicholas-Applegate Investment
Trust (the "Master Trust"). Each respective Fund in turn invests in and holds
investment securities. This structure is called a "master/feeder" structure.
Each Fund employs its own strategy and has its own risk/reward profile.
Because you could lose money by investing in these Portfolios, be sure to read
all risk disclosures carefully before investing.
WHO MAY WANT TO INVEST IN THE GLOBAL AND U.S. GROWTH PORTFOLIOS
- - those who are investing for retirement or other long-term goals
- - those who are willing to accept higher short-term risks associated with
investing in foreign companies along with higher potential long-term
results
- - those who want professional portfolio management
- - those who are seeking funds for the international growth portion of an asset
allocation portfolio
WHO MAY NOT WANT TO INVEST IN THE GLOBAL AND U.S. GROWTH PORTFOLIOS
- - those who are investing with a shorter 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 INCOME PORTFOLIOS (BALANCED GROWTH, GOVERNMENT
INCOME AND MONEY MARKET PORTFOLIOS)
- - those who are investing for retirement or other goals that are in the future
- - those who seek professional portfolio management
- - those who seek to round-out their asset mix
- - those who require current income
WHO MAY NOT WANT TO INVEST IN THE INCOME PORTFOLIOS
- - those who are investing with a shorter time horizon
- - 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 350 employees currently manage approximately
$30 billion of discretionary assets for numerous clients, including employee
benefit plans of corporations, public retirement systems and unions, university
endowments, foundations, and other institutional investors and individuals.
<PAGE>
INTERNATIONAL CORE GROWTH PORTFOLIOS A, B & C
- -------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.
[bullet point icon]
INVESTMENT STRATEGY: The Investment Adviser focuses on a "bottom-up" analysis
that evaluates the financial conditions and competitiveness of individual
companies worldwide. It uses both a blend of 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
52 countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[bullet point icon]
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
capitalization 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 a third 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, and warrants and securities convertible into such
equity securities. The remainder is invested 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.
[bullet point icon]
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 __ .
[bullet point icon]
RISK FACTORS. The value of the Fund's investments varies day to day in response
to the activities of individual companies and general market conditions and
economic conditions. As with any international fund, performance depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. For a
further explanation , see "Risk Factors and Special Considerations" starting on
page _____.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES: 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, adjusted to reflect any changes.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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 None(1) 5.00% 1.00%
redemption proceeds, whichever is lower)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET PORTFOLIO A PORTFOLIO B PORTFOLIO C
ASSETS: (AFTER EXPENSE DEFERRAL)
- -------------------------------------------------------------------------------------------------------------------------
Management fees 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------------------------------
Total other expenses 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 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been ***, *** and *** respectively absent the waiver and 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.
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $74 $119 $167 $297
- -------------------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period $80 $122 $175 $322
- Assuming no redemption $29 $90 $153 $322
- -------------------------------------------------------------------------------------------------------------------------
PORTFOLIO C - ASSUMING RECEPTION AT END OF TIME PERIOD $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
Portfolio B shares for Portfolio A shares seven or more years after purchase.
- -------------------------------------------------------------------------------
The figures below have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997. Ernst & Young L.L.P. are independent auditors
whose reports were unqualified. This information should be read in conjunction
with the financial statements and the notes thereto which appear in the Trust's
1997 Annual Report.
<TABLE>
<CAPTION>
---------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
---------------------------------------------------
______ TO ______ TO ______ TO
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE DATA:
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period/
Income from investment operations:
Net investment income (deficit)
Net realized and unrealized gains
(losses) on securities and foreign
currency
- ---------------------------------------------------------------------------------------------------
Total from investment operations
Less distributions:
Dividends from net investment income
Distributions from capital gains
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN+:
- ---------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA: Net
Assets ($000), end of period
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets, after expense reimbursement++
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets, before expense reimbursement++
- ---------------------------------------------------------------------------------------------------
Ratio of net investment deficit to
average net assets, after expense
reimbursement++
- ---------------------------------------------------------------------------------------------------
Ratio of net investment deficit to
average net assets, before expense
reimbursement++
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover**
- ---------------------------------------------------------------------------------------------------
Average commission rate paid**
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
WORLDWIDE GROWTH PORTFOLIOS A, B & C
- -------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation
[bullet point icon]
INVESTMENT STRATEGY: The Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial conditions and competiveness 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 countries in 52 countries, and searches for
successful, growing companies managing change advantageously and poised to
exceed growth expectations.
The Fund emphasizes companies with market capitalizations generally above
$100 million.
[bullet point icon]
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 total assets
invested in common and preferred stocks, warrants and convertible securities.
It will invest 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.
[bullet point icon]
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 __.
[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies from day to day in
response to many factors. Stock values fluctuate 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. International investing involves
added risks such as 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: Investors pay various expenses, either directly or
indirectly. The figures below are expenses of each Portfolio for its past
year, adjusted to reflect any changes. Fund expenses may be greater or less.
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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 PORTFOLIO OPERATING EXPENSES PORTFOLIO A PORTFOLIO B PORTFOLIO C
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%
- --------------------------------------------------------------------------------
Total other expenses 0.60% 0.75% 0.75%
- --------------------------------------------------------------------------------
Total operating expenses
(after expense deferral)(2) 1.85% 2.50% 2.50%
- -------------------------------------------------------------------------------
(1). Shareholders who buy $1 million in shares without 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been ***%, ***% and ***%, respectively, absent the waiver and 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.
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Portfolio A $70 $108 $147 $258
- --------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end
of time period $77 $110 $156 $284
- Assuming no redemption $25 $78 $133 $284
- --------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end
of time period $36 $78 $133 $284
- Assuming no redemption $25 $78 $133 $284
- -------------------------------------------------------------------------------
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
Portfolio B shares for Portfolio A shares seven or more years after
purchase.
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust's 1997 Annual Report.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
- ----------------------------------------------------------------------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 5/31/95 4/1/96 4/19/93 4/1/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $14.94 $14.29 $12.50 $12.50 $14.86 $14.44
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
Income from investment operations:
Net investment (0.07) (0.05) (0.07) (0.05) (0.09) (0.15) (0.21)
income (deficit)
Net realized and unrealized gains
(losses) on 2.51 (0.09) 2.86 1.89 2.45 (0.08) 2.92
securities and foreign currency
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations
Less distributions: 2.44 (0.14) 2.79 1.84 2.36 (0.23) 2.71
Dividends from net
investment income -- (0.02) (0.12) -- -- -- (0.01)
Distributions from -- (0.49) (0.39) -- -- (0.19) (0.38)
capital gains
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.94 $14.29 $16.57 $14.34 $14.86 $14.44 $16.76
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 19.52% (0.90%) 19.79% 14.72% 18.88% (1.49%) 18.95%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets ($000), end of period $20,194 $22,208 $23,481 $1,972 $66,577 $71,201 $71,155
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses
to average net
assets, after expense 1.85%* 1.85% 1.85% 2.50%* 2.44%* 2.50% 2.50%
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses
to average net
assets, before expense 2.23%* 2.18% 2.17% 9.50%* 2.44%* 2.57% 2.57%
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment deficit
to average net
assets, after (0.69%)* (0.42%) (0.35%) (1.28%)* (1.24%)* (1.06%) (0.99%)
expense reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment deficit
to average net (1.07%)* (0.75%) (0.61%) (8.12%)* (1.24%)* (1.13%) (1.00%)
assets, before
expense reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover** 95.09% 98.54% 132.20% 132.20% 95.09% 98.54 132.20%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid** N/A N/A $0.0187 $0.0187 N/A N/A $0.0187
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
INTERNATIONAL SMALL CAP PORTFOLIOS A,B & C
- -------------------------------------------------------------------------------
(FORMERLY INTERNATIONAL GROWTH PORTFOLIO)
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.
[bullet point icon]
INVESTMENT STRATEGY: The Investment Adviser focuses on a "bottom-up" analysis
that evaluates the financial condition 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, 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 52
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 capitalizations in that country. The Fund may have less U.S.
exposure (up to 35% of its assets in U.S. issuers) than the Worldwide Fund.
[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund will invest 65% of
its total assets in 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 stocks, and 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.
[bullet point icon]
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 ___.
[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies day to day in
response to the activities of individual companies. As with any
international fund, the Fund's performance also depends upon changing
currency values, and upon the different political and regulatory
environments, and other overall economic factors in countries where the Fund
invests. In addition to the risks posed by foreign investing, smaller
companies may be more volatile than those of larger companies and may trade
less frequently. The available information regarding these smaller companies
may also be less available, incomplete or inaccurate. Accordingly, the
securities of the companies in which the Funds invest 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 a further explanation see
"Risk Factors and Special Considerations" starting on page ____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are the expenses of each Portfolio and its
corresponding Fund for the past year, adjusted to reflect any changes.
Portfolio expenses maybe greater or less.
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO C
- -------------------------------------------------------------------------------
Maximum sales charge on purchases 5.25% None None
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- --------------------------------------------------------------------------------
Deferred sales charge (as a None 5.00% 1.00%
percentage of original purchase
price or redemption proceeds,
whichever is lower)
- --------------------------------------------------------------------------------
Redemption fee(2) None None None
- --------------------------------------------------------------------------------
Exchange fee None None None
- -------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES PORTFOLIO A PORTFOLIO B PORTFOLIO C
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% .075%
- --------------------------------------------------------------------------------
Total other expenses 0.70% 0.85% 0.85%
- --------------------------------------------------------------------------------
Total operating expenses (after 1.95% 2.60% 2.60%
expense deferral)(2)
- -------------------------------------------------------------------------------
(1.) Shareholders who buy $1 million in shares without sales charge may be
charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contngent 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 Funds and the Portfolios. Total operating expenses for the Series
A, B & C would have been ****%, ****% and ****%, respectively, absent the
waiver and 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.
- -----------------
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Portfolio A $71 $111 $152 $268
- --------------------------------------------------------------------------------
Portfolio B - Assuming redemption at
end of time period $78 $113 $161 $293
- Assuming no redemption $26 $81 $138 $293
- --------------------------------------------------------------------------------
Portfolio C - Assuming redemption at
end of time period $37 $81 $138 $293
- Assuming no redemption $26 $81 $138 $293
- --------------------------------------------------------------------------------
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
Portfolio B shares for Portfolio A shares seven or more years after
purchase.
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust 1997 Annual Report
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
- ----------------------------------------------------------------------------------------------------------------------------------
8/31/94 4/1/95 4/1/96 5/31/95 4/1/96 8/31/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/95 3/31/96 3/31/97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $11.51 $12.50 $12.50 $11.32
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period / Income from investment
operations: -- (0.02) (0.02) (0.04) 0.01
Net investment income (deficit)
Net realized and unrealized gains
(losses) on securities and
foreign currency (0.98) 1.79 1.48 (1.12) 1.72
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations
Less distributions:
Dividends from net (0.98) 1.77 1.46 (1.16) 1.73
investment income
Distributions from (0.01) (0.13) -- (0.02) --
capital gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.51 $13.15 $13.96 $11.32 $13.05
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (7.85%) 15.46% 11.68% (9.25%) 15.30%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets ($000), end of period $610 $1,056 $1,487 $24 $933
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets, after
expense reimbursement++ 1.95%* 1.95% 2.60%* 2.61%* 2.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets, before
expense reimbursement++ 9.77%* 10.06% 16.15%* 75.37%* 16.15%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment deficit
to average net assets,
after expense reimbursement++ (0.07%)* (0.27%) (0.64%)* (0.76%)* (1.02%)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment deficit
to average net assets,
before expense reimbursement++ (7.89%)* (7.75%) (13.26%) (73.52%)* (13.95%)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover** 74.85% 141.02% 141.02% 74.85% 141.02%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid** N/A $0.128 $0.0128 N/A $0.128
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
EMERGING COUNTRIES PORTFOLIOS A, B & C
- -------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation
[bullet point icon]
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 then 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.
[bullet point icon]
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), and 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.
[bullet point icon]
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____.
[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies day to day in
response to the activities of individual companies. As with any fund
investing in foreign securities, the value of the Fund's investments depend
upon changing currency values, and upon 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 a further
explanation, see "Risk Factors and Special Considerations" starting on
page ____.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The actual expenses may be more or less than those shown. The
figures below show expenses for each Portfolio and its corresponding Fund for
the past year, adjusted to reflect any changes.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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, None(1) 5.00% 1.00%
whichever is lower)
- -----------------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS: PORTFOLIO A PORTFOLIO B PORTFOLIO C
(AFTER EXPENSE DEFERRAL)
- -----------------------------------------------------------------------------------------------------------------------------------
Management fees 1.25% 1.25% 1.25%
- -----------------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Total other expenses 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 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have been
***, *** and ***respectively absent the waiver and 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.
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Portfolio A $74 $119 $167 $297
- -----------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period $80 $122 $175 $322
- Assuming no redemption $29 $90 $153 $322
- -----------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period $40 $90 $153 $322
- Assuming no redemption $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
Portfolio B shares for Portfolio A shares seven or more years after purchase.
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust's 1997 Annual Report.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
---------------------------------------------------------------------------------------------------
11/28/94 TO 4/1/95 TO 4/1/96 TO 5/31/95 TO 4/1/96 TO 11/28/94 TO 4/1/95 TO 4/1/96 TO
3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/95 3/31/96 3/31/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $11.00 $12.50 $12.50 $10.79
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period / Income from investment
operations:
Net investment income (deficit)
Net realized and unrealized 0.04 (0.04) (0.04) -- (0.05)
gains(losses) on securities and
foreign currency (1.54) 3.15 1.56 (1.70) 2.97
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations
Less distributions:
Dividends from net investment (1.50) 3.11 1.52 (1.70) 2.92
income
Distributions from capital gains -- (0.02) -- (0.01) --
-- (0.06) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.00 $14.03 $14.02 $10.79 $13.71
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (11.98%) 28.43% 12.16% (13.64%) 27.30%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA: Net
Assets ($000), end of period $1,197 $4,718 $3,557 $59 $4,345
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets, after expense
reimbursement++ 2.25%* 2.25% 2.90%* 2.90%* 2.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets, before expense
reimbursement++ 6.15%* 6.72% 7.58%* 242.59%* 6.23%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment deficit
to average net assets, after
expense reimbursement++ (1.09%)* (0.35%) (1.05%)* (0.04%)* (1.06%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment deficit
to average net assets, before
expense reimbursement++ (4.99%)* (3.61%) (5.44%) (239.73%)* (4.15%)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover** 60.79% 118.21% 118.21% 60.79% 118.21%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid** N/A $0.0022 $0.0022 N/A $0.0022
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
LARGE CAP GROWTH PORTFOLIOS A, B & C
- ------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.
[bullet point icon]
INVESTMENT STRATEGY: The 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 invests generally in 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.
[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least
65% of its total assets in common stocks, 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 use
also options and futures contracts as hedging techniques.
[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
maximize overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page ___.
[bullet point icon]
PRINCIPAL RISKS: As with any growth fund, the value of your investment, will
fluctuate 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 over-weighted 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 are based on changes in foreign
currency, different regulatory environments, and the overall economic
conditions in countries where the Fund invests. For a further explanation,
see "Risk Factors and Special Considerations" on page ____.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES: 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, adjusted to reflect any change. Actual
expenses may be more or less than those shown.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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 None(1) 5.00% 1.00%
redemption proceeds, whichever is lower)
- --------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- --------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS: PORTFOLIO A PORTFOLIO B PORTFOLIO C
(AFTER EXPENSE DEFERRAL)
- --------------------------------------------------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------------------------
Total other expenses 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 sales charge may be
charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contngent 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have been
***, *** and ***respectively absent the waiver and 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.
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Portfolio A $56 $75 $95 $153
- ---------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period $65 $75 $95 $157
- Assuming no redemption $13 $41 $71 $157
- ---------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period $24 $41 $71 $157
- Assuming no redemption $13 $41 $71 $157
- ---------------------------------------------------------------------------------------------------------
</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
Portfolio B shares for Portfolio A shares seven or more years after purchase.
- --------------------------------------------------------------------------------
<PAGE>
CORE GROWTH PORTFOLIOS A, B, & C
- -------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.
[bullet point icon]
INVESTMENT STRATEGY The 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 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 capitilizations generally above
$500 million.
[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests 75% of its
total assets in common stocks. It invests the remainder of the 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 use options and futures contracts as
hedging techniques.
[bullet point icon]
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 __.
[bullet point icon]
RISK FACTORS: As with any growth fund, the value of your investment will
fluctuate 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 depend upon changing values in
foreign currencies, different political and regulatory environments, and the
overall economic conditions in countries where the Fund invests. For a
further explanation , see "Risk Factors and Special Considerations" starting
on page _____.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses of each Portfolio and its
corresponding Fund for the past year, adjusted to reflect any change. Actual
expenses may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS: PORTFOLIO A PORTFOLIO B PORTFOLIO C
(AFTER EXPENSE DEFERRAL)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.75% 0.75% 0.75%
12b-1 expenses 0.25% 0.75% 0.75%
Total other expenses 0.58% 0.75% 0.64%
Total operating expenses (after expense deferral)2 1.58% 2.25% 2.14%
</TABLE>
1. Shareholders who buy $1 million in shares without 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been ***, *** and ***respectively. absent the waiver and 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.
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $68 $119 $167 $297
Portfolio B - Assuming redemption at end of time period $74 $122 $175 $322
- Assuming no redemption $23 $90 $153 $322
PORTFOLIO C - ASSUMING REDEMPTION AT END OF TIME PERIOD $33 $70 $120 $258
- Assuming no redemption $23 $70 $120 $258
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
Portfolio B shares for Portfolio A shares seven or more years after purchase.
</TABLE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by
Coopers & Lybrand L.L.P. with respect to the commencement of operations
through March 31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are
independent auditors whose reports were unqualified. This information should
be read in conjunction with the financial statements and the notes thereto
which appear in the Trust's 1997 Annual Report.
<TABLE>
<CAPTION>
PORTFOLIO A PORTFOLIO B PORTFOLIO C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/1/93 to 4/1/94 to 4/1/95 to 4/1/96 to 5/31/95 to 4/1/96 to 4/1/93 to 4/1/94 to 4/1/95 to 4/1/96 to
3/1/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA: $12.50 $13.25 $13.61 $12.50 $12.50 $13.18 $13.45
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period / Income
from investment
operations: (0.07) (0.10) (0.18) (0.09) (0.11) (0.17) (0.27)
Net investment
income (deficit) 0.86 0.46 4.94 3.84 0.80 0.44 4.88
Net realized and
unrealized gains
(losses) on
securities and
foreign currency
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 0.79 0.36 4.76 3.75 0.69 0.27 4.61
Less
distributions: - - - - - - -
Dividends from (0.04) - - - (0.01) - -
net investment
income
Distributions
from capital
gains
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, $13.25 $13.61 $18.37 $16.25 $13.18 $13.45 $18.06
end of period
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 6.27% 2.72% 35.07% 30.00% 5.54% 2.05% 34.28%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLE
MENTAL DATA: $70,512 $65,292 $77,275 $11,186 $141,489 $143,390 $177,461
Net Assets
($000), end of
period
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.57%* 1.59% 1.58% 2.22%* 2.17%* 2.24% 2.14%
assets, after
expense
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses
to average net 1.71%* 1.63% 1.56% 3.39%* 2.17%* 2.24% 2.24%
assets, before
expense
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
deficit to
average net (0.68%)* (0.66%) (0.91%) (1.61%)* (1.30%) (1.30%) (1.47%)
assets, after
expense
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
deficit to (0.82%)* (0.70%) (0.89%) (2.77%)* (1.30%)* (1.30%) (1.47%)
average net
assets, before
expense
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio 84.84% 98.09% 114.48% 114.48% 84.84% 90.09% 114.48%
Turnover**
- ----------------------------------------------------------------------------------------------------------------------------------
Average N/A N/A N/A $0.0593 $0.0593 N/A N/A
commission rate
paid**
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
EMERGING GROWTH PORTFOLIOS A, B & C
- ------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.
[bullet point icon]
INVESTMENT STRATEGY: The 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 what it calls a
"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 capitilizations of generally below
$500 million at the time of purchase.
[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least
75% of its total assets in common stocks. It invests the remainder of
assets primarily in preferred and convertible securities, investment grade
debt securities, and securities issued by the U.S. government, 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.
[bullet point icon]
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 Team" on page ___.
[bullet point icon]
RISK FACTORS: As with any growth fund, the value of your investment will
fluctuate 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 further since the performance of foreign stocks are
based on changes in foreign currency, different political and regulatory
environments, and the overall economic conditions in the foreign countries
where the Fund invests. For a further explanation , see "Risk Factors and
Special Considerations" starting on page _____.
- ------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses of each Portfolio and its
corresponding Fund for the past year, adjusted to reflect any change. Actual
expenses may be more or less than those shown.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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, None 5.00% 1.00%
whichever is lower)
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS: PORTFOLIO A PORTFOLIO B PORTFOLIO C
(AFTER EXPENSE DEFERRAL)
- ------------------------------------------------------------------------------------------------------------------------------------
Management fees 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Total other expenses 0.49% 0.83% 0.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.74% 2.58% 2.35%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Shareholders who buy $1 million in shares without 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been ***,*** and ***respectively absent the waiver and 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.
- ---------------------------
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $74 $119 $167 $297
- -----------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period $80 $122 $175 $322
- Assuming no redemption $29 $ 90 $153 $322
- -----------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period $36 $ 79 $136 $289
- Assuming no redemption $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
Portfolio B shares for Portfolio A shares seven or more years after purchase.
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust's 1997 Annual Report.
<TABLE>
<CAPTION>
PORTFOLIO A PORTFOLIO B
--------------------------------------------------------------------------
12/27/93 to 4/1/94 to 4/1/95 to 4/1/96 to 5/31/95 to 4/1/96 to
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $12.10 $13.06 $12.50
- --------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period / Income
from investment
operations: (0.04) (0.16) (0.20) (0.14)
Net investment
income (deficit) (0.36) 1.12 5.09 4.33
Net realized and
unrealized gains
(losses) on
securities and
foreign currency
- --------------------------------------------------------------------------------------------------
Total from
investment
operations (0.40) 0.96 4.89 4.19
Less distributions:
Dividends from -- -- -- --
net investment -- -- (0.02) --
income
Distributions from
capital gains
- --------------------------------------------------------------------------------------------------
Net asset value, $12.10 $13.06 $17.93 16.69
end of period
- --------------------------------------------------------------------------------------------------
TOTAL RETURN+: (3.20%) 7.93% 37.48% 33.52%
- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA: Net $104,838 $106,725 $138,155 $13,626
Assets ($000),
end of period
- --------------------------------------------------------------------------------------------------
Ratio of expenses
to average net
assets, after 1.73%* 1.86% 1.74% 2.58%*
expense
reimbursement++
- --------------------------------------------------------------------------------------------------
Ratio of expenses
to average net
assets, before 1.80% 1.84% 1.74% 3.26%*
expense
reimbursement++
- --------------------------------------------------------------------------------------------------
Ratio of net
investment deficit
to average net (1.44%)* (1.27%) (1.20%) (2.09%)*
assets, after
expense
reimbursement++
- --------------------------------------------------------------------------------------------------
Ratio of net
- --------------------------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO C
-----------------------------------------------
12/27/93 to 4/1/94 to 4/1/95 to 4/1/96 to
3/31/94 3/31/95 3/31/96 3/31/97
- ---------------------- -----------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA: $12.50 $12.07 $12.96
- ---------------------- -----------------------------------------------
Net asset value,
beginning of
period / Income
from investment
operations: (0.06) (0.22) (0.29)
Net investment
income (deficit) (0.37) 1.11 5.03
Net realized and
unrealized gains
(losses) on
securities and
foreign currency
- ---------------------- -----------------------------------------------
Total from
investment
operations (0.43) 0.89 4.74
Less distributions:
Dividends from -- -- --
net investment -- -- (0.08)
income
Distributions from
capital gains
- ---------------------- -----------------------------------------------
Net asset value, $12.07 $12.96 $17.62
end of period
- ---------------------- -----------------------------------------------
TOTAL RETURN+: (3.44%) 7.37% 37.18
- ---------------------- -----------------------------------------------
RATIOS/SUPPLEMENTAL
DATA: Net $142,874 $157,292 $207,332
Assets ($000),
end of period
- ---------------------- -----------------------------------------------
Ratio of expenses
to average net
assets, after 2.34%* 2.44% 2.35%
expense
reimbursement++
- ---------------------- -----------------------------------------------
Ratio of expenses
to average net
assets, before 2.34%* 2.44% 2.35%
expense
reimbursement++
- ---------------------- -----------------------------------------------
Ratio of net
investment deficit
to average net (2.04%)* (1.85%) (1.81%)
assets, after
expense
reimbursement++
- ---------------------- -----------------------------------------------
Ratio of net
- ---------------------- -----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
investment deficit
to average net (1.51%)* (1.25%) (1.20%) (2.76)* (2.04%)* (1.85%) (1.81%)
assets, before
expense
reimbursement++
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio 50.51% 100.46% 129.59% 129.59% 50.51% 100.46% 129.59%
Turnover**
- ------------------------------------------------------------------------------------------------------------------------------------
Average N/A N/A $0.0523 $0.0523 N/A N/A $0.0523
commission rate
paid**
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------
4/1/96 to
3/31/97
- --------------------------------------
<S> <C>
PER SHARE DATA:
- --------------------------------------
Net asset value,
beginning of
period / Income
from investment
operations:
Net investment
income (deficit)
Net realized and
unrealized gains
(losses) on
securities and
foreign currency
- --------------------------------------
Total from
investment
operations
Less distributions:
Dividends from
net investment
income
Distributions from
capital gains
- --------------------------------------
Net asset value,
end of period
- --------------------------------------
TOTAL RETURN+:
- --------------------------------------
RATIOS/SUPPLEMENTAL
DATA: Net
Assets ($000),
end of period
- --------------------------------------
Ratio of expenses
to average net
assets, after
expense
reimbursement++
- --------------------------------------
Ratio of expenses
to average net
assets, before
expense
reimbursement++
- --------------------------------------
Ratio of net
investment deficit
to average net
assets, after
expense
reimbursement++
- --------------------------------------
Ratio of net
- --------------------------------------
investment deficit
to average net
assets, before
expense
reimbursement++
- --------------------------------------
Portfolio
Turnover**
- --------------------------------------
Average
commission rate
paid**
- --------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
BALANCED GROWTH PORTFOLIOS A, B & C
- ------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: A balance of long-term capital appreciation and
current income.
[bullet point icon]
INVESTMENT STRATEGY: The Investment Adviser will actively manage 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 vehicles from all sectors of the
market.
[bullet point icon]
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 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.
[bullet point icon]
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 ____.
[bullet point icon]
RISK FACTORS: As with any fund that invests in common stocks and debt
obligations, the value of your investment will fluctuate in response to
movements in the stock and bond markets. Equity securities of companies 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
fall; if rates go down, the value of debt securities go up. Lower rated
securities in which the Fund invests are considered speculative and are
subject to greater risk of loss than investment grade securities,
particularly in deteriorating economic periods. For a further explanation,
see "Risk Factors and Special Considerations" starting on page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses of each Portfolio and
its corresponding Fund for the past year, adjusted to reflect any changes.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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 None(1) 5.00% 1.00%
redemption proceeds, whichever is lower)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -----------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS: PORTFOLIO A PORTFOLIO B PORTFOLIO C
(AFTER EXPENSE DEFERRAL)
- -----------------------------------------------------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
Total other expenses 0.60% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.25%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Shareholders who bought $1 million in shares without 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been,*** and ***respectively absent the waiver and 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.
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
Portfolio A $68 $100 $135 $233
- ----------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period $74 $103 $143 $258
- Assuming no redemption $23 $70 $120 $258
- ----------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period $33 $70 $120 $258
- Assuming no redemption $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
Portfolio B shares for Portfolio A shares seven or more years after purchase.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust's 1997 Annual Report.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO 4/1/96 TO 4/1/96 TO 4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA: $12.50 $13.52 $13.74 $12.50 $12.50 $13.54 $13.76
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period / Income
from investment
operations: 0.15 0.21 (0.34) 0.12 0.08 0.11 0.24
Net investment
income (deficit) 1.02 0.22 2.42 1.68 1.04 0.22 2.44
Net realized and
unrealized gains
(losses) on
securities and
foreign currency
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 1.17 0.43 2.76 1.80 1.12 0.33 2.68
Less
distributions: (0.15) (0.21) (0.34) (0.12) (0.08) (0.11) (0.24)
Dividends from -- -- -- -- -- -- --
net investment
income
Distributions
from capital
gains
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, $13.52 $13.74 $16.16 $14.18 $13.54 $13.76 $16.20
end of period
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (9.35%) 3.22% 20.16% 14.45% 8.91% 2.47% 19.58%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLE-
MENTAL DATA: $6,446 $4,980 $5,902 $673 $16,248 $16,470 $16,586
Net Assets
($000), end of
period
- -----------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.59%* 1.60% 1.60% 2.25%* 2.24%* 2.25% 2.25%
assets, after
expense
reimbursement++
- -----------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 3.28% 2.78% 3.30% 13.05%* 2.73%* 2.60% 3.01%
assets, before
expense
reimbursement++
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
deficit to 1.30%* 1.44% 2.16% 1.38* 0.61%* (0.83%) 1.53%
average net
assets, after
expense
reimbursement++
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
deficit to (0.39%)* 0.26% 0.88% (8.86%)* 0.12%* (0.48%) 1.19%
average net
assets, before
expense
reimbursement++
- -----------------------------------------------------------------------------------------------------------------------
Portfolio 85.43% 110.40% 197.19% 197.19% 85.43% 110.40% 197.19%
Turnover**
- -----------------------------------------------------------------------------------------------------------------------
Average N/A N/A $0.0594 $0.0594 N/A N/A $0.0594
commission rate
paid**
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
INCOME & GROWTH PORTFOLIOS A, B & C
- --------------------------------------------------------------------------------
[bullet point icon] INVESTMENT OBJECTIVE: Maximum total return, consisting of
long-term capital appreciation and current income.
[bullet point icon] INVESTMENT STRATEGY: The Fund will invest primarily in
convertible securities. The Investment Adviser evaluates the 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 companies that are managing change
advantageously and poised to exceed growth expectations.
[bullet point icon] PRINCIPAL INVESTMENTS: Under normal conditions, the Fund
invests at least 65% of its total assets will be invested in convertible
securities. It invests the remainder of the assets primarily in common and
preferred stocks, debt securities, and securities issued by the U.S.
government, and its agencies and instrumentalities. The Fund may use
options and futures contracts as hedging techniques.
At all times, the Fund will invest a minimum of 25% of its total assets in
common & 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.
[bullet point icon] 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 __ .
[bullet point icon] 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. With respect to debt securities, an increase in interest rates
will tend to reduce their value while a decrease will tend to increase their
value. In addition, the lower rated convertible securities in which the
Fund may invest are considered predominately speculative and are subject to
greater market risk and volatility than securities issued by companies with
more financial stability. The issuers of these securities may have
difficulty meeting projected goals or obtaining additional financing during
recessions or periods of high interest rates which may lead to a weakened
capacity on the part of the company to make interest and principal payments.
For a further explanation, see "Risk Factors and Special Considerations"
starting on page _____.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses of each Portfolio and its
corresponding Fund for the past year, adjusted to reflect any changes.
Actual expenses may be more or less than those shown.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO 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 PORTFOLIO OPERATING EXPENSES AS PORTFOLIO A PORTFOLIO B PORTFOLIO C
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%
- -----------------------------------------------------------------------------------------
Total other expenses 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 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been ***, *** and ***respectively, absent the waiver and 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.
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $68 $100 $135 $233
- -------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period $74 $103 $143 $258
- Assuming no redemption $23 $70 $120 $258
- -------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period $33 $70 $120 $258
- Assuming no redemption $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 Portfolio B shares for Portfolio A shares seven or more years after
purchase.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust' 1997 Annual Report.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
----------------------------------------------------------------------------------------------------------------
4/19/93 to 4/1/94 to 4/1/95 to 4/1/96 to 5/31/95 to 4/1/96 to 4/19/93 to 4/1/94 to 4/1/95 to 4/1/96 to
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $14.16 $12.86 $12.50 $12.50 $14.28 $13.03
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period /
Income from 0.32 0.49 0.48 0.24 0.24 0.41 0.40
investment
operations: 2.15 (0.89) 2.82 2.46 2.11 (0.89) 2.86
Net
investment
income
(deficit)
Net realized
and
unrealized
gains (losses)
on securities
and foreign
currency
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 2.47 (0.40) 3.30 2.70 2.35 (0.48) 3.26
Less
distributions: (0.32) (0.49) (0.48) (0.24) (0.24) (0.41) (0.40)
Dividends (0.49) (0.41) -- -- (0.33) (0.36) --
from net
investment
income
Distributions
from capital
gains
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset $14.16 $12.86 $15.68 $14.96 $14.28 $13.03 $15.89
value, end of
period
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 19.65% (2.64%) 26.00% 21.72% (18.76%) (3.26%) 25.24%
RETURN+:
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPL $30,447 $31,150 $31,712 $2,125 $69,265 $61,792 $58,997
EMENTAL DATA: Net
Assets
($000), end
of period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.59%* 1.60% 1.60% 2.25%* 2.22%* 2.25% 2.25%
assets, after
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
expense
reimbursement++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.83% 1.76% 1.76% 7.08%* 2.23% 2.29% 2.28%
assets, before
expense
reimbursement++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
net
investment
deficit to 2.83%* 3.71% 3.29% 2.59%* 2.28%* 3.05% 2.64%
average net
assets, after
expense
reimbursement++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
net investment
deficit to 2.59%* 3.55% 3.12% (2.22%)* 2.27%* 3.01% 2.61%
average net
assets, before
expense
reimbursement++
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio 117.52% 125.51% 144.97% 144.97% 117.52% 125.51% 144.97%
Turnover**
- ------------------------------------------------------------------------------------------------------------------------------------
Average
commission
rate paid** N/A $0.0022 $0.0597 $0.0597 N/A N/A $0.0597
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
GOVERNMENT INCOME PORTFOLIOS A, B & C
- --------------------------------------------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Current income consistent with prudent income risk and
preservation of capital.
[bullet point icon]
INVESTMENT STRATEGY: The Fund invests primarily in intermediate-term
government bonds. When evaluating any bond, the Investment Adviser selects
bonds based on a "top down" analysis of economic trends. It also analyzes the
yield to maturity of the security, the security's credit quality, and the
effect the security will have on the average yield to maturity of the Fund.
[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least
75% of its total assets in securities issued by the U.S. government, and its
agencies and instrumentalities. It invests the remainder primarily in
mortgage-related securities, investment grade debt obligations and short-term
investments. The Fund's weighted average portfolio duration varies from
three to six years.
[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
portfolio management to maximize overall effectiveness. For a complete list
of the portfolio team, see "Portfolio Teams on page __.
[bullet point icon]
RISK FACTORS: As with any fund that invests in bonds, the value of your
investment will fluctuate in response to movements in interest rates. If
interest rates go up, the values of debt securities fall; if rates go down,
the value of debt securities go up. Debt securities with longer maturities
tend to be more sensitive to interest rates movements than those with shorter
maturities. The Fund's value and current yields are not guaranteed by the
U.S. government. In addition, obligations issued by certain governmental
agencies, such as Freddie Mac and Fannie Mae, are not guaranteed by the full
faith and credit of the U.S. government. For a further explanation, see
"Risk Factors and Special Considerations" starting on page _____.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES: 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, adjusted to reflect any changes. Actual
expenses may be more or less than those shown.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 None(1) 5.00% 1.00%
redemption proceeds, whichever is lower)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS: PORTFOLIO A PORTFOLIO B PORTFOLIO C
(AFTER EXPENSE DEFERRAL)
- ----------------------------------------------------------------------------------------------------------------------------
Management fees 0.40% 0.40% 0.40%
- ----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------------------
Total other expenses 0.25% 0.40% 0.40%
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 0.90% 1.30% 1.30%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Shareholders who buy $1 million in shares without 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 Funds and the
Portfolios. Total operating expenses for the Series A, B & C would have
been ***, *** and ***respectively, absent the waiver and 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.
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Portfolio A $56 $75 $95 $153
Portfolio B - Assuming redemption at end of time period $65 $75 $95 $157
- Assuming no redemption $13 $41 $71 $157
Portfolio C - Assuming redemption at end of time period $24 $41 $71 $157
- Assuming no redemption $13 $41 $71 $157
</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
Portfolio B shares for Portfolio A shares seven or more years after
purchase.
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust's 1997 Annual Report.
<TABLE>
<CAPTION>
PORTFOLIO A PORTFOLIO B PORTFOLIO C
12/27/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO 5/31/95 TO 4/1/96 TO 4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $12.51 $12.29 $12.50 $12.50 $12.56 $12.27
Net asset
value, beginning
of period /
Income from 0.29 0.63 0.75 0.48 0.25 0.63 0.77
investment
operations: 0.34 (0.19) 0.45 0.04 0.29 (0.28) 0.36
Net investment
income (deficit)
Net realized
and unrealized
gains (losses)
on securities
and foreign
currency
Total from
investment
operations 0.63 0.44 1.20 0.52 0.54 0.35 1.13
Less
distributions: (0.29) (0.63) (0.75) (0.48) (0.25) (0.63) (0.77)
Dividends from (0.33) (0.03) -- (0.01) (0.23) (0.01) --
net investment
income
Distributions
from capital
gains
Net asset $12.51 $12.29 $12.74 $12.53 $12.56 $12.27 $12.63
value, end
of period
TOTAL 4.97% 3.68% 9.71% 4.16% 4.28% 2.96% 9.20%
RETURN+:
RATIOS/SUPPL
EMENTAL DATA:
Net Assets $820 $925 $1,297 $128 $7,345 $4,278 $2,986
($000), end
of period
Ratio of
expenses
to average 1.10%* 1.10% 0.93% 1.33%* 1.50%* 1.50% 1.33%
net assets,
after expense
reimbursement++
Ratio of
expenses to
average net
assets, 20.28%* 8.40% 9.58% 86.12%* 3.86%* 2.67% 5.77%
before
expense
reimbursement++
Ratio of
net investment
deficit to
average net 3.07%* 5.18% 5.78% 5.14%* 2.70%* 4.58% 5.46%
assets, after
expense
reimbursement++
Ratio of
net investment
deficit to
average net (16.11%)* (2.12%) (0.75%) (67.73%)* 0.34%* 3.41% 3.13%
assets, before
expense
reimbursement++
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
Portfolio 159.17% 258.72% 190.47% 190.47% 159.17% 258.72% 190.47%
Turnover**
- ---------------------------------------------------------------------------------------------------------------------
Average N/A N/A N/A N/A N/A N/A N/A
commission
rate paid**
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
[bullet point icon]
INVESTMENT OBJECTIVE: High current income consistent with preservation of
capital and maintenance of liquidity.
[bullet point icon]
INVESTMENT STRATEGY: The 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.
[bullet point icon]
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.
[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
portfolio management to maximize overall effectiveness. For a complete list
of the portfolio team, see "Portfolio Team" on page __.
[bullet point icon]
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.
- ------------------------------------------------------------------------------
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses for the Portfolio and its
corresponding Fund for the past year, adjusted to reflect any changes.
Actual expenses may be more or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO
- ------------------------------------------------------------------------------
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 PORTFOLIO OPERATING EXPENSES AS A
PERCENTAGE OF AVERAGE NET ASSETS: (AFTER
EXPENSE DEFERRAL) PORTFOLIO
- ------------------------------------------------------------------------------
Management fees(2) 0.00%
- ------------------------------------------------------------------------------
12b-1 expenses 0.15%
- ------------------------------------------------------------------------------
Total other expenses 0.30%
- ------------------------------------------------------------------------------
Total operating expenses (after expense
deferral)(3) 0.45%
- ------------------------------------------------------------------------------
1. Shareholders who purchase shares through an exchange from a B or C
Portfolio may pay a contingent deferred sales charge on shares
redeemed. See "Contingent Deferred Sales Charge".
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 Funds and the
Portfolios. Total operating expenses would have been __% absent the
waiver and deferral. See "Investment Adviser Compensation".
- ----------
<PAGE>
EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all
dividends and that the average annual return was 5%.
- ------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
Portfolio $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.
1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after
purchase.
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March
31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent
auditors whose reports were unqualified. This information should be read in
conjunction with the financial statements and the notes thereto which appear
in the Trust's 1997 Annual Report.
-----------------------------------------------
PORTFOLIO
-----------------------------------------------
4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 to
3/31/94 3/31/93 3/31/96 3/31/97
- ----------------------------------------------------------------------------
PER SHARE DATA: $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------
Net asset value, beginning
of period / Income from
investment operations: 0.01 0.05 0.05
Net investment income
(deficit) - - -
Net realized and unrealized
gains (losses) on securities
and foreign currency
- ----------------------------------------------------------------------------
Total from investment
operations 0.01 0.05 0.05
Less distributions:
Dividends from net investment (0.01) (0.05) (0.05)
income - - -
Distributions from capital
gains
- ----------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------
TOTAL RETURN+: 1.72% 4.58% 5.47%
- ----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets ($000), end $48 $2,996 $3,129
of period
- ----------------------------------------------------------------------------
Ratio of expenses to average
net assets, after expense
reimbursement++ 0.54%* 0.31% 0.45%
- ----------------------------------------------------------------------------
Ratio of expenses to average
net assets, before expense
reimbursement++ 323.24%* 2.49% 5.78%
- ----------------------------------------------------------------------------
Ratio of net investment
deficit to average net
assets, after expense
reimbursement++ 1.85%* 4.60% 5.35%
- ----------------------------------------------------------------------------
Ratio of net investment
deficit to average net
assets, before expense
reimbursement++ (320.85%)* 2.42% 2.77%
- ----------------------------------------------------------------------------
Portfolio Turnover** N/A N/A N/A
- ----------------------------------------------------------------------------
Average commission rate paid** N/A N/A N/A
- ----------------------------------------------------------------------------
* Annualized
** For the corresponding Funds of the Master Trust
<PAGE>
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds
<PAGE>
DISTRIBUTION OF SHARES
- -------------------------------------------------------------------------------
CHOOSING A PORTFOLIO. This prospectus offers Series A, B & C Portfolios. Each
Portfolio has its own cost structure, allowing you to choose the one that
best meets your requirements. Your financial represetative can help you
decide. For actual past expense of A, B & C Portfolios, see the Portfolio
Information earlier in this prospectus.
- -------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
SERIES A PORTFOLIO Sales charges are as follows:
CORE GROWTH, EMERGING GROWTH, INCOME & GROWTH AND BALANCED GROWTH
- -------------------------------------------------------------------------------
AS A % OF AS A % OF DEALER
YOUR INVESTMENT OFFERING YOUR COMMISSION
PRICE INVESTMENT AS % OF
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)
GOVERNMENT INCOME PORTFOLIO
- -------------------------------------------------------------------------------
AS A % OF AS A % OF DEALER
YOUR INVESTMENT OFFERING YOUR COMMISSION
PRICE INVESTMENT AS % OF
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 Series A Portfolio have no front-end
sales charge. The Distributor pays a commission of 1% to financial
institutions that initiate purchases of $ 1 million and more.
SERIES B PORTFOLIO 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 Government Income Portfolio) to financial institutions who
initiate purchases. There is a contingent deferred sales charge (CDSC) on
shares you sell within six years of buying them.
SERIES C PORTFOLIO shares are offered at their net asset value per share
without any The Distributor pays a 1% commission to financial institutions
that initiate purchases.
There may be a CDSC of 1% on redemptions of shares of a Series C Portfolio
made within one year from date of their purchase.
MONEY MARKET PORTFOLIO shares are offered at their net asset value per share
without any initial sales charge, and redeemed at net asset value.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a CDSC upon redemption of their shares under
the following conditions:
SERIES A PORTFOLIO
Shareholders who buy $1 million in shares without a sales charged and
redeem within one full year of purchase may be charged a CDSC of 1%.
SERIES B PORTFOLIO
YEARS AFTER
PURCHASE BEING SO
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
SERIES C PORTFOLIO
Shareholders who redeem Series C Portfolio shares within one full
year of the purchase date may be charged a CDSC of 1%.
MONEY MARKET PORTFOLIO
A CDSC may be charged on redemptions of shares purchased through an
exchange of Series B or C Portfolio shares of an investor who did not
own the B Portfolio shares for six full years or the C Portfolio
shares for one full year, whichever is applicable.
There is no CDSC imposed on shares acquired through reinvestment of dividends
or capital gains.
<PAGE>
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 SERIES A PORTFOLIO SALES CHARGES There are several ways you can
combine multiple purchases of shares of Series A Portfolios 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 shares of any
Series A Portfolio 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 shares of any Series A
Portfolio 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 shares of multiple
Series A Portfolios for purposes of calculating 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.
CDSC WAIVERS In general, the CDSC may be waived on shares you sell for the
following reasons:
- to make payments through certain systematic withdrawal plans
- qualifiying 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 shares of a Portfolio, you may invest
some or all of the proceeds in the same Portfolio 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 Shares of a Series A Portfolio may be sold at net
asset value to:
(1) current or retired directors, trustees, partners, officers and employees
of the Trust, the Master 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 shares
of Series A Portfolios 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 shares of the Series A Portfolios; 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
<PAGE>
SERVICES
Each Portfolio has adopted a distribution plan in accordance with Rule 12b-1
under the Investment Company Act. Portfolios B and C may pay a fee to the
Distributor in an amount computed at an annual rate of .75% of the average
daily net assets of each Portfolio to finance any activity which is
principally intended to result in the sale of shares. Portfolio A and the
Money Market Portfolio may pay the Distributor a fee equal to .25% 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 Portfolios has entered into a Shareholder Services Agreement with
the Distributor under which each Portfolio 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 Portfolios. 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.
DISTRIBUTOR
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
YOUR ACCOUNT
- -------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each Portfolio 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 Portfolio's net
assets by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charge, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charge.
EXECUTION OF REQUESTS Each Portfolio is open on those days when 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. At times of peak activity, it may be difficult
to place requests by phone. During these times, consider sending your request
in writing or by facsimile. Each Portfolio 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 Portfolio 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 Portfolio 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 Portfolio for shares of the same
Series (A, B, or C) of any other Portfolio, generally without paying any
additional sales charges. You may also exchange shares of any Portfolio for
shares of the Money Market Portfolio. Series B Portfolio shares and Series C
Portfolio shares purchased through an exchange from a like Series Portfolio
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
Portfolio shares purchased through an exchange from Series B or C Portfolios
are excluded from the calculation of the holding period on Series B and C
Portfolio shares.
To protect the interests of other investors in a Portfolio, the Investment
Adviser 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 Portfolio. Guidelines for exchanges are available from
the Distributor upon request. A Portfolio may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A Portfolio
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
<PAGE>
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 Portfolio 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).
The services referred to 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.
DIVIDENDS AND ACCOUNT POLICIES
RETIREMENT PLANS You may invest in each Portfolio 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 or your dealer. 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, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The Portfolios generally distribute most or all of their net
earnings in the form of dividends. Each Portfolio pays dividends as follows:
ANNUALLY QUARTERLY MONTHLY
Large Cap Balanced Growth Government Income
Core Growth Income & Growth Money Market
Emerging Growth
Worldwide Growth
International Small Cap
International Core Growth
Emerging Countries
Any net capital gains are distributed annually.
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 Portfolio meets the requirements for
being a tax-qualified regulated investment company, which each Portfolio 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 Portfolio whether reinvested or
taken as cash, are generally considered taxable. Dividends from a Portfolio'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 Form 1099 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.
<PAGE>
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement
account so that its total value is less than $500, you may be asked to
purchase more shares within 60 days. If you do not take action, the Portfolio
may close out your account and mail you the proceeds. You will not be charged
a CDSC if your account is closed for this reason, and your account will not
be closed if its drop in value is due to Fund performance or the effects of
sales charges.
AUTOMATIC WITHDRAWALS You may make automatic withdrawals from a Portfolio of
$50 or more on a monthly or quarterly basis if you have an account of $5,000
or more in the Portfolio. 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 each Portfolio 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 Portfolio into shares of another Portfolio
within the same Series (A, B or C), subject to conditions outlined in the
Statement of Additional Information. Generally, to use this service the value
of your account in the Portfolio which paid the dividend or capital gain
distribution must equal at least $5,000.
CHECK WRITING (Money Market Portfolio only) You may establish checkwriting
privileges by competing the necessary forms. Minimum amount is $250 per check
and checks may only be signed by an authorized person. Costs are $5 per book
and $1 for each check presented for payment.
AUTOMATIC EXCHANGES You may automatically exchange shares (in increments of
$50 or more) among any of the Portfolios within the same Series (A, B or C)
on a monthly or quarterly basis. You must either meet the minimum initial
investment requirement for the receiving Portfolio or the originating
Portfolio's balance must be at least $5,000 and the receiving Portfolio's
minimum must be met within one year.
CONVERSION OF SERIES B PORTFOLIO SHARES Series B Portfolio shares may be
exchanged for corresponding Series A shares seven years after purchase.
Exchanges will be made at relative net asset value free of any charges. The
exchange will be treated as a sale for income tax purposes. The Trust
currently intends to establish, prior to 2002, an additional class of shares
of each Series B Portfolio into which the Series B Shares will convert after
seven years of ownership provided the conversion does not constitute a
taxable event for income tax purposes. The new class will have the same
expenses as the Series A Portfolios. The longer the time between the
purchase and the sale of shares, the lower the rate of the CDSC. The time
shares were held in the Money Market Portfolio are excluded from the
calculation of the holding period, initial sales charge, clients
<PAGE>
OPENING AN ACCOUNT
- --------------------------------------------------------------------------------
FOR THIS TYPE
OF ACCOUNT REGULAR INVESTMENT RETIREMENT
----------------------------------------------------------
Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
----------------------------------------------------------
This is the minimum
initial investment $2,000 $250 $50 $250
- --------------------------------------------------------------------------------
Use this type of New Account Form (Non-Retirement) IRA Application
application
- --------------------------------------------------------------------------------
Before completing the Each Portfolio offers a variety of features, which are
application described in the Your Account section of this prospectus.
Please read this section before completing the application.
- --------------------------------------------------------------------------------
Completing the If you need assistance, contact your financial
application representative, or call us at (800) 551-8043.
- --------------------------------------------------------------------------------
If you are sending Mail application and check, payable to:
money by CHECK NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326, BOSTON, MA 02266 8326.
The Trust cannot accept third-party checks.
- --------------------------------------------------------------------------------
If you are sending Please read the bank wire or ACH section under the
money by BANK WIRE Buying Shares section below. You will need
or ACH an account number with the Trust by sending a
completed application to:
NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326, BOSTON, MA 02266 8326.
To receive your account number, call either your financial
representative or the Trust at (800)551-8043.
- --------------------------------------------------------------------------------
BUYING SHARES
- --------------------------------------------------------------------------------
FOR THIS TYPE
OF ACCOUNT REGULAR INVESTMENT RETIREMENT
----------------------------------------------------------
Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
----------------------------------------------------------
This is the minimum
initial investment $100 $100 $50 $100
- --------------------------------------------------------------------------------
The price you The Trust is open on days that the New York Stock Exchange
will receive is open. All transactions received in good order before
the market closes receives that day's price.
- --------------------------------------------------------------------------------
If you are sending Mail application and check, payable to:
money by CHECK NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326, BOSTON, MA 02266 8326.
For your convenience, you may use the form included in your
statement. If you don't, please provide with your check a
note providing your name, Portfolio and account number.
The Trust cannot accept third-party checks.
- --------------------------------------------------------------------------------
If you are sending Instruct your bank to wire the amount you wish to invest to:
money by BANK WIRE STATE STREET BANK & TRUST CO. - ABA #011000028
DDA #9904-645-0
STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [PORTFOLIO NAME],
[YOUR NAME],[ACCOUNT NAME]
- --------------------------------------------------------------------------------
If you are sending Call your bank to ensure (1) that your bank supports ACH,
money by ACH and (2) this feature is active on your bank account. To
establish this option, either complete the appropriate
sections when opening an account, or contact your financial
representative or the Trust at (800) 551-8043 for further
information.
To initiate an ACH purchase, call the Trust at
(800)551-8043.
- --------------------------------------------------------------------------------
EXCHANGING SHARES
- --------------------------------------------------------------------------------
FOR THIS TYPE
OF ACCOUNT REGULAR INVESTMENT RETIREMENT
----------------------------------------------------------
Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
----------------------------------------------------------
This is the minimum
initial investment $2,000 $250 $50 $250
- --------------------------------------------------------------------------------
The price you The Trust is open on days that the New York Stock
will receive Exchange is open. All transactions received in good
order before the market closes receives that day's
price.
- --------------------------------------------------------------------------------
Things you should The exchange must be to a portfolio in the same share class
know as 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 portfolio you are
exchanging from, make sure that you leave an amount equal or
<PAGE>
- ------------------------------------------------------------------------------
greater that the portfolio's minimum account size (see
the "Opening an Account" section).
To protect other investors, the Trust may limit the
number of exchanges you can do.
- ------------------------------------------------------------------------------
How to request an Either contact your financial representative, or
exchange by PHONE call the Trust at (800) 551-8043.
The Trust will 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 Please put your exchange request in writing, including:
exchange by MAIL the name on the account, the name of the portfolio and
the account number you are exchanging from, the shares or
dollar amount you wish to exchange, and the portfolio you
wish to exchange to. Mail this request to: PO BOX 8326,
BOSTON, MA 02266 8326.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SELLING OR REDEEMING SHARES
- -----------------------------------------------------------------------------------------------------------------------
IN WRITING BY PHONE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Certain requests may require a SIGNATURE Selling shares by phone is a service option which
Things you GUARANTEE. See that section below for must be established on your account prior to making
should know further information. You may sell up to a request. See the "Your Account" section or contact
the full account value, less any your financial representative or the Trust at
applicable sales charge. (800) 551-8043 for further information. The maximum
amount which may be requested by phone, regardless
of account size, is $50,000. Amount greater than
that must be requested in writing. I you wish to
receive your monies by bank wire, the minimum
request is $5,000.
------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative, 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. Selling shares from a corporation, trust
or fiduciary may have special requirements. Please call your financial representative or the Trust
for further information.
- ----------------------------------------------------------------------------------------------------------------------------
The price you The Trust is open on days that the New York Stock Exchange is open. All transactions received in good
will receive order before the market closes receives that day's price.
- ----------------------------------------------------------------------------------------------------------------------------
If you want to Please put your request in writing, Either contact your financial representative or call the
receive your monies including: the name of the account Trust at (800) 551-8043. The proceeds will be sent to the
by CHECK owners, account number and portfolio address listed on the account.
you are redeeming from, the share or
dollar amount you wish to sell, signed
by all account owners.
Mail this request to:
NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326,
BOSTON, MA 02266 8326.
The check will be sent to the address
listed on the account.
- ----------------------------------------------------------------------------------------------------------------------------
If you want to Please put your request in writing, Either contact your financial representative or call the
receive your monies including: the name of the account Trust at (800) 551-8043. The proceeds will be sent to the
by BANK WIRE owners, account number and portfolio existing bank wire address listed on the account.
you are redeeming from, the share or
dollar amount you wish to sell, signed
by all account owners.
Mail this request to:
NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326,
BOSTON, MA 02266 8326.
The check will be sent to the
existing bank wire address
listed on the account.
- ----------------------------------------------------------------------------------------------------------------------------
If you want to Please call the Trust at (800) 551-8043. Either contact your financial representative or call
receive your monies the Trust at (800) 551-8043. The proceeds will be sent to
by ACH the existing ACH instructions on the account and will
generally be received at your bank two business days after
your request is received.
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
SIGNATURE GUARANTEES
- ----------------------------------------------------------------------------------------------------------------------------
A definition A signature guarantee is required of a financial institution to verify individual's authenticity of the
signature. It can usually be obtained by a broker, commercial or savings bank or credit union.
- ----------------------------------------------------------------------------------------------------------------------------
When do you need one A signature guarantee is needed when making a written request for the following reasons:
1. When selling more than $50,000 work 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>
<PAGE>
ORGANIZATION AND MANAGEMENT
MASTER/FEEDER STRUCTURE
The Portfolios are series of shares of the Nicholas-Applegate Mutual Funds
(the "Trust"). Unlike other mutual funds that acquire their securities
directly, the Portfolios invest their assets in the Master Fund, which are
series of Nicholas-Applegate Investment Trust (the "Master Trust"). This
two-tier structure is known as a "master/ feeder" structure. One to five
Portfolios, or feeder funds, each designated A, B, C, I or Q invest in each
Fund. (For example a Portfolio seeking capital appreciation by investing in
securities of issuers located in countries with emerging securities markets
invests in the Emerging Countries Fund.) The major variations among the
Portfolios that invest in the same Master Fund are sales charges, expenses,
and investment minimums. The Board of Trustees believes that the aggregate
per share expenses of each Portfolio are no greater than the expenses that a
Portfolio would incur if it retained the services of an investment adviser
and invested assets directly into the types of securities held by the Fund.
You can obtain more information about the I and Q Portfolios from your
Investment Representative, or from Nicholas-Applegate Securities at telephone
(800) 551-8643.
A Board of Trustees supervises the overall activities of the Master Trust.
The Board selects an investment adviser, an administrator, and a custodian
for the Fund. The Board has the right to terminate these relationships and
retain a different company if it believes it is in the best interests of the
Master Trust.
A separate Board of Trustees supervise the overall activities of the Trust.
It selects the master fund in which to invest, a distributor to market its
shares to investors, a transfer agent, administrators, and others to provide
services. Individual investors purchase shares of the Portfolios through
financial intermediaries or directly from the Trust.
Each Portfolio may withdraw its investment from the corresponding Fund at
any time if the Board determines that it is in the best interests of the
shareholders and only with approval of the Portfolio's shareholders. In that
event, the Board of Trustees would consider alternative arrangements such as
investing a Portfolio's assets in another investment company with the same
investment objectives as the Portfolio or hiring an investment manager to
invest the assets in accordance with the Portfolio's investment policies.
A Portfolio may also be liquidated at any time by the shareholders. The net
proceeds of any liquidation will be distribute to all shareholders in
proportion to their respective holdings.
Whenever a Portfolio is requested to vote, as shareholder, on a matter
pertaining to the corresponding Fund, the Portfolio will hold a meeting of
its shareholders so that shareholders can provide instructions. The
Portfolio will in turn vote in the same proportion as directed by the
shareholders. Approval of changes in a Fund's investment objective,
policies, and limitations by a majority of the Portfolios may require
non-assenting Portfolios to withdraw its investment in the Fund.
MASTER FEEDER STRUCTURE
------------------------
SHAREHOLDERS
------------------------
|
| BUY SHARES IN
|
------------------------
PORTFOLIOS
OF
NICHOLAS-APPLEGATE MUTUAL
FUNDS
------------------------
|
INVEST IN |
|
------------------------
MASTER FUNDS
OF
NICHOLAS-APPLEGATE
INVESTMENT TRUST
------------------------
|
| INVEST IN
|
------------------------
STOCKS, BONDS &
OTHER SECURITIES
------------------------
<PAGE>
INVESTMENT ADVISER COMPENSATION. Each Master Fund pays the Investment
Adviser a fee pursuant to an investment advisory agreement. The Emerging
Countries Fund pays a monthly fee at the annual rate of 1.25% of the Fund's
net assets. The Worldwide and International Growth Fund each pay a monthly
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 Emerging Growth Fund
pays at the annual rate of 1.00% of the Fund's net assets. Each of the Large
Cap Growth, Core Growth Fund, Income & Growth Fund and Balanced Growth Fund
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 Government Income Fund, pays at the
annual rate 0.40% of the fist $500 million of the Fund's net assets, and
0.35% of net assets in excess of $500 million. The Money Market Fund pays at
the annual rate of .25% of the first $500 million of the Fund's net assets,
and .2275% of net assets in excess of $500 million.
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 each Portfolio will not exceed the
following expense ratios on an annual basis through March 31, 1998.
Worldwide Growth Portfolios A, B & C - 1.85%, 2.50%, and 2.50%; International
Small Cap Growth Portfolio A, B & C - 1.95%, 2.60% and 2.60%; Emerging
Countries Portfolio A, B & C - 2.25%, 2.90% and 2.90%; International Core
Growth Portfolios A , B & C - 1.95%, 2.60% and 2.60%; Income and Growth,
Balanced Growth, Large Cap Growth, Core Growth Portfolios A, B & C - 1.60%,
2.25% and 2.25%; Emerging Growth Portfolios A, B & C - 1.95%, 2.60% and
2.60%; Government Income Portfolios A, B & C - .90%, 1.30% and 1.30%. The
Money Market Portfolio - 1.10%. 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 Portfolio are less than
the percentage limitation set forth above for any such year.
ADMINISTRATOR COMPENSATION. The Funds and the Portfolios pay administrative
fees for administrative personnel and services (including certain legal and
financial reporting services). Each Portfolio pays Nicholas-Applegate Capital
Management an annual fee of .10% of net assets. Each Portfolio pays
Investment Company Administration Corporation (ICAC) an annual fee of $5,000
- - $35,000. In addition, each Fund pays ICAC a fee at an annual rate equal to
0.15% of the average net assets of each Fund.
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 Portfolio or that provide
research services to the Master 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 and each Portfolio's investment objective
is fundamental and may only be changed with shareholder approval.
DIVERSIFICATION. All the Funds are diversified.
<PAGE>
PORTFOLIO TEAMS
- --------------------------------------------------------------------------------
EQUITY MANAGEMENT - INTERNATIONAL/GLOBAL
NAME FUND
Catherine Somhegyi, Partner Worldwide Growth
Chief Investment Officer - Global Equity International Core Growth
Management International Small Cap
Joined firm in 1987; prior investment Emerging Countries
experience with Professional Asset Securities, Inc. Emerging Growth
and Pacific Century Advisers Balanced Growth
M.B.A. and B.S. - University of Southern Income and Growth
California
Larry Speidell, Partner, CFA Worldwide Growth
Director of Global/Systematic Portfolio Balanced Growth
Management and Research
Joined firm in 1994; 23 years prior investment
experience with Batterymarch Financial Management
and Putnam Management Company
M.B.A. - Harvard University;
B.E. - Yale University
John J. Kane, Partner Worldwide Growth
Portfolio Manager - U.S. Systematic International Core Growth
Joined firm in 1994; 25 years prior International Small Cap
investment/economics experience with ARCO Emerging Countries
Investment Management Company and General Balanced Growth
Electric Company
M.A. and B.A. - Columbia University;
M.B.A. - University of California, Los Angeles
Ernesto Ramos, Ph.D. Worldwide Growth
Portfolio Manager - International International Core Growth
Joined firm in 1994; 14 years prior investment and International Small Cap
quantitative research experience with Batterymarch
Financial Management; Bolt Beranek & Newman Inc.;
and Harvard University
Ph.D. - Harvard University;
B.S. - Massachusetts Institute of Technology
Loretta J. Morris Worldwide Growth
Portfolio Manager - International; International Core Growth
Joined firm in 1990; 10 years prior investment International Small Cap
experience with Collins Associates
Attended California State University, Long Beach;
CFA Level II candidate
Alex Muromcew Worldwide Growth
Portfolio Manager - International International Core Growth
Joined firm in 1996; 6 years prior investment International Small Cap
experience with Jardine Fleming Securities
(Japan); Emerging Markets Investors Corporation;
Teton Partners LP
M.B.A. - Stanford University,
B.A. - Dartmouth College
<PAGE>
Pedro V. Marcal Worldwide Growth
Portfolio Manager - Emerging Countries Emerging Countries
Joined firm in 1994; 5 years prior investment
experience with A. B. Laffer, V. A. Canto &
Associates; and A-Mark Precious Metals
B.A. - University of California, San Diego
Aaron Harris Emerging Countries
Portfolio Manager - Emerging Countries
Joined the firm in 1995; prior experience
at Chemical Bank
B.A. - Princeton University
Eswar Menon Emerging Countries
Portfolio Manager - Emerging Countries
Joined firm in 1995; 5 years prior 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.
EQUITY MANAGEMENT- U.S.
John C. Marshall, Jr., Partner Core Growth
Chief Investment Officer - Institutional Equity
Management
Joined firm in 1989; 8 years prior investment
experience with Pacific Century Advisers; San
Diego Trust & Savings Bank; Howard, Weil,
Labouisse, Friedrichs Inc.
M.B.A. and B.B.A. - Southern Methodist University
Andrew B. Gallagher Core Growth
Portfolio Manager
Joined firm in 1992; 7 years prior investment
experience with Pacific Century Advisors and
Sentinel Asset Management, Inc.
M.B.A. - San Diego State University;
B.A. - University of California, Irvine
Thomas J. Sullivan Core Growth
Portfolio Manager
Joined firm in 1994; 2 years prior investment
experience with Donaldson, Lufkin & Jenrette
Securities Corp.
B.S. - Rochester Institute of Technology
Maren Lindstrom Core Growth
Portfolio Manager Income and Growth
Joined firm in 1994; 5 years prior investment
experience with Societe Generale; Banque D'Orsay;
and Prudential Asset Management
M.B.A. - University of California, Los Angeles;
B.A. - University of Michigan
Catherine Somhegyi, Partner Emerging Growth
Chief Investment Officer
Joined firm 1987.
M.B.A. and B.S. - University of Southern
California
<PAGE>
Thomas E. Bleakley Emerging Growth
Portfolio Manager experience with AEGON USA
Joined firm in 1995; 3 years prior investment
experience with Twentieth Century Investors and
Dell Computer Corporation
B.B.A. - University of Iowa
M.B.A. - University of Texas; B.S. - Boston
University
Ronald J. Krystyniak CFA Emerging Growth
Portfolio Manager
Joined firm in 1996; 7 years prior experience with
Pilgrim Baxter & Associates and Peterson
Consulting & Company
B.S. - Syracuse University
John C. McCraw Emerging Growth
Portfolio Manager
Joined firm in 1992; prior experience with
Nations Bank
M.B.A. - University of California, Irvine;
B.A. - Flagler College
Sandra K. Durn Income and Growth
Portfolio Manager
Joined firm in 1994; prior experience at Science
Solutions, Inc. and San Diego State
University, economics department
M.A. - San Diego State University;
B.A. - University of Maryland
FIXED INCOME
Fred S. Robertson, III, Partner, Balanced Growth
BlaChief Investment Officer - Fixed Income Government Income
Joined firm in 1995; 7 years prior investment Money Market
experience with Criterion Investment Management
Company; 5 years prior investment experience with
DuPont Chemical Pension Fund
M.B.A. - College of William and Mary;
B.S. - Cornell University
James E. Kellerman, Partner Government Income
Portfolio Manager Money Market
Joined firm in 1995; 4 years prior investment
experience with Criterion Investment Management
Company; 8 years prior investment experience with
Brown Brothers Harriman and Equitable Life
Insurance Co.
M.B.A. - St. John's University;
B.B.A. - Susquehanna University
Susan Malone Government Income
Portfolio Manager
Joined firm in 1996; 7 years prior investment
experience with BEA Associates
M.B.A. - New York University;
B.S. - Carnegie Mellon University
Malcom S. Day, CFA Government Income
Portfolio Manager Money Market
Joined firm in 1995; 3 years prior investment
experience with Payden & Rygel
M.B.A. - University of California, Los Angeles;
B.S. - Northern University
<PAGE>
Douglas Forsyth, CFA Government Income
Portfolio Manager
Joined firm in 1994; 3 years prior investment
<PAGE>
RISK FACTORS AND SPECIAL
CONSIDERATIONS
- -------------------------------------------------------------------------------
MUTUAL FUND CONSIDERATIONS IN GENERAL
Prospective investors should know that any mutual fund investment is subject
to normal 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. Given the
fact that the Portfolios may charge a sales related fee, you should consider
an investment in any of the Portfolios as a long-term investment.
GLOBAL INVESTING CONSIDERATIONS
CURRENCY FLUCTUATIONS
Because the assets of each Fund 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: (1) authoritarian governments; (2) popular
unrest associated with demands for improved political, economic and social
conditions; (3) internal insurgencies and terrorist activities; (4) hostile
relations with neighboring countries; and (5) 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.
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 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.
<PAGE>
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 it could result in the Fund
being unable to sell a security in a falling market.
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.
THE FUNDS' INVESTMENTS
EQUITY SECURITIES. Each of the Funds (except Government Income Fund) may
buy equity securities, including common stocks, convertible securities, and
warrants. Equity securities represent an ownership in a company. 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. Each Fund (except the Government Income Fund) may invest in
small to medium sized companies. 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. Each Fund may invest in 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. Each Fund may invest in 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.
Each Fund, except Balanced Growth and Income & Growth, will purchase debt
obligations only if they are deemed investment grade -- that is, they carry a
rating of at least BAA from Moody's or BBB from Standard and Poor's, or
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 (except
Balanced Growth and Income & Growth) intend to dispose, in an orderly manner,
of any security which is downgraded below investment grade.
<PAGE>
LOWER RATED SECURITIES CONSIDERATIONS. The Balanced Growth Fund and the
Income & Growth Fund may invest in debt and convertible securities that are
not in the four highest rating categories but will in no event purchase
securities rated below "C" or equivalent. A description of these rating
categories is contained in this Prospectus.
Lower rated debt securities, commonly referred to as "junk bonds", and
convertible securities will usually offer higher yields than the higher rated
securities because of reduced creditworthiness and increased risk of default.
Lower rated or unrated debt obligations are more likely to react to
developments affecting market and credit risks than are the more highly rated
securities, which reach primarily to movements in general level of interest
rates. In the past, economic downturns or increases in interest rates have
caused a higher incidence of default by the 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 that 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 quality securities generally tend to be more volatile and
the market less liquid than those of investment grade securities.
Consequently, the Funds may at times experience difficulty in liquidating
their investments at the desired time and price.
In purchasing such securities, the Investment Adviser will rely on its
analysis, judgment and experience in evaluating the creditworthiness of the
issuer of such securities. The Investment Adviser will consider, among other
things, the issuer's financial resources, its operating history, its
sensitivity to economic conditions and trends, the quality of issuer's
management and regulatory matters.
As of the fiscal year ended March 31, 1997, the Balanced Growth Fund owned as
a percentage of total value lower rated securites in the following amounts:
BB - 11.68%, B - 10.37%, CCC - 1.83%.
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.
MORTGAGE RELATED SECURITIES. Each Fund, and in particular the Government
Income Fund, may invest in mortgage related securities. Collateralized
mortgage obligations ("CMOs") are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are
collateralized by certificates issued or guaranteed by the U.S. government,
its agencies or instrumentalities, such as GNMA or FNMA. They may also be
collateralized by whole loans or Private Pass-Throughs (collectively known as
"Mortgage Assets"). Multiclass pass-through securities are equity interests
in a trust composed of Mortgage Assets. Payments of principal and interest
on the Mortgage Assets provide the funds to pay the debt service and make
scheduled distribution payments.
In a CMO, a series of bonds is issued in multiple classes referred to as a
"tranche." Each tranche is issued at a fixed or floating coupon rate and has
a stated maturity or final distribution date. The principal of and interest
on the Mortgage Assets may be allocated among the several tranches in
innumerable ways. The Funds intend to invest only in those tranches that have
the highest priority among the other tranches in terms of receiving principal
and interest.
Because the mortgages underlying CMOs may be prepaid without penalty or
premium, CMOs are generally subject to higher prepayment risks than most
other types of debt instruments. Prepayment risks tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable market rates.
Accordingly, CMOs may be a less effective means of "locking in" interest
rates than other types of debt securities having the same maturity and may
also have less potential for capital appreciation. The Funds intend to
invest only in those tranches whose prepayments are allocated last among the
tranches in order to reduce the risk of prepayment.
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
<PAGE>
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,
cannot be offered for public sale in the U.S. without first being registered
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 of the Master Trust.
SHORT SALES. The Worldwide, International Growth, Core Growth and Emerging
Growth Funds may maintain short positions in securities. 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 assets to
be segregated.
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. 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%
<PAGE>
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 To the extent a Fund invests in foreign
securities, it 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 The 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 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.
<PAGE>
NEW ACCOUNT FORM (NON-RETIREMENT)
MAIL TO:
Nicholas|Applegate Mutual Funds
PO Box 8326
Boston, MA 02266-8326
1. YOUR ACCOUNT REGISTRATION
Please print. Complete one section only. Joint account owners will be
registered joint tenants with the right of survivorship unless otherwise
indicated. It is the shareholder(s) responsibility to specify ownership
designations which comply with applicable state law.
/ / INDIVIDUAL OR JOINT ACCOUNT
- ----------------------------------------------------------------------
First Name Middle Initial Last Name
- -
- ----- ------- --------
Social Security Number
- ----------------------------------------------------------------------
Joint Tenant (if any) Middle Initial Last Name
- -
- ----- -------- -------
Social Security Number
/ / GIFT OR TRANSFER TO MINOR
- ----------------------------------------------------------------------
Name of Custodian (one only)
As Custodian For
------------------------------------------------------
Minor's Name (only one)
Under Uniform Gifts/Transfers to Minors Act
(select one)
- ----------------------------------------------------------------------
(Minor's State of Residence) Minor's S.S.# Birth Date
/ / CORPORATION, PARTNERSHIP, OR OTHER ENTITY (CORPORATE RESOLUTION REQUIRED)
- ----------------------------------------------------------------------
Registration
- ----------------------------------------------------------------------
Registration
- ----------------------------------------------------------------------
Registration
- ----------------------------------------------------------------------
Officers, Trustees or Partners if Part of Registration
- ----------------------------------------------------------------------
Officers, Trustees or Partners if Part of Registration
-
- ---------- --------------------
Taxpayer Identification Number
2. YOUR ADDRESS
Do you have any other identically registered Nicholas|Applegate accounts?
/ / Yes / / No
Citizenship:
/ / U.S. / / Resident Alien / / Non-resident Alien
--------------------
specify country
- ------------------------------------------------------------------------
Street Address or PO Box Number Apartment Number
- ------------------------------------------------------------------------
City State ZIP
Code
( )
----- -----------------------------------------------------------------
Area Code Daytime Phone
( )
----- -----------------------------------------------------------------
Area Code Evening Phone
3. YOUR INVESTMENT
- - Please select your fund choices and appropriate share class.
- - See prospectus for investment minimums.
CLASS CLASS CLASS
AMOUNT
- ----------------------------------------------------------------------------
Emerging Growth A(357)/ / B(765)/ / C(358)/ / $
- ------------------------------------------------------------------------------
Core Growth A(360)/ / B(758)/ / C(366)/ / $
- ------------------------------------------------------------------------------
Income & Growth A(361)/ / B(759)/ / C(367)/ / $
- ------------------------------------------------------------------------------
Balanced Growth A(362)/ / B(760)/ / C(368)/ / $
- ------------------------------------------------------------------------------
Government Income A(364)/ / B(762)/ / C(370)/ / $
- ------------------------------------------------------------------------------
Money Market A(365)/ / $
- ------------------------------------------------------------------------------
Worldwide Growth A(363)/ / B(761)/ / C(369)/ / $
- ------------------------------------------------------------------------------
International Small Cap A(353)/ / B(764)/ / C(355)/ / $
- ------------------------------------------------------------------------------
International Core Grth A(674)/ / B(675)/ / C(754)/ / $
- ------------------------------------------------------------------------------
Emerging Countries A(177)/ / B(766)/ / C(178)/ / $
- ------------------------------------------------------------------------------
Total $
- ------------------------------------------------------------------------------
4. YOUR METHOD OF PAYMENT
/ / By Check: Payable to Nicholas|Applegate Mutual Funds
/ / By Wire: Please call 1-800-551-8043 for your account number
/ / By Exchange: Portfolio from which you are exchanging
/ / By Confirm Trade Order: Trade Order #---------------------------
- ----------------------------------------------------------------------
<PAGE>
5. TO REDUCE YOUR SALES CHARGE
/ / AGGREGATION/COMBINED PURCHASES - you may aggregate investments for yourself
and your immediate family as well as through concurrent purchases of shares of
two or more of the Nicholas|Applegate Series A Portfolios.
/ / RIGHTS OF ACCUMULATION - list below the account numbers of all shares of
other Nicholas|Applegate funds that you and your immediate family already owns.
I apply for reduced sales charges subject to the Agent's confirmation of the
following holdings of my account(s) of eligible related investors as described
in the applicable Prospectus.
- --------------------------------------------------------------------------
FUND SHAREHOLDER(S) & RELATIONSHIP ACCOUNT NO. (IF KNOWN)
- --------------------------------------------------------------------------
FUND SHAREHOLDER(S) & RELATIONSHIP ACCOUNT NO. (IF KNOWN)
/ / NET ASSET VALUE FOR RETIREMENT PLANS - I certify that I am purchasing shares
for a Retirement Plan of an organization with 50 or more eligible employees.
6. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS
All dividends and capital gains will be reinvested unless you indicate
otherwise.
/ / ALL CASH OPTION: Pay all dividends and capital gains to me by check.
/ / CASH DIVIDEND OPTION: Pay all dividends by check and reinvest all capital
gains.
/ / CASH CAPITAL GAINS OPTION: Reinvest all dividends and pay all capital gains
by check.
/ / *CROSS REINVESTMENT: Cross Reinvest all Dividends and capital gains into an
existing account in another Nicholas|Applegate Portfolio.
FROM
- ----------------------------------------------------------------------
PORTFOLIO NAME
TO
- ----------------------------------------------------------------------
PORTFOLIO NAME
*Must be same account type and class of shares. Must be a $5,000 minimum
account value for this service.
SERVICE OPTIONS
7. TELEPHONE REDEMPTIONS AND EXCHANGES
/ / I authorize redemption of Portfolio shares upon telephone instructions.
Please see prospectus for more information.
If box is not checked, the telephone redemption privilege WILL NOT be provided.
/ / I authorize Nicholas|Applegate Mutual Funds to allow exchanges between or
among the Portfolios upon telephone instructions from me (must be same series
and same registration on account).
If box is not checked, the telephone exchange privilege will not be provided.
8. SYSTEMATIC EXCHANGES
Important: The account registrations for the originating and receiving funds
must be identical. Please see prospectus for more information.
/ / I authorize automatic exchanges of $ ($50
minimum) -------------------
From fund name
----------------------------------------
Into fund name
----------------------------------------
account number (if known)
-----------------------------
- --------------------------------------------------------------------
Exchanges should be made on the ______ (provide date) of every
______month or ___quarter (Jan/April/July/Oct)
- --------------------------------------------------------------------
9. SYSTEMATIC INVESTMENT/WITHDRAWAL PROGRAM
Telephone Investment/Withdrawal Program
/ / I authorize Nicholas-Applegate Mutual Funds to act upon telephone
instructions for investments into or withdrawals from my mutual fund account via
ACH (Automated Clearing House).
COMPLETE CHECKING/SAVINGS ACCOUNT INFORMATION SECTION.*
Systematic Investment - to my mutual fund account
/ / I authorize Nicholas-Applegate Mutual Funds to process investments into my
mutual fund (via ACH) account on the following:
- ----------------------------------------------------------------------
Purchases should be made on the __________ (provide date) of every
______month or ___quarter (Jan/April/July/Oct)
Name of Portfolio(s)
--------------------------------------------------
Amount-----------------
($50 minimum)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Purchases should be made on the __________ (provide date) of every
______month or ___quarter (Jan/April/July/Oct)
Name of Portfolio(s)
--------------------------------------------------
Amount
------------------
($50 minimum)
- ----------------------------------------------------------------------
Systematic Withdrawal - from my mutual fund account via ACH (if by check, go to
next section)
/ / I authorize Nicholas-Applegate Mutual Funds to process withdrawals from my
Mutual Fund Account in each of the following months:
- ----------------------------------------------------------------------
Redemptions should be made on the _______ (provide date) of every
______month or ___quarter (Jan/April/July/Oct)
Name of Portfolio(s)
--------------------------------------------------
Amount
------------------
($50 minimum, $5,000 minimum balance required)
- ----------------------------------------------------------------------
Systematic Withdrawal - from my mutual fund account by
check
<PAGE>
/ / I authorize Nicholas-Applegate Mutual Funds to process withdrawals from my
Mutual Fund account in each of the following months:
- ----------------------------------------------------------------------
Redemptions will be made on the 15th (or next business day) of every
______month or ___quarter (Jan/April/July/Oct)
Name of Portfolio(s)
--------------------------------------------------
Amount
------------------
($50 minimum, $5,000 minimum balance required)
Send proceeds to: ________Address of my mutual fund account
________Special Payee (as listed below)
- ----------------------------------------------------------------------
Special Payee
- ----------------------------------------------------------------------
Street Address, Box Number Apt #
- ----------------------------------------------------------------------
City State Zip Code
- ----------------------------------------------------------------------
Checking/Savings Account Information
Please complete section below or attach a voided check or deposit ticket for
ACH, systematic investment/withdrawak or telephone redemption privileges.
Indicate services requested
/ / ACH / / Telephone Redemption by Wire
Institution Name (please print)
---------------------------------------
Institution address
---------------------------------------------------
City State Zip Code
------------------- -------- ----------------
Account Type: Checking
-----------
Savings
------------------------
ABA Routing Number
----------------------------------------------------
Account Number
--------------------------------------------------------
Name(s) on Account
----------------------------------------------------
10. DEALER INFORMATION
- ----------------------------------------------------------------------
HOME OFFICE INFORMATION
(TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)
( )
- ----------------------------------------------------------------------
Dealer Name and Number (if known) Phone
- ----------------------------------------------------------------------
Home Office Address
- ----------------------------------------------------------------------
City State ZIP Code
BRANCH OFFICE INFORMATION
( )
- ----------------------------------------------------------------------
Branch Office Number Phone
- ----------------------------------------------------------------------
Branch Office Address
- ----------------------------------------------------------------------
City State ZIP Code
REPRESENTATIVE INFORMATION
- ----------------------------------------------------------------------
Representative's Name Rep Number
- ----------------------------------------------------------------------
11. SIGNATURES
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand that
the prospectus terms are incorporated into this New Account Form by reference.
- - I authorize the Nicholas-Applegate Funds, their affiliates and agents to
act on any instructions believed to be genuine for any service authorized
on this form. I agree they will not be liable for any resulting loss or
expense.
- - I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
- - I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
- - I understand that mutual funds involve risks, including possible loss of
principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form, the
Nicholas-Applegate Funds may reject or redeem my investment. I may also be
subject to any applicable IRS Backup Withholding for all distributions and
redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Funds, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.
- ----------------------------------------------------------------------
Shareowner, custodian, trustee or authorized officer
Date
- ----------------------------------------------------------------------
<PAGE>
Joint owner, custodian, trustee or authorized officer
Date
123SECURITIES
<PAGE>
[back cover: Nicholas Applegate logo with address lower left hand corner]
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 Portfolios.
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
<PAGE>
NICHOLAS-APPLEGATE-Registered Trademark- MUTUAL FUNDS
SERIES A, B AND C PORTFOLIOS
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8043
STATEMENT OF ADDITIONAL INFORMATION
________, 1997
Nicholas-Applegate Mutual Funds (the "Trust") is an open-end
management investment company currently offering a number of separate
diversified portfolios. This Statement of Additional Information contains
information regarding 31 of these portfolios (each a "Portfolio" and
collectively the "Portfolios"): Nicholas-Applegate Large Cap Growth Portfolio
A, Portfolio B and Portfolio C (the "Large Cap Portfolios"); Nicholas-Applegate
Core Growth Portfolio A, Portfolio B and Portfolio C (the "Core Growth
Portfolios"); Nicholas-Applegate Emerging Growth Portfolio A, Portfolio B and
Portfolio C (the "Emerging Growth Portfolios"); Nicholas-Applegate Income &
Growth Portfolio A, Portfolio B and Portfolio C (the "Income & Growth
Portfolios"); Nicholas-Applegate Balanced Growth Portfolio A, Portfolio B and
Portfolio C (the "Balanced Portfolios"); Nicholas-Applegate Worldwide Growth
Portfolio A, Portfolio B and Portfolio C (the "Worldwide Portfolios");
Nicholas-Applegate International Core Growth Portfolio A, Portfolio B and
Portfolio C (the "International Core Growth Portfolios"); Nicholas-Applegate
International Small Cap Growth Portfolio A, Portfolio B, and Portfolio C (the
"International Small Cap Portfolios"); Nicholas-Applegate Emerging Countries
Portfolio A, Portfolio B and Portfolio C (the "Emerging Countries Portfolios");
Nicholas-Applegate Government Income Portfolio A, Portfolio B and Portfolio C
(the "Government Portfolios"); and Nicholas-Applegate Money Market Portfolio
(the "Money Market Portfolio").
This Statement of Additional Information is not a prospectus, but
contains information in addition to and more detailed than that set forth in the
Portfolios' Prospectus and should be read in conjunction with such Prospectus.
The Prospectus may be obtained without charge by calling or writing the Trust at
the address and phone number given above.
TABLE OF CONTENTS
PAGE
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General Information B-2
Investment Objectives, Policies and Risks B-2
Investment Restrictions B-29
Principal Holders of Securities B-33
Trustees and Principal Officers B-34
Investment Adviser B-37
Administrators B-40
Distributor B-41
Portfolio Transactions and Brokerage B-46
Purchase and Redemption of Portfolio Shares B-47
Shareholder Services B-51
Net Asset Value B-52
Dividends, Distributions and Taxes B-54
Performance Information B-60
Custodian, Transfer and Dividend Disbursing Agent,
Independent Auditors and Legal Counsel B-71
Miscellaneous B-72
Appendix A - Description of Securities Ratings A-1
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GENERAL INFORMATION
The Trust and the Master Trust were organized in December 1992 as
business trusts under the laws of Delaware. Information regarding 31 of the
Portfolios of the Trust is included in this Statement of Additional Information.
Ten Portfolios (each a "Series A Portfolio" and collectively the "Series A
Portfolios") have an initial sales charge and lower annual distribution fees;
ten Portfolios (each a "Series B Portfolio" and collectively the "Series B
Portfolios") have a contingent deferred sales charge and annual distribution
fees; ten Portfolios (each a "Series C Portfolio" and collectively the "Series
C Portfolios") have a different contingent deferred sales charge and annual
distribution fees; and one Money Market Portfolio has no initial or contingent
deferred sales charges and lower annual distribution fees.
The various Portfolios of the Trust seek to achieve their respective
investment objectives by investing all of their assets in corresponding series
of the Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified
open-end management investment company organized as a Delaware business trust.
The Master Trust offers shares of eleven separate series (each a "Fund" and
collectively the "Funds") to the Portfolios and other investment companies and
institutional investors: The Nicholas-Applegate Large Cap Growth Fund, in which
the Large Cap Portfolios invest (the "Large Cap Fund"); the Nicholas-Applegate
Core Growth Fund (the "Core Growth Fund"), in which the Core Growth Portfolios
invest; the Nicholas-Applegate Emerging Growth Fund (the "Emerging Growth
Fund"), in which the Emerging Growth Portfolios invest; the Nicholas-Applegate
Income & Growth Fund (the "Income & Growth Fund"), in which the Income & Growth
Portfolios invest; the Nicholas-Applegate Balanced Fund (the "Balanced Fund"),
in which the Balanced Growth Portfolios invest; the Nicholas-Applegate Worldwide
Growth Fund (the "Worldwide Fund"), in which the Worldwide Portfolios invest;
the Nicholas-Applegate International Core Growth Fund (the "International Core
Growth Fund"), in which the International Core Growth Portfolios invest; the
Nicholas-Applegate International Small Cap Growth Fund (the "International Small
Cap Fund"), in which the International Small Cap Portfolios invest; the
Nicholas-Applegate Emerging Countries Fund (the "Emerging Countries Fund"), in
which the Emerging Countries Portfolios invest; the Nicholas-Applegate
Government Income Fund (the "Government Fund"), in which the Government
Portfolios invest; and the Nicholas-Applegate Money Market Fund (the "Money
Market Fund"), in which the Money Market Portfolio invests.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The following discussion supplements the discussion of each
Portfolio's investment objective and policies as set forth in the Portfolios'
Prospectus. As each Portfolio seeks to achieve its investment objective by
investing all of its assets in a corresponding Fund with the same investment
objective as the Portfolio, the following discussion describes the various
investment policies and techniques employed by the Funds. There can be no
assurance that the investment objective of any of the Funds or Portfolios can be
achieved.
EQUITY SECURITIES OF GROWTH COMPANIES
Each Fund (except the Government and Money Market Funds) may invest
in equity securities of domestic and foreign companies, the earnings and stock
prices of which are expected by the Master Trust's Investment Adviser to grow at
an above-average rate. Such investments will be diversified over a
cross-section of industries and individual companies. For Funds other than the
Large Cap Fund, some of these companies will be organizations with market
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capitalizations of $500 million or less or companies that have limited product
lines, markets and financial resources and are dependent upon a limited
management group. Examples of possible investments include emerging growth
companies employing new technology, cyclical companies, initial public offerings
of companies offering high growth potential, or other corporations offering good
potential for high growth in market value. The securities of such companies may
be subject to more abrupt or erratic market movements than larger, more
established companies both because the securities typically are traded in lower
volume and because the issuers typically are subject to a greater degree to
changes in earnings and prospects.
PREFERRED STOCK
Each Fund (except the Money Market Fund) may invest in preferred
stock. Preferred stock, unlike common stock, offers a stated dividend rate
payable from a corporation's earnings. Such preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. If interest rate
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory
sinking fund provisions, as well as call/redemption provisions prior to
maturity, a negative feature when interest rates decline. Dividends on some
preferred stock may be "cumulative," requiring all or a portion of prior unpaid
dividends to be paid before dividends are paid on the issuer's common stock.
Preferred stock also generally has a preference over common stock on the
distribution of a corporation's assets in the event of liquidation of the
corporation, and may be "participating," which means that it may be entitled to
a dividend exceeding the stated dividend in certain cases. The rights of
preferred stocks on the distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
CONVERTIBLE SECURITIES AND WARRANTS
Each Fund (except the Money Market Fund) may invest in convertible
securities and warrants. A convertible security is a fixed income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The credit standing of the issuer
and other factors may also affect the investment value of a convertible
security. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value.
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Like other debt securities, the market value of convertible debt
securities tends to vary inversely with the level of interest rates. The value
of the security declines as interest rates increase and increases as interest
rates decline. Although under normal market conditions longer term debt
securities have greater yields than do shorter term debt securities of similar
quality, they are subject to greater price fluctuations. A convertible security
may be subject to redemption at the option of the issuer at a price established
in the instrument governing the convertible security. If a convertible security
held by a Fund is called for redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the underlying common stock or
sell it to a third party. Convertible debt securities purchased by the Funds,
which are acquired in whole or substantial part for their equity
characteristics, are not subject to rating requirements.
As a matter of operating policy, no Fund will invest more than 5% of
its net assets in warrants. A warrant gives the holder a right to purchase at
any time during a specified period a predetermined number of shares of common
stock at a fixed price. Unlike convertible debt securities or preferred stock,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment therein).
SYNTHETIC CONVERTIBLE SECURITIES.
The Income & Growth Fund may invest in "synthetic" convertible
securities, which are derivative positions composed of two or more different
securities whose investment characteristics, taken together, resemble those of
convertible securities. For example, the Fund may purchase a non-convertible
debt security and a warrant or option, which enables the Fund to have a
convertible-like position with respect to a company, group of companies or stock
index. Synthetic convertible securities are typically offered by financial
institutions and investment banks in private placement transactions. Upon
conversion, the Fund generally receives an amount in cash equal to the
difference between the conversion price and the then current value of the
underlying security. Unlike a true convertible security, a synthetic
convertible comprises two or more separate securities, each with its own market
value. Therefore, the market value of a synthetic convertible is the sum of the
values of its fixed-income component and its convertible component. For this
reason, the values of a synthetic convertible and a true convertible security
may respond differently to market fluctuations. The Fund only invests in
synthetic convertibles with respect to companies whose corporate debt securities
are rated "A" or higher by Moody's or "A" or higher by S&P and will not invest
more than 15% of its net assets in such synthetic securities and other illiquid
securities.
EURODOLLAR CONVERTIBLE SECURITIES
The Income & Growth Fund may invest in Eurodollar convertible
securities, which are fixed-income securities of a U.S. issuer or a foreign
issuer that are issued outside the United States and are convertible into or
exchangeable for equity securities of the same or a difference issuer. Interest
and dividends on Eurodollar securities are payable in U.S. dollars outside of
the United States. The Fund may invest without limitation in Eurodollar
convertible securities that are convertible into or exchangeable for foreign
equity securities listed, or represented by ADRs listed, on the New York Stock
Exchange or the American Stock Exchange or convertible into or exchangeable for
publicly traded common stock of U.S. companies. The Fund may also invest up to
15% of its total assets invested in convertible securities, taken at market
value, in Eurodollar convertible
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securities that are convertible into or exchangeable for foreign equity
securities which are not listed, or represented by ADRs listed, on such
exchanges.
OTHER CORPORATE DEBT SECURITIES
Each Fund may invest in non-convertible debt securities of foreign
and domestic companies over a cross-section of industries. The debt securities
in which such Funds may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.
RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short,
intermediate, and long-term securities depend on a variety of factors, including
the general condition of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. Debt
securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with short maturities and lower yields. The market prices of
debt securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of such portfolio investments,
and a decline in interest rates will generally increase the value of such
portfolio investments. In addition, a Fund's return on the debt securities in
which it invests depends on the continuing ability of the issuers of such debt
securities to meet their obligations for the payment of interest and principal
when due.
RISKS OF INVESTING IN LOWER-RATED DEBT SECURITIES
The Income & Growth and Balanced Funds may invest a portion of their
net assets in debt securities rated below "Baa" by Moody's or "BBB" by S&P or
below investment grade by other recognized rating agencies or in unrated
securities of comparable quality under certain circumstances. However, the
Income & Growth and Balanced Growth Funds will in no event purchase securities
rated below "C" or equivalent by Moody's, S&P or another rating agency, or
determined by the Investment Adviser to be of comparable quality. Debt
securities with such ratings are predominantly speculative with respect to the
capacity of the issuer to pay interest and repay principal. Non-rated
securities will also be considered for investment when the Investment Adviser
believes that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limit the risk to
a Fund to a degree comparable to that of rated securities which are consistent
with the Fund's investment objective and policies. See "Appendix A: Description
of Securities Ratings" for a description of credit ratings.
Securities with ratings below "Baa" and/or "BBB" are commonly referred
to as "junk bonds." Such bonds are subject to greater market fluctuations and
risk of loss of income and principal than higher rated bonds for a variety of
reasons, including the following:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and
interest rates affect high yield securities differently from other securities.
For example, the prices of high
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yield bonds have been found to be less sensitive to interest rate changes than
higher-rated investments, but more sensitive to adverse economic changes or
individual corporate developments. Also, during an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest obligations, to meet projected business
goals, and to obtain additional financing. If the issuer of a bond defaults,
the Funds may incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield bonds and the Funds' asset values.
PAYMENT EXPECTATIONS. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call provisions. If an issuer exercises these provisions in a declining interest
rate market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If a Fund experiences unexpected net redemptions,
it may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.
LIQUIDITY AND VALUATION. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact the Investment Adviser's ability to accurately value high yield bonds
and the Fund's assets and hinder the Fund's ability to dispose of the bonds.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. The rating of
an issuer is also heavily weighted by past developments and does not necessarily
reflect probable future conditions. There is frequently a lag between the time
a rating is assigned and the time it is updated. Also, since credit rating
agencies may fail to timely change the credit ratings to reflect subsequent
events, the Investment Adviser must monitor the issuers of high yield bonds in
the Funds' portfolios to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to assure the
bonds' liquidity so the Funds can meet redemption requests. The Income &
Growth and Balanced Funds will not retain more than 35% of their respective net
assets in non-investment grade securities, and the other Funds will not retain
more than 5% of their respective net assets in such securities.
SHORT-TERM INVESTMENTS
Each fund may invest in short-term investments to maintain liquidity
for redemptions or during periods when, in the opinion of the Investment
Adviser, attractive investments are not available. Each Fund may invest in any
of the following securities and instruments:
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
The Funds may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value
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of the instrument on maturity. Certificates of deposit and bankers' acceptances
acquired by the Funds will be dollar-denominated obligations of domestic or
foreign banks or financial institutions which at the time of purchase have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government.
A Fund holding instruments of foreign banks or financial institutions
may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. See "Foreign Investments" below. Such risks include
future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that a Fund
may acquire.
In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under their respective investment
objectives and policies stated above and in their Prospectuses, a Fund may make
interest-bearing time or other interest-bearing deposits in commercial or
savings banks. Time deposits are non-negotiable deposits maintained at a
banking institution for a specified period of time at a specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. The Funds may invest in certificates
of deposit (interest-bearing time deposits) issued by savings banks or savings
and loan associations that have capital, surplus and undivided profits in
excess of $100 million, based on latest published reports, or less than $100
million if the principal amount of such obligations is fully insured by the U.S.
Government.
COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS.
The Funds may invest a portion of their assets in commercial paper and
short-term notes. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper and short-term notes will normally
have maturities of less than nine months and fixed rates of return, although
such instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-l" or "Prime-2" by Moody's,
or similarly rated by another
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nationally recognized statistical rating organization or, if unrated, will be
determined by the Investment Adviser to be of comparable quality. These rating
symbols are described in Appendix A.
Corporate obligations include bonds and notes issued by corporations
to finance longer-term credit needs than supported by commercial paper. While
such obligations generally have maturities of ten years or more, the Funds may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
MONEY MARKET FUNDS
Each Fund may under certain circumstances invest a portion of its
assets in money market funds. The Investment Company Act prohibits a Fund from
investing more than 5% of the value of its total assets in any one investment
company, or more than 10% of the value of its total assets in investment
companies as a group, and also restricts a Fund's investment in any investment
company to 3% of the voting securities of such investment company. In addition
to the advisory and other fees paid by a Fund, investment in an investment in a
money market mutual fund will involve payment by a Fund of its pro rata share of
advisory and administrative fees charged by such fund.
GOVERNMENT OBLIGATIONS
Each Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The International Core Growth, Worldwide, International Small Cap and
Emerging Countries Funds may invest in sovereign debt obligations of foreign
countries. A sovereign debtor's willingness or ability to repay principal and
interest in a timely manner may be affected by a number of factors, including
its cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which it
may be subject. Emerging market governments could default on their sovereign
debt. Such sovereign debtors also may be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities abroad to
reduce principal and interest arrearages on their debt. The commitments on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a sovereign
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debtor's implementation of economic reforms and/or economic performance and the
timely service of such debtor's obligations. Failure to meet such conditions
could result in the cancellation of such third parties' commitments to lend
funds to the sovereign debtor, which may further impair such debtor's ability or
willingness to service its debt in a timely manner.
ZERO COUPON SECURITIES
The Income & Growth, Balanced, and Government Funds may each invest up
to 35% of its net assets in zero coupon securities issued or guaranteed by the
U.S. Government and its agencies and instrumentalities. Zero coupon securities
may be issued by the U.S. Treasury or by a U.S. Government agency, authority or
instrumentality (such as the Student Loan Marketing Association or the
Resolution Funding Corporation). In addition, the Money Market Fund may invest
up to 5% of its net assets in separately trade interest and principal component
parts of U.S. Treasury securities that are sold as zero coupon securities and
are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS") and Coupons Under
Book Entry Safekeeping ("CUBES"). Zero coupon securities are sold at a
substantial discount from face value and redeemed at face value at their
maturity date without interim cash payments of interest and principal. This
discount is amortized over the life of the security and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, such securities may be subject to greater
volatility as a result of changes in prevailing interest rates than interest
paying investments in which the Funds may invest. Because income on such
securities is accrued on a current basis, even though the Funds do not receive
the income currently in cash, the Funds may have to sell other portfolio
investments to obtain cash needed by the related portfolios to make income
distributions.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by a Fund will be determined by
the Investment Adviser under guidelines established by the Master Trust's Board
of Trustees to be of comparable quality at the time of the purchase and rated
instruments eligible for purchase by the Fund. In making such determinations,
the Investment Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, bank holding and other companies) and will monitor
their financial condition. An active secondary market may not exist with
respect to particular variable or floating rate instruments purchased by a
Fund. The absence of such an active secondary market could make it difficult
for the Fund to dispose of the variable or floating rate instrument involved in
the event of the issuer of the instrument defaulting on its payment obligation
or during periods in which the Fund is not entitled to exercise its demand
rights, and the Fund could, for these or other reasons, suffer a loss to the
extent of the default. Variable and floating rate instruments may be secured by
bank letters of credit.
MORTGAGE-RELATED SECURITIES
Each Fund (other than the International Core Growth, International
Small Cap, Emerging Countries and Large Cap Funds) may invest in
mortgage-related securities. Mortgage-related securities are derivative
interests in pools of mortgage loans made to U.S. residential home buyers,
including mortgage loans made by savings and loan institutions, mortgage
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bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations. The Government Fund may also invest in debt securities
which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.
U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-throughs." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related
securities is the Government National Mortgage Association ("GNMA"). GNMA is a
wholly owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.
Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not
insured or guaranteed by any government agency from a list of approved
seller/services which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. FHLMC is a government-sponsored corporation created to
increase availability of mortgage credit for residential housing and owned
entirely by private stockholders. FHLMC issues participation certificates which
represent interests in conventional mortgages from FHLMC's national portfolio.
Pass-through securities issued by FNMA and participation certificates issued by
FHLMC are guaranteed as to timely payment of principal and interest by FNMA and
FHLMC, respectively, but are not backed by the full faith and credit of the
United States Government.
Although the underlying mortgage loans in a pool may have maturities
of up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the pool certificates. Conversely, when
interest rates are rising, the rate of prepayments tends to decrease, thereby
lengthening the actual average life of the certificates. Accordingly, it is not
possible to predict accurately the average life of a particular pool.
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COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign
CMO in which the Government Fund may invest is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond,
interest is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, FNMA or equivalent
foreign entities.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal and
interest received from the pool of underlying mortgages, including prepayments,
is first returned to the class having the earliest maturity date or highest
seniority. Classes that have longer maturity dates and lower seniority will
receive principal only after the higher class has been retired.
FOREIGN MORTGAGE-RELATED SECURITIES. Foreign mortgage-related
securities are interests in pools of mortgage loans made to residential home
buyers domiciled in a foreign country. These include mortgage loans made by
trust and mortgage loan companies, credit unions, chartered banks, and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related, and private organizations (e.g.,
Canada Mortgage and Housing Corporation and First Australian National Mortgage
Acceptance Corporation Limited). The mechanics of these mortgage-related
securities are generally the same as those issued in the United States. However,
foreign mortgage markets may differ materially from the U.S. mortgage market
with respect to matters such as the sizes of loan pools, pre-payment experience,
and maturities of loans.
"ROLL" TRANSACTIONS
The Government Fund may enter into "roll" transactions, which are the
sale of GNMA certificates and other securities together with a commitment to
purchase similar, but not identical, securities at a later date from the same
party. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase, as well as by the
interest earned on the cash proceeds of the initial sale. Like when-issued
securities or firm commitment agreements, roll transactions involve the risk
that the market value of the securities sold by the Fund may decline below the
price at which the Fund is committed to purchase similar securities.
Additionally, in the event the buyer of securities under a roll transaction
files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
transactions may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities.
The Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for investment leverage. Nonetheless, roll transactions are
speculative techniques and are considered borrowings by the Fund for purposes of
the percentage limitations applicable to borrowings. The Fund will establish a
segregated account with its Custodian in which it will maintain liquid assets in
an amount sufficient to meet its payment obligations with respect to these
transactions. The Fund will not enter into roll transactions if, as a result,
more than 15% of the Fund's net assets would be segregated to cover such
contracts.
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FOREIGN INVESTMENTS
Each Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. Each Fund (other than the Government and
Money Market Funds) may also invest in depository receipts.
The United States Government has from time to time imposed
restrictions, through taxation or otherwise, on foreign investments by U.S.
entities such as the Funds. If such restrictions should be reinstituted, it
might become necessary for such Funds to invest substantially all of their
assets in United States securities. In such event, the Board of Trustees of the
Trust would consider alternative arrangements, including reevaluation of the
Portfolios' investment objectives and policies, investment of all of the
Portfolios' assets in another investment company with different investment
objectives and policies than the Funds, or hiring an investment adviser to
manage the Portfolios' assets. However, a Portfolio would adopt any revised
investment objective and fundamental policies only after approval by the
shareholders holding a majority (as defined in the Investment Company Act) of
the shares of the Portfolio.
DEPOSITORY RECEIPTS. Each of the Funds (other than the Government
and Money Market Funds) may invest in American Depository Receipts ("ADRs"),
which are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuers. ADRs, in
registered form, are designed for use in U.S. securities markets. Such
depository receipts may be sponsored by the foreign issuer or may be
unsponsored. The International Core Growth, Worldwide, International Small Cap
and Large Cap Funds may also invest in European and Global Depository Receipts
("EDRs" and "GDRs"), which, in bearer form, are designed for use in European
securities markets, and in other instruments representing securities of foreign
companies. Such depository receipts may be sponsored by the foreign issuer or
may be unsponsored. Unsponsored depository receipts are organized independently
and without the cooperation of the foreign issuer of the underlying securities;
as a result, available information regarding the issuer may not be as current as
for sponsored depository receipts, and the prices of unsponsored depository
receipts may be more volatile than if they were sponsored by the issuer of the
underlying securities. ADRs may be listed on a national securities exchange or
may trade in the over-the-counter market. ADR prices are denominated in United
States dollars; the underlying security may be denominated in a foreign
currency, although the underlying security may be subject to foreign government
taxes which would reduce the yield on such securities.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, diversification and balance of
payments position. The internal politics of certain foreign countries may not
be as stable as those of the United States. Governments in certain foreign
countries also continue to participate to a significant degree, through
ownership interest or regulation, in their respective economies. Action by
these governments could include restrictions on foreign investment,
nationalization, expropriation of goods or imposition of taxes, and could have a
significant effect on market prices of securities and payment of interest. The
economies of many foreign countries are heavily dependent upon international
trade and are accordingly affected by the trade policies and economic conditions
of their trading partners. Enactment by these trading partners of protectionist
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trade legislation could have a significant adverse effect upon the securities
markets of such countries.
CURRENCY FLUCTUATIONS. Each Fund other than the Government and Money
Market Fund may invest in securities denominated in foreign currencies.
Accordingly, a change in the value of any such currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of a Fund's
assets denominated in that currency. Such changes will also affect the Fund's
income. The value of the Fund's assets may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.
MARKET CHARACTERISTICS. The Investment Adviser expects that most
foreign securities in which the Funds invest will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
principal offices of the issuers of the various securities are located, if that
is the best available market. Foreign exchanges and markets may be more
volatile than those in the United States. While growing in volume, they usually
have substantially less volume than U.S. markets, and the Funds' portfolio
securities may be less liquid and more volatile than U.S. Government securities.
Moreover, settlement practices for transactions in foreign markets may differ
from those in United States markets, and may include delays beyond periods
customary in the United States. Foreign security trading practices, including
those involving securities settlement where Fund assets may be released prior to
receipt of payment or securities, may expose the Fund to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer.
Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of a
Fund's positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest payable on certain of the Funds' foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Portfolios'
shareholders. A shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a credit or
deduction of U.S. federal income tax purposes for his proportionate share of
such foreign taxes paid by the Funds.
COSTS. The expense ratios of the Funds are likely to be higher than
those of investment companies investing in domestic securities, since the cost
of maintaining the custody of foreign securities is higher.
In considering whether to invest in the securities of a foreign
company, the Investment Adviser considers such factors as the characteristics of
the particular company, differences between economic trends and the performance
of securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which a
Fund will be invested in foreign companies and countries and depository receipts
will fluctuate
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from time to time within the limitations described in the Prospectus, depending
on the Investment Adviser's assessment of prevailing market, economic and other
conditions.
OPTIONS ON SECURITIES AND SECURITIES INDICES
PURCHASING PUT AND CALL OPTIONS. Each Fund (other than the
Government and Money Market Funds) is authorized to purchase put and call
options with respect to securities which are otherwise eligible for purchase by
the Fund and with respect to various stock indices subject to certain
restrictions. Put and call options are derivative securities traded on United
States and foreign exchanges, including the American Stock Exchange, Chicago
Board Options Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and
New York Stock Exchange. The Funds will engage in trading of such derivative
securities exclusively for hedging purposes.
If a Fund purchases a put option, the Fund acquires the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Investment Adviser perceives significant short-term
risk but substantial long-term appreciation for the underlying security. The
put option acts as an insurance policy, as it protects against significant
downward price movement while it allows full participation in any upward
movement. If the Fund is holding a stock which it feels has strong
fundamentals, but for some reason may be weak in the near term, the Fund may
purchase a put option on such security, thereby giving itself the right to sell
such security at a certain strike price throughout the term of the option.
Consequently, the Fund will exercise the put only if the price of such security
falls below the strike price of the put. The difference between the put's
strike price and the market price of the underlying security on the date the
Fund exercises the put, less transaction costs, will be the amount by which the
Fund will be able to hedge against a decline in the underlying security. If
during the period of the option the market price for the underlying security
remains at or above the put's strike price, the put will expire worthless,
representing a loss of the price the Fund paid for the put, plus transaction
costs. If the price of the underlying security increases, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put may be sold.
If a Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Fund in the underlying security and
the price of the underlying security thereafter falls, the profit the Fund
realizes on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Funds generally will purchase only those options for which the
Investment Adviser believes there is an active secondary market to facilitate
closing transactions.
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<PAGE>
WRITING CALL OPTIONS. Each Fund (other than the Balanced, Government
and Money Market Funds) may write covered call options. A call option is
"covered" if a Fund owns the security underlying the call or has an absolute
right to acquire the security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by the Custodian). The writer of a
call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer
of an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option
will permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of the
Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.
A Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. A Fund will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Fund resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.
STOCK INDEX OPTIONS. Each Fund (other than the Balanced, Government
and Money Market Funds) may also purchase put and call options with respect to
the S&P 500 and other stock indices. Such options may be purchased as a hedge
against changes resulting from market conditions in the values of securities
which are held in a Fund's portfolio or which it intends to purchase or sell, or
when they are economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create
certain risks that are not present with stock options generally. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a gain or
loss on the purchase or sale of an option on an index depends upon movements in
the level of stock prices in the stock market generally rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of
options on a stock index would be subject to the Investment Adviser's ability to
predict correctly movements in the direction of the stock market generally. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this were to occur, the Fund would not be able
to close out options which it had purchased, and if restrictions on
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exercise were imposed, the Fund might be unable to exercise an option it holds,
which could result in substantial losses to the Fund. It is the policy of the
Funds to purchase put or call options only with respect to an index which the
Investment Adviser believes includes a sufficient number of stocks to minimize
the likelihood of a trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated
with transactions in options on securities and indices. Options may be more
volatile than the underlying instruments and, therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. There are also significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objective. In addition, a liquid secondary market for particular
options may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of option of underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an exchange; the
facilities of an exchange or clearing corporation may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which a Fund may enter into options transactions may be limited by the
Internal Revenue Code requirements for qualification of the corresponding
Portfolio as a regulated investment company. See "Dividends, Distributions and
Taxes."
In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States option exchanges will not
be available. For example, there may be no daily price fluctuation limits in
such exchanges or markets, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, a Fund as an option writer
could lose amounts substantially in excess of its initial investment, due to the
margin and collateral requirements typically associated with such option
writing. See "Dealer Options" below.
DEALER OPTIONS. Each Fund (other than the Income & Growth, Balanced,
Government, and Money Market Funds) may engage in transactions involving dealer
options as well as exchange-traded options. Certain risks are specific to
dealer options. While the Funds might look to a clearing corporation to
exercise exchange-traded options, if a Fund were to purchase a dealer option it
would need to rely on the dealer from which it purchased the option to perform
if the option were exercised. Failure by the dealer to do so would result in
the loss of the premium paid by the Fund as well as loss of the expected benefit
of the transaction.
Exchange-traded options generally have a continuous liquid market
while dealer options may not. Consequently, a Fund may generally be able to
realize the value of a dealer option
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<PAGE>
it has purchased only by exercising or reselling the option to the dealer who
issued it. Similarly, when a Fund writes a dealer option, the Fund may generally
be able to close out the option prior to its expiration only by entering into a
closing purchase transaction with the dealer to whom the Fund originally wrote
the option. While the Fund will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that the Fund will
at any time be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Unless the Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the other party, the Fund may be
unable to liquidate a dealer option. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, since the Fund must maintain a secured
position with respect to any call option on a security it writes, the Fund may
not sell the assets which it has segregated to secure the position while it is
obligated under the option. This requirement may impair the Portfolio's ability
to sell portfolio securities at a time when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities. A
Fund may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
With that exceptions, however, the Fund will treat dealer options as subject to
the Fund's limitation on unmarketable securities. If the Commission changes its
position on the liquidity of dealer options, the Fund will change its treatment
of such instruments accordingly.
FOREIGN CURRENCY OPTIONS
The International and Core Growth, Worldwide, International Small
Cap, Emerging Countries and Large Cap Funds may buy or sell put and call options
on foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Funds will use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Funds to reduce foreign currency risk using such options.
As with other kinds of option transactions, the writing of an option
on foreign currency will constitute only a partial hedge, up to the amount of
the premium received. The Funds could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movement adverse to a Fund's position, the Fund may forfeit the entire amount of
the premium plus related transaction costs.
FORWARD CURRENCY CONTRACTS
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The International Core Growth, Worldwide, International Small Cap,
Emerging Countries and Large Cap Funds may enter into forward currency contracts
in anticipation of changes in currency exchange rates. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fix number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. For example, a
Fund might purchase a particular currency or enter into a forward currency
contract to preserve the U.S. dollar price of securities it intends to or has
contracted to purchase. Alternatively, it might sell a particular currency on
either a spot or forward basis to hedge against an anticipated decline in the
dollar value of securities it intends to or has contracted to sell. Although
this strategy could minimize the risk of loss due to a decline in the value of
the hedged currency, it could also limit any potential gain from an increase in
the value of the currency.
FUTURES CONTRACTS AND RELATED OPTIONS
Each of the Funds (other than the Balanced and Money Market Funds) may
invest in futures contracts and options on futures contracts as a hedge against
changes in market conditions or interest rates. Such Funds will trade in such
derivative securities for bona fide hedging purposes and otherwise in accordance
with the rules of the Commodity Futures Trading Commission ("CFTC"). Each such
Fund will segregate liquid assets in a separate account with its Custodian when
required to do so by CFTC guidelines in order to cover its obligation in
connection with futures and options transactions.
No price is paid or received by a Fund upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, the Fund
will be required to deposit in a segregated account with its Custodian liquid
assets equal to approximately 5% of the contract amount. This amount is known
as initial margin. The margin requirements for foreign futures contracts may be
different.
The nature of initial margin in futures transactions is different from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying stock index fluctuates, to
reflect movements in the price of the contract making the long and short
positions in the futures contract more or less valuable. For example, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when the Fund has purchased a stock index
futures contract and the price of the underlying stock index has declined, the
position will be less valuable and the Fund will be required to make a variation
margin payment to the broker.
At any time prior to expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is made on closing the position. Additional cash is paid by
or released to the Fund, which realizes a loss or a gain.
STOCK INDEX FUTURES CONTRACTS. Each Fund (other than the Government,
Balanced and Money Market Funds) may invest in futures contracts on stock
indices. A Stock index futures contracts is a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the
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index value at the close of the last trading day of the contract and the price
at which the contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures
contracts can be purchased or sold with respect to the S&P 500 Stock Price Index
on the Chicago Mercantile Exchange, the Major Market Index on the Chicago Board
of Trade, the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Foreign financial and stock index futures are traded on foreign exchanges
including the London International Financial Futures Exchange, the Singapore
International Monetary Exchange, the Sydney Futures Exchange Limited and the
Tokyo Stock Exchange.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. Each Fund (other than
the Core Growth, Emerging Growth, Balanced and Money Market Funds) may invest
in interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established
in the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial futures sale by a Fund would
create an obligation by the Fund, as seller, to deliver the specific type of
financial instrument called for in the contract at a specific future time for a
specified price. A futures contract purchased by a Fund would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate or financial futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without delivery of
securities. Closing out of a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
The Funds deal only in standardized contracts on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A public market now exists in
domestic futures contracts covering various financial instruments including
long-term United States Treasury bonds and notes; Government National Mortgage
Association (GNMA) modified pass-through mortgage-backed securities; three-month
United States Treasury bills; and 90-day commercial paper. A Fund may trade in
any futures contract for which there exists a public market, including, without
limitation, the foregoing instruments. International interest rate futures
contracts
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are traded on the London International Financial Futures Exchange, the Singapore
International Monetary Exchange, the Sydney Futures Exchange Limited and the
Tokyo Stock Exchange.
FOREIGN CURRENCY FUTURES CONTRACTS. The International Core Growth,
Worldwide, International Small Cap, Emerging Countries and Large Cap Funds may
use foreign currency future contracts for hedging purposes. A foreign currency
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a foreign currency at a specified price
and time. A public market exists in futures contracts covering several foreign
currencies, including the Australian dollar, the Canadian dollar, the British
pound, the German mark, the Japanese yen, the Swiss franc, and certain
multinational currencies such as the European Currency Unit ("ECU"). Other
foreign currency futures contracts are likely to be developed and traded in the
future. The Funds will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity, or quoted on an automated quotation system.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. There are several risks
related to the use of futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of the hedge.
The price of the future may move more or less than the price of the securities
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, a Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the price of the securities which
are subject to the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures contract, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, the Fund may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Fund's portfolio may decline. If this occurs,
the Fund will lose money on the future and also experience a decline in value in
its portfolio securities. However, the Investment Adviser believes that over
time the value of a diversified portfolio will tend to move in the same
direction as the market indices upon which the futures are based.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
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In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the stock index or cash market due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the index or
cash market and futures markets. In addition, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. As a result of price distortions in
the futures market and the imperfect correlation between movements in the cash
market and the price of securities and movements in the price of futures, a
correct forecast of general trends by the Investment Adviser may still not
result in a successful hedging transaction over a very short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Fund is also subject to the Investment
Adviser's ability to predict correctly movements in the direction of the market.
For example, if the Fund has hedged against the possibility of a decline in
the market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of the stocks which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which a Fund
engages in transactions in futures contracts or options, the Fund could
experience delays and losses in
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liquidating open positions purchased or sold through the broker, and incur a
loss of all or part of its margin deposits with the broker.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on the
futures contracts they can purchase or sell, as described above. A futures
option gives the holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.
Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. A
Fund will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Funds. A Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. A Fund also may
not purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Fund's net assets.
Upon the purchase of futures contracts by a Fund, an amount of cash
and cash equivalents, equal to the market value of the futures contracts, will
be deposited in a segregated account with the Custodian or in a margin account
with a broker to collateralize the position and thereby insure that the use of
such futures is unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and may be changed by the Trustees of the Master
Trust if applicable law permits such a change and the change is consistent with
the overall investment objective and policies of the Fund.
The extent to which a Fund may enter into futures and options
transactions may be limited by the Internal Revenue Code requirements for
qualification of the corresponding Portfolio as a regulated investment company.
See "Taxes."
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REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Investment Adviser, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon date and price. The repurchase price generally equals the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the underlying portfolio
security). Securities subject to repurchase agreements will be held by the
Custodian or in the Federal Reserve/Treasury Book-Entry System or an equivalent
foreign system. The seller under a repurchase agreement will be required to
maintain the value of the underlying securities at not less than 102% of the
repurchase price under the agreement. If the seller defaults on its repurchase
obligation, the Fund holding the repurchase agreement will suffer a loss to the
extent that the proceeds from a sale of the underlying securities is less than
the repurchase price under the agreement. Bankruptcy or insolvency of such a
defaulting seller may cause the Fund's rights with respect to such securities to
be delayed or limited. Repurchase agreements are considered to be loans under
the Investment Company Act.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each Fund may purchase securities on a "when-issued," forward
commitment or delayed settlement basis. In this event, the Custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Custodian will set aside portfolio
securities to satisfy a purchase commitment. In such a case, a Fund may be
required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that a Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
The Funds do not intend to engage in these transactions for
speculative purposes but only in furtherance of their investment objectives.
Because a Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described, the Fund's liquidity and the
ability of the Investment Adviser to manage it may be affected in the event the
Fund's forward commitments, commitments to purchase when-issued securities and
delayed settlements ever exceeded 15% of the value of its net assets.
A Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss. When a Fund engages in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in a
Fund's incurring a loss or missing an opportunity to obtain a price credited to
be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
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BORROWING
Each Fund is authorized to borrow money from time to time for
temporary, extraordinary or emergency purposes or for clearance of transactions
in amounts up to 20% of the value of its total assets at the time of such
borrowings. All borrowings by a Fund will be made only to the extent that the
value of the Fund's total assets, less its liabilities other than borrowings, is
equal to at least 300% of all borrowings. If such asset coverage of 300% is not
maintained, the Fund will take prompt action to reduce its borrowings as
required by applicable law. Short sales "not against the box" and roll
transactions are considered borrowings for purposes of the percentage
limitations applicable to borrowings.
The use of borrowing by a Fund involves special risk considerations
that may not be associated with other funds having similar objectives and
policies. Since substantially all of a Fund's assets fluctuate in value,
whereas the interest obligation resulting from a borrowing will be fixed by the
terms of the Fund's agreement with its lender, the asset value per share of the
Fund will tend to increase more when its portfolio securities increase in value
and to decrease more when its portfolio assets decrease in value than would
otherwise be the case if the Fund did not borrow funds. In addition, interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, the Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
The Trust has entered into a Credit Agreement on behalf of its various
Portfolios with several banks and Chemical Bank, as administrative agent for the
lenders, to borrow up to $75,000,000 from time to time for purposes of meeting
shareholder redemption requests without the necessity of requiring the Funds to
sell portfolio securities, at times when the Investment Adviser believes such
sales are not in the best interests of the Portfolios' shareholders, in order to
provide the Portfolios with cash to meet such redemption requests. The Credit
Agreement expires on April 10, 1998, unless renewed by the parties.
Under the Credit Agreement, each Portfolio may borrow, repay and
reborrow amounts (collectively, the "Revolving Credit Loans") in increments of
$50,000, provided the Revolving Credit Loans outstanding at any time aggregate
at least $350,000 (the "Credit Facility"). The Trust will pay a commitment fee
at the rate of 0.10% per annum of the average daily unused portion of the Credit
Facility, and may at any time terminate the Credit Agreement or reduce the
lenders' commitment thereunder in increments of $2,500,000.
While outstanding, the Revolving Credit Loans will bear interest,
fluctuating daily and payable monthly, at either of the following rates or a
combination thereof, at the Trust's option: (i) at the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, plus 0.625% per annum; or (ii)
the prime rate of interest of Chemical Bank. If, as a result of changes in
applicable laws, regulations or guideline with respect to the capital adequacy
of any lender, the return on such lender's capital is reduced, the Trust may be
required to adjust the rate of interest to compensate such lender for such
reduction. Each Revolving Credit Loan is payable in thirty days, and may be
prepaid at any time in increments of $100,000 without premium or penalty. No
Portfolio is liable for repayment of a Revolving Credit Loan to any other
Portfolio.
The Credit Agreement contains, among other things, covenants that
require each Portfolio to maintain certain minimum ratios of debt to net worth;
limit the ability of the Trust to incur other indebtedness and create liens on
its assets or guarantee obligations of others; merge or
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consolidate with, or sell its assets to, others; make material changes in its
method of conducting business; make distributions to shareholders in excess of
the requirements of Subchapter M of the Internal Revenue Code in the event of a
default under the Credit Agreement; or make changes in fundamental investment
policies. The Credit Agreement also contains other terms and conditions
customary in such agreements, including various events of default.
LENDING PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities in an amount not exceeding
30% of its total assets to financial institutions such as banks and brokers if
the loan is collateralized in accordance with applicable regulations. Under the
present regulatory requirements which govern loans of portfolio securities, the
loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks, or securities of the U.S. Government or
its agencies. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank would have to be satisfactory to the
Fund. Any loan might be secured by any one or more of the three types of
collateral. The terms of the Fund's loans must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any serious matter
and must meet certain tests under the Internal Revenue Code.
SHORT SALES
The Investment Adviser's growth equity management approach is aimed
principally at identifying equity securities the earnings and prices of which it
expects to grow at a rate above that of the S&P 500. However, the Investment
Adviser believes that its approach also identifies securities the prices of
which can be expected to decline. Therefore, the Core Growth, Emerging Growth,
Worldwide and International Small Cap Funds are authorized to make short sales
of securities they own or have the right to acquire at no added cost through
conversion or exchange of other securities they own (referred to as short sales
"against the box") and to make short sales of securities which they do not own
or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security generally
from the broker through which the short sale is made) in order to make delivery
to the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is said
to have a "short position" in the securities sold until it delivers them to the
broker. The period during which the Fund has a short position can range from
one day to more than a year. Until the security is replaced, the proceeds of
the short sale are retained by the broker, and the Fund is required to pay to
the broker a negotiated portion of any dividends or interest which accrue during
the period of the loan. To meet current margin requirements, the Fund is also
required to deposit with the broker additional cash or securities so that the
total deposit with the broker is maintained daily at 150% of the current market
value of the securities sold short (100% of the current market value if a
security is held in the account that is convertible or exchangeable into the
security sold short within 90 days without restriction other than the payment of
money).
Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of
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the securities sold short without the need to invest the full purchase price of
the securities on the date of the short sale, the Fund's net asset value per
share will tend to increase more when the securities it has sold short decrease
in value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium, dividends or interest the Fund may be
required to pay in connection with the short sale. Short sales theoretically
involve unlimited loss potential, as the market price of securities sold short
may continually increase, although a Fund may mitigate such losses by replacing
the securities sold short before the market price has increased significantly.
Under adverse market conditions the Fund might have difficulty purchasing
securities to meet its short sale delivery obligations, and might have to sell
portfolio securities to raise the capital necessary to meet its short sale
obligations at a time when fundamental investment considerations would not favor
such sales.
If a Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, a Fund
will deposit in escrow in a separate account with the Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
A Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Adviser believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable for
such security. In such case, any future losses in the Fund's long position
would be reduced by a gain in the short position. The extent to which such
gains or losses in the long position are reduced will depend upon the amount of
securities sold short relative to the amount of the securities the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the investment values or conversion premiums of such
securities.
In the view of the Commission, a short sale involves the creation of a
"senior security" as such term is defined in the 1940 Act, unless the sale is
"against the box" and the securities sold short are placed in a segregated
account (not with the broker), or unless the Fund's obligation to deliver the
securities sold short is "covered" by placing in a segregated account (not with
the broker) cash, U.S. Government securities or other liquid debt or equity
securities in an amount equal to the difference between the market value of the
securities sold short at the time of the short sale and any such collateral
required to be deposited with a broker in connection with the sale (not
including the proceeds from the short sale), which difference is adjusted daily
for changes in the value of the securities sold short. The total value of the
cash, U.S. Government securities or other liquid debt or equity securities
deposited with the broker and otherwise segregated may not at any time be less
than the market value of the securities sold short at the time of the short
sale. Each Fund will comply with these requirements. In addition, as a matter
of policy, the Master Trust's Board of Trustees has determined that no Fund will
make short sales of securities or maintain a short position if to do so could
create liabilities or require collateral deposits and segregation of assets
aggregating more than 25% of the Fund's total assets, taken at market value.
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The extent to which a Fund may enter into short sales transactions may
be limited by the Internal Revenue Code requirements for qualification of the
corresponding Portfolio as a regulated investment company. See "Taxes."
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ILLIQUID SECURITIES
No Fund may invest more than 15% (10% in the case of the Money Market
Fund) of the value of its net assets in securities that at the time of purchase
have legal or contractual restrictions on resale or are otherwise illiquid. The
Investment Adviser will monitor the amount of illiquid securities in the Fund's
portfolio, under the supervision of the Master Trust's Board of Trustees, to
ensure compliance with the Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and the Fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption within seven days. The Fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Master Trust's Board of Trustees has determined that such securities
are not illiquid securities notwithstanding their legal or contractual
restrictions on resale. In all other cases, however, securities subject to
restrictions on resale will be deemed illiquid. Investing in restricted
securities eligible for resale under Rule 144A could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers become uninterested in purchasing such securities.
The Emerging Countries Fund may invest in foreign securities that are
restricted against transfer within the United States or to United States
persons. Although securities subject to such transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions. Unless these securities are
acquired directly from the issuer or its underwriter, the Fund treats foreign
securities whose principal market is abroad as not subject to the investment
limitation on securities subject to legal or contractual restrictions on resale.
INVESTMENT TECHNIQUES AND PROCESSES
The Investment Adviser's investment techniques and processes, which it
has used in managing institutional portfolios for many years, are described
generally in the Portfolios' Prospectus. In making decisions with respect to
equity securities for the Funds, growth over time-Registered Trademark- is the
Investment Adviser's underlying goal. It's how the Investment Adviser built its
reputation.
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Over the past ten years, the Investment Adviser has built a record as one of the
finest performing investment managers in the United States. It has successfully
delivered growth over time to many institutional investors, pension plans,
foundations, endowments and high net worth individuals. The Investment
Adviser's methods have proven their ability to achieve growth over time through
a variety of investment vehicles.
The Investment Adviser emphasizes growth over time through investment
in securities of companies with earnings growth potential. The Investment
Adviser's style is a "bottom-up" growth approach that focuses on the growth
prospects of individual companies rather than on economic trends. It builds
portfolios stock by stock. The Investment Adviser's decision-making is guided
by three critical questions: Is there a positive change? Is it sustainable? Is
it timely? The Investment Adviser uses these three factors because it focuses
on discovering positive developments when they first show up in an issuer's
earnings, but before they are fully reflected in the price of the issuer's
securities. The Investment Adviser is always looking for companies that are
driving change and surpassing analysts' expectations. It seeks to identify
companies poised for rapid growth. The Investment Adviser focuses on
recognizing successful companies, regardless of their capitalization or whether
they are domestic or foreign companies.
The Investment Adviser's techniques and processes include
relationships with an extensive network of brokerage research firms located
throughout the world. These analysts are often located in the same geographic
regions as the companies they follow, have followed those companies for a number
of years, and have developed excellent sources of information about them. The
Investment Adviser does not employ in-house analysts other than the personnel
actually engaged in managing investments for the Funds and the Investment
Adviser's other clients. However, information obtained from a brokerage
research firm is confirmed with other research sources or the Investment
Adviser's computer-assisted quantitative analysis (including "real time" pricing
data) of a substantial universe of potential investments.
DIVERSIFICATION
Each Fund is "diversified" within the meaning of the 1940 Act. In
order to qualify as diversified, a Fund must diversify its holdings so that at
all times at least 75% of the value of its total assets is represented by cash
and cash items (including receivables), securities issued or guaranteed as to
principal or interest by the United States or its agencies or instrumentalities,
securities of other investment companies, and other securities (for this purpose
other securities of any one issuer are limited to an amount not greater than 5%
of the value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of the issuer).
The equity securities of each issuer that are included in the
investment portfolio of a Fund are purchased by the Investment Adviser in
approximately equal amounts, and the Investment Adviser attempts to stay fully
invested within the applicable percentage limitations set forth in the
Prospectus. In addition, for each issuer whose securities are added to an
investment portfolio, the Investment Adviser sells the securities of one of the
issuers currently included in the portfolio.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Portfolios, and the Master Trust, on
behalf of the corresponding Funds, have adopted the following fundamental
policies that cannot be changed without the affirmative vote of a majority of
the outstanding shares of the appropriate Portfolio or
B-29
<PAGE>
Fund, respectively (as defined in the Investment Company Act). Whenever a
Portfolio is requested to vote on a change in the investment restrictions of a
Fund, the Trust will hold a meeting of its shareholders and will cast its vote
as instructed by the shareholders. If the investment restrictions of a Fund are
changed, the corresponding Portfolio may withdraw its investment in the Fund if
the Trust's Board of Trustees determines that withdrawal is in the best
interests of the Portfolio and its shareholders, but only upon shareholder
approval. Upon such withdrawal, the Trust's Board would consider alternative
investments, including investing all of the Portfolio's assets in another
investment company with the same investment objective, policies and restrictions
as the Portfolio or hiring an investment adviser to manage the Portfolio's
assets in accordance with the investment objectives, policies and restrictions
of the Portfolio described in the Portfolio's Prospectus and in this Statement
of Additional Information.
All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.
No Portfolio or Fund:
1. May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities of such
issuer, except that up to 25% of a Portfolio or Fund's total assets may be
invested without regard to this restriction and a Portfolio will be permitted to
invest all or a portion of its assets in a corresponding Fund or other
diversified, open-end management investment company with substantially the same
investment objective, policies and restrictions as the Portfolio. This
restriction also does not apply to investments by a Portfolio or Fund in
securities of the U.S. Government or any of its agencies and instrumentalities.
2. May purchase more than 10% of the outstanding voting securities,
or of any class of securities, of any one issuer, or purchase the securities of
any issuer for the purpose of exercising control or management, except that a
Portfolio will be permitted to invest all or a portion of its assets in a
corresponding Fund or other diversified, open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Portfolio.
3. May invest 25% or more of the market value of its total assets in
the securities of issuers in any one particular industry, except that a
Portfolio will be permitted to invest all or a portion of its assets in a
corresponding Fund or other diversified, open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Portfolio. This restriction does not apply to investments by a Portfolio or
Fund in securities of the U.S. Government or its agencies and instrumentalities,
or to investments by the Money Market Portfolio or Money Market Fund in
obligations of domestic branches of U.S. banks and U.S. branches of foreign
banks which are subject to the same regulation as U.S. banks.
4. May purchase or sell real estate. However, a Portfolio or Fund
may invest in securities secured by, or issued by companies that invest in, real
estate or interests in real estate.
5. May make loans of money, except that a Portfolio or Fund may
purchase publicly distributed debt instruments and certificates of deposit and
enter into repurchase agreements. Each Portfolio and Fund reserves the
authority to make loans of its portfolio securities in an aggregate amount not
exceeding 30% of the value of its total assets.
6. May borrow money on a secured or unsecured basis, except for
temporary, extraordinary or emergency purposes or for the clearance of
transactions in amounts not
B-30
<PAGE>
exceeding 20% of the value of its total assets at the time of the borrowing,
provided that, pursuant to the Investment Company Act, borrowings will only be
made from banks and will be made only to the extent that the value of the Fund's
total assets, less its liabilities other than borrowings, is equal to at least
300% of all borrowings (including the proposed borrowing). If such asset
coverage of 300% is not maintained, the Portfolio or Fund will take prompt
action to reduce its borrowings as required by applicable law.
7. May pledge or in any way transfer as security for indebtedness
any securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Portfolios or
Funds from engaging in options, futures and foreign currency transactions.
8. May underwrite securities of other issuers, except insofar as it
may be deemed an underwriter under the Securities Act in selling portfolio
securities.
9. May invest more than 15% (10% in the case of each of the Money
Market Portfolio or the Money Market Fund) of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid.
10. May purchase securities on margin, except for initial and
variation margin on options and futures contracts, and except that a Portfolio
or Fund may obtain such short-term credit as may be necessary for the clearance
of Purchases and sales of securities.
11. May engage in short sales (other than the Core Growth Portfolios
and Fund, the Emerging Growth Portfolios and Fund, the Worldwide Portfolios and
Fund and the International Small Cap Portfolios and Fund), except that a
Portfolio or Fund may use such short-term credits as are necessary for the
clearance of transactions.
12. May invest in securities of other investment companies, except
(a) that a Portfolio may invest all or a portion of its assets in a
corresponding Fund or other diversified, open-end management investment company
with the same investment objective policies and restrictions as the Portfolio;
(b) in compliance with the Investment Company Act and applicable state
securities laws, or (c) as part of a merger, consolidation, acquisition or
reorganization involving the Portfolio or Fund.
13. May issue senior securities, except that a Portfolio or Fund may
borrow money as permitted by restrictions 6 and 7 above. This restriction shall
not prohibit the Portfolios or Funds from engaging in short sales, options,
futures and foreign currency transactions.
14. May enter into transactions for the purpose of arbitrage, or
invest in commodities and commodities contracts, except that a Fund or Portfolio
may invest in stock index, currency and financial futures contracts and related
options in accordance with any rules of the Commodity Futures Trading
Commission.
15. May purchase or write options on securities, except for hedging
purposes and then only if (i) aggregate premiums on call options purchased by a
Fund do not exceed 5% of its net assets, (ii) aggregate premiums on put options
purchased by a Fund do not exceed 5% of its net assets, (iii) not more than 25%
of a Fund's net assets would be hedged, and (iv) not more than 25% of a Fund's
net assets are used as cover for options written by the Fund.
MONEY MARKET FUND RESTRICTIONS
B-31
<PAGE>
Investment by the Money Market Portfolio and Fund are subject to
limitations imposed under regulations adopted by the Commission. These
regulations generally require the Money Market Portfolio and Fund to acquire
only U.S. dollar denominated obligations maturing in 397 days or less and to
maintain a dollar-weighted average portfolio maturity of 90 days or less. In
addition, the Money Market Portfolio and Fund may acquire only obligations that
present minimal credit risks and that are "eligible securities" which means they
are (i) rated, at the time of investment, by at least two nationally recognized
security rating organizations (one if it is the only organization rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Investment Adviser will determine that an obligation presents minimal credit
risks or that unrated instruments are of comparable quality in accordance with
guidelines established by the Boards of Trustees of the Trust and Master Trust.
The Trustees must also approve or ratify the acquisition of unrated securities
or securities rated by only one rating organization. In addition, investments
in second tier securities are subject to the further constraints that (i) no
more than 5% of the Money Market Portfolio's or Fund's assets may be invested in
such securities in the aggregate, and (ii) any investment in such securities of
one issuer is limited to the greater of 1% of the Portfolio's or Fund's total
assets or $1 million. In addition, the Portfolio or Fund may only invest up to
25% of its total assets in the first tier securities of a single issuer for
three business days.
OPERATING RESTRICTIONS
As a matter of operating (not fundamental) policy adopted by the
Boards of Trustees of the Trust, no Portfolio or Fund:
1. May invest in interests in oil, gas or other mineral exploration
or development programs or leases, or real estate limited partnerships, although
a Portfolio or a Fund may invest in the securities of companies which invest in
or sponsor such programs.
2. May purchase any security if as a result the Portfolio or Fund
would then have more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors) having a record of
less than three years of continuous operation, except (a) that a Portfolio may
invest all or a portion of its assets in a corresponding Fund or other
diversified, open-end management investment company with the same investment
objective, policies and restrictions as the Portfolio in compliance with the
Investment Company Act or (b) as part of a merger, consolidation, acquisition or
reorganization involving the Portfolio or Fund.
3. May purchase securities of any issuer if any officer or trustee
of the Portfolio or Fund, or any officer or director of Investment Company
Administration Corporation, the Distributor, or the Investment Adviser, owning
more than 1/2 of 1% of the outstanding securities of such issuer, own in the
aggregate more than 5% of the outstanding securities of such issuer.
4. May lend any securities from its portfolio unless the value of
the collateral received therefor is continuously maintained in an amount not
less than 100% of the value of the loaned securities by marking to market daily.
5. May invest in warrants, valued at the lower of cost or market, in
excess of 5% of the market value of the Portfolio's or Fund's net assets, or in
excess of 2% of the market
B-32
<PAGE>
value of the Portfolio's or Fund's net assets if such warrants are not listed on
the New York Stock Exchange or the American Stock Exchange, as of the date of
investment.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1997, the following persons held of record more than
5% of the outstanding shares of the Portfolios:
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<PAGE>
As of such date, the Trustees and officers of the Trust, as a group,
owned beneficially and of record less than 1% of the outstanding shares of each
of the Portfolios, except as follows: _____________________________. The
Portfolios currently own beneficially and of record substantially all of the
outstanding shares of the corresponding Funds.
TRUSTEES AND PRINCIPAL OFFICERS
TRUST
The names and addresses of the Trustees and principal officers of the
Trust, including their positions and principal occupations during the past five
years, are shown below. Trustees whose names are followed by an asterisk are
"interested persons" of the Trust (as defined by the Investment Company Act).
Unless otherwise indicated, the address of each Trustee and officer is 600 West
Broadway, 30th Floor, San Diego, California 92101.
FRED C. APPLEGATE, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES. 885
La Jolla Corona Court, La Jolla, California. President, Hightower Management
Co., a financial management firm (since January 1992); formerly President,
Nicholas-Applegate Capital Management (from August 1984 to December 1991).
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.*/ 5405 Morehouse Drive, Suite 340, San
Diego, California. Chairman, A.B. Laffer, V.A. Canto & Associates, an economic
consulting firm (since 1979); Chairman, Laffer Advisers Incorporated, economic
consultants (since 1981); Director, Nicholas-Applegate Fund, Inc. (since 1987);
Director, U.S. Filter Corporation (since March 1991), 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 September 1985 to May 1988) and
Professor of Business Economics, University of Southern California (1976 to
1984). Mr. Laffer is considered to be an "interested person" of the Trust
because A.B. Laffer, V.A. Canto & Associates or its affiliates received $100,000
in 1995 and $100,000 in 1996 from the Investment Adviser as compensation for
consulting services provided from time to time to the Investment Adviser, and
because his son is an employee of the Investment Adviser.
CHARLES E. YOUNG, TRUSTEE. UCLA, 2147 Murphy Hall, Los Angeles,
California. Chancellor, UCLA (since 1968); Director, Nicholas-Applegate 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).
JOHN D. WYLIE, PRESIDENT. Partner (since January 1994), Chief
Investment Officer -Investor Services Group (since December 1995), and Portfolio
Manager (since January 1990), Nicholas-Applegate Capital Management. Mr. Wylie
is also the President of the Master Trust.
THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER. Partner (since January
1996) and Chief Financial Officer, Nicholas-Applegate Capital Management (since
January 1993), and Chief Financial Officer, Nicholas-Applegate Securities (since
January 1993); formerly Chief Financial Officer, Aurora Capital Partners/WSGP
Partners L.P., an investment partnership (from November 1988 to January 1993),
and Vice President and Controller, Security Pacific Merchant Banking Group (from
B-34
<PAGE>
November 1986 to November 1988). Mr. Pindelski is also the Chief Financial
Officer of the Master Trust.
PETER J. JOHNSON, VICE PRESIDENT. Partner and Director-Client
Services/Marketing, Nicholas-Applegate Capital Management (since January 1992)
and Vice President, Nicholas-Applegate Securities (since December 1995);
formerly, Marketing Director, Pacific Financial Asset Management Company, an
investment management firm (from July 1989 to December 1991), and Senior
Marketing Representative, Fidelity Investments Institutional Services (from
August 1987 to July 1989). Mr. Johnson is also the Vice President of the Master
Trust.
E. BLAKE MOORE, JR., SECRETARY. General Counsel and Secretary,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1993); formerly Attorney, Luce, Forward, Hamilton & Scripps (from 1989 to 1993).
Mr. Moore is also the Secretary of the Master Trust.
Each Trustee of the Trust who is not an officer or affiliate of the
Trust, the Investment Adviser or the Distributor receives an aggregate annual
fee of $14,000 for services rendered as a Trustee of the Trust, 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 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 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>
TOTAL COMPENSATION
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND TRUST
COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO
NAME TRUST PART OF TRUST EXPENSES RETIREMENT TRUSTEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred C. Applegate $ None N/A $ (53*)
Arthur B. Laffer $ None N/A $ (53*)
Charles E. Young $ None N/A $ (53*)
</TABLE>
* Indicates total number of funds in Trust complex, including the Portfolios.
MASTER TRUST
The names and addresses of the Trustees and principal officers of the
Master Trust, including their positions and principal occupations during the
past five years, are shown below. The positions and principal occupations of
the officers during the past five years, are set forth above. Trustees whose
names are followed by an asterisk are "interested persons" of the Trust (as
defined by the Investment Company Act). Unless otherwise indicated, the address
of each Trustee and officer is 600 West Broadway, 30th Floor, San Diego,
California 92101.
B-35
<PAGE>
ARTHUR E. NICHOLAS, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES.*/
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. 727 West Seventh Street, Los Angeles,
California. 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.* 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Geotech Communications, Inc., a mobile radio communications
company (since 1987); Fort Dearborn Fund (since 1987); Brinson Funds (since
1994), Smith Barney Trak Fund (since 1992), registered investment companies;
Pimco 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). Mr. Auch
is considered to be an "interested person" of the trust under the 1940 Act
because he is on the board of a company a subsidiary of which is a
broker-dealer.
THEODORE J. COBURN, TRUSTEE. 17 Cotswold Road, Brookline,
Massachusetts. 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.* 155 South Street, Wrentham,
Massachusetts. 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). Mr. DeRemer is
considered to be an "interested person" of the Master Trust under the 1940
Act because DeRemer Associates received $_______ in 1996 and $100,736 in 1995
from the Investment Adviser as compensation for consulting services provided
in connection with its institutional business.
GEORGE F. KEANE, TRUSTEE. 450 Post Road East, Westport, Connecticut.
President Emeritus and Senior Investment Adviser, The Common Fund, a non-profit
investment management organization representing educational institutions (since
1993), after serving as its President (from 1971 to 1992); Member of Investment
Advisory Committee, New York State Common Retirement Fund (since 1982); Director
and Chairman of the Investment Committee, United Negro College Fund (since
1987); Director, United Educators Risk Retention Group (since 1989); Director,
RCB
B-36
<PAGE>
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).
JOHN D. WYLIE, PRESIDENT.
THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER.
PETER J. JOHNSON, VICE PRESIDENT.
E. BLAKE MOORE, JR., SECRETARY.
Each Trustee of the Trust (or Master Trust) who is not an officer or
affiliate of the Master Trust, the Investment Adviser or the Distributor
receives an aggregate annual fee of $14,000 for services rendered as a Trustee
of the Trust (or Master Trust), 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 for the aggregate compensation paid by 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 Master Trust's board and that all other
funds in the "Master Trust complex" (as defined in Schedule 14A under the
Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Estimated Annual from Master Trust and
Compensation from Part of Master Trust Benefits Upon Master Trust Complex
Name Master Trust Expenses Retirement Paid to Trustee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dann V. Angeloff $ None N/A $ (12*)
Walter E. Auch $ None N/A $ (11*)
Theodore J. Coburn $ None N/A $ (12*)
Darlene Deremer $ None N/A $ (11*)
George F. Keane $ None N/A $ (11*)
</TABLE>
* Indicates total number of funds in Master Trust complex, including the Master
Trust Funds.
INVESTMENT ADVISER
The Trust has not engaged the services of an investment adviser with
respect to the Portfolios because the Portfolios invest all of their assets in
corresponding Funds. The Investment
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<PAGE>
Adviser to the Master Trust is Nicholas-Applegate Capital Management, a
California limited partnership, with offices at 600 West Broadway, 30th Floor,
San Diego, California 92101.
The Investment Adviser was organized in August 1984 to manage
discretionary accounts investing primarily in publicly traded equity securities
and securities convertible into or exercisable for publicly traded equity
securities, with the goal of capital appreciation. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership, the general partner of which is Nicholas-Applegate Capital
Management Holdings, Inc., a California corporation owned by Mr. Nicholas. The
Investment Adviser currently has fourteen partners (including Mr. Nicholas) who
manage a staff of approximately 350 employees, including 28 portfolio managers.
Personnel of the Investment Adviser may invest in securities for their
own accounts pursuant to a Code of Ethics that sets forth all partners' and
employees' fiduciary responsibilities regarding the Funds, establishes
procedures for personal investing, and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance, and
participation in initial public offerings is prohibited. In addition,
restrictions on the timing of personal investing in relation to trades by the
Funds and on short-term trading having been adopted.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Master Trust and
the Investment Adviser with respect to the Funds, the Master Trust retains the
Investment Adviser to manage the Funds' investment portfolios, subject to the
direction of the Master Trust's Board of Trustees. The Investment Adviser is
authorized to determine which securities are to be bought or sold by the Funds
and in what amounts.
The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by a Fund
or the Master Trust in connection with the matters to which the Investment
Advisory Agreement relates, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of the Investment Adviser's reckless disregard of its duties and
obligations under the Investment Advisory Agreement. The Master Trust has agreed
to indemnify the Investment Adviser against liabilities, costs and expenses that
the Investment Adviser may incur in connection with any action, suit,
investigation or other proceeding arising out of or otherwise based on any
action actually or allegedly taken or omitted to be taken by the Investment
Adviser in connection with the performance of its duties or obligations under
the Investment Advisory Agreement or otherwise as an investment adviser of the
Master Trust. The Investment Adviser is not entitled to indemnification with
respect to any liability to the Master Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or of its reckless disregard of its duties and obligations under the
Investment Advisory Agreement.
The amounts of the advisory fees earned by the Investment Adviser for
the fiscal year ended March 31, 1997, and the amounts of the reductions in fees
(or
B-38
<PAGE>
recoupment of fees previously deferred) as a result of the expense limitations
and fee waivers described below under "Expense Limitation" were as follows:
FUND ADVISORY FEES FEE REDUCTIONS
- ---- ------------- --------------
Large Cap Growth Fund
Core Growth Fund
Emerging Growth Fund
Income & Growth Fund
Balanced Growth Fund
Government Fund
Money Market Fund
International Core Growth Fund
Worldwide Growth Fund
International SMALL CAP Growth Fund
Emerging Countries Fund
The Investment Advisory Agreement provides that it will terminate in
the event of its assignment (as defined in the Investment Company Act). The
Investment Advisory Agreement may be terminated with respect to any Fund by the
Master Trust (by the Board of Trustees of the Master Trust or vote of a majority
of the outstanding voting securities of the Fund, as defined in the Investment
Company Act) or the Investment Adviser upon not more than 60 days' written
notice, without payment of any penalty. The Investment Advisory Agreement
provides that it will continue in effect with respect to each Fund for a period
of more than two years from its execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act.
EXPENSE LIMITATION
Under the Investment Advisory Agreement, the Investment Adviser has
agreed to defer its fees, and to absorb other expenses of each Portfolio
(including administrative fees and distribution expenses for the Portfolio, and
the Portfolio's allocable share of the operating expenses of the corresponding
Fund, but excluding interest, taxes, brokerage commissions and other costs
incurred in connection with portfolio securities transactions, organizational
expenses and other capitalized expenditures and extraordinary expenses), to
ensure that the operating expenses for the Series A Portfolios do not exceed the
amounts specified in the Portfolios' prospectuses.
B-39
<PAGE>
ADMINISTRATORS
The principal administrator of the Trust is Investment Company
Administration Corporation ("ICAC"), 4455 East Camelback Road, Suite 261-E,
Phoenix, Arizona 85018.
Pursuant to an Administration Agreement with the Trust, ICAC is
responsible for performing all administrative services required for the daily
business operations of the Trust, subject to the supervision of the Board of
Trustees of the Trust. ICAC has no supervisory responsibility over the
investment operations of the Portfolios. The management or administrative
services of ICAC for the Trust are not exclusive under the terms of the
Administration Agreement and ICAC is free to, and does, render management and
administrative services to others. ICAC also serves as the administrator for
the Master Trust.
For its services, ICAC receives under the Administration Agreement
$35,000 for each grouping of five similar portfolios (e.g., Core Growth
Portfolio A, Portfolio B, Portfolio C, Institutional and Qualified Portfolios),
$25,000 for each grouping of three similar portfolios, $20,000 for a grouping of
two similar portfolios and $5,000 for one portfolio, except as follows: The
Administrator receives $15,000 for its services with respect to the Emerging
Growth Portfolios. As a result, ICAC currently receives aggregate compensation
at the rate of $__________ per year for all of the series of the Trust. Such
fees will be allocated among the series in each grouping based on relative net
asset values. For its services to the Master Trust, ICAC receives, pursuant to
an Administration Agreement, a monthly fee at the following annual rates: 0.05%
on the first $100 million of aggregate net assets of the Funds, 0.04% on the
next $150 million, 0.03% on the next $300 million, 0.02% on the next $300
million, and 0.01% on the portion of aggregate net assets of the Funds in excess
of $850 million. ICAC will receive a minimum of $150,000 per year allocated
among the Funds based on average net assets.
In connection with its management of the corporate affairs of the
Trust, the Administrator pays the salaries and expenses of all its personnel and
pays all expenses incurred in connection with managing the ordinary course of
the business of the Trust, other than expenses assumed by the Trust as described
below.
Under the terms of the Administration Agreement, the Trust is
responsible for the payment of the following expenses: (a) the fees and
expenses incurred by the Trust in connection with the management of the
investment and reinvestment of their assets, (b) the fees and expenses of
Trustees and officers of the Trust who are not affiliated with ICAC OR the
Investment Adviser, (c) out-of-pocket travel expenses for the officers and
Trustees of the Trust and other expenses of Board of Trustees' meetings, (d) the
fees and certain expenses of the Custodian, (e) the fees and expenses of the
Transfer and Dividend Disbursing Agent that relate to the maintenance of each
shareholder account, (f) the charges and expenses of the Trust's legal counsel
and independent accountants, (g) brokerage commissions and any issue or transfer
taxes chargeable to Trustees and officers of the Trust in connection with
securities transactions, (h) all taxes and corporate fees payable by the Trust
to federal, state and other governmental agencies, (i) the fees of any trade
association of which the Trust may be a member, (j) the cost of maintaining the
Trust's existence, taxes and interest, (k) the cost of fidelity and liability
insurance, (l) the fees and expenses involved in registering and maintaining the
registration of the Trust and of its shares with the Commission and registering
the Trust as a broker or dealer and qualifying their shares under
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state securities laws, including the preparation and printing of the Trust's
registration statement, prospectuses and statements of additional information,
(m) allocable communication expenses with respect to investor services and all
expenses of shareholders' and Board of Trustees' meetings and of preparing,
printing and mailing prospectuses and reports to shareholders, (n) litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the business of the Trust, and (o) expenses assumed by
the Trust pursuant to any plan of distribution adopted in conformity with Rule
12b-1 under the Investment Company Act.
The Administration Agreement provides that ICAC will not be liable for
any error of judgment or for any loss suffered by the Trust in connection with
the matters to which the Administration Agreement relates, except a loss
resulting from ICAC'S willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties. The Administration Agreement will terminate
automatically if assigned, and may be terminated without penalty by either ICAC
or the Trust (by the Board of Trustees of the Trust or vote of a majority of the
outstanding voting securities of the Trust, as defined in the Investment Company
Act), upon 60 days' written notice. The Administration Agreement will continue
in effect only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act.
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is responsible for providing all administrative services
which are not provided by ICAC or by the Trust's Distributor, transfer agents,
accounting agents, independent accountants and legal counsel. These services
are comprised principally of assistance in coordinating with the Trust's various
service providers, providing certain officers of the Trust, responding to
inquiries from shareholders which are directed to the Trust rather than other
service providers, calculating performance data, providing various reports to
the Board of Trustees, and assistance in preparing reports, prospectuses, proxy
statements and other shareholder communications. The Agreement contains
provisions regarding liability and termination similar to those of the
Administration Agreement.
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway,
30th Floor, San Diego, California 92101, is the principal underwriter and
distributor for the Trust and, in such capacity, is responsible for distributing
shares of the Portfolios. The Distributor is a California limited partnership
organized in 1992 to distribute shares of registered investment companies. Its
general partner is Nicholas-Applegate Capital Management Holdings, L.P., the
general partner of the Investment Adviser.
DISTRIBUTION AGREEMENT
Pursuant to its Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the Portfolios,
but is not obligated to sell any specified number of shares. The Distribution
Agreement contains provisions with respect to renewal and termination similar to
those in the Investment Advisory Agreement discussed above. Pursuant to the
Distribution Agreement, the Trust has agreed to indemnify the Distributor to the
extent permitted by applicable law against certain liabilities under the
Securities Act.
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Sales charges on sales of Series A Portfolio shares are payable only
with respect to purchases of less than $1,000,000. However, the Distributor pays
an initial commission to broker-dealers and others on purchases of Series A
Portfolios of $1 million or more, and on purchases made at net asset value by
certain retirement plans. See "Purchase and Redemption of Portfolio
Shares--Dealer Commissions."
The aggregate commissions received by the Distributor in connection
with sales of the Portfolios for the fiscal year ended March 31, 1997 were
$___________, and the aggregate payments received by the Distributor pursuant to
the Distribution Plan for the fiscal year ended March 31, 1997, were as follows:
PAYMENTS UNDER
DISTRIBUTION
PORTFOLIO PLAN
- --------- ---------------
Core Growth Portfolio A
Core Growth Portfolio B
Core Growth Portfolio C
Emerging Growth Portfolio A
Emerging Growth Portfolio B
Emerging Growth Portfolio C
Income & Growth Portfolio A
Income & Growth Portfolio B
Income & Growth Portfolio C
Balanced Portfolio A
Balanced Portfolio B
Balanced Portfolio C
Worldwide Portfolio A
Worldwide Portfolio B
Worldwide Portfolio C
Government Portfolio A
Government Portfolio B
Government Portfolio C
International Small Cap Portfolio A
International Small Cap Portfolio B
International Portfolio C
Emerging Countries Portfolio A
Emerging Countries Portfolio B
Emerging Countries Portfolio C
Money Market Portfolio
DISTRIBUTION PLAN
Under a plan of distribution for the Trust with respect to the
Series A Portfolios, Series B Portfolios and Series C Portfolios (the
"Distribution Plan") adopted pursuant to Rule 12b-1 under the Investment Company
Act and distribution agreement (the "Distribution Agreement"), the Distributor
incurs the expense of distributing shares of the Portfolios. The Distribution
Plan provides for compensation to the Distributor for the services it provides,
and the costs and expenses it incurs, related to marketing shares
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of the Portfolios. The Distributor is paid for: (a) expenses incurred in
connection with advertising and marketing shares of the Portfolios including
but not limited to any advertising by radio, television, newspapers,
magazines, brochures, sales literature, telemarketing or direct mail
solicitations; (b) periodic payments of fees or commissions for distribution
assistance made to one or more securities brokers, dealers or other industry
professionals such as investment advisers, accountants, estate planning firms
and the Distributor itself in respect of the average daily value of shares
owned by clients of such service organizations, and (c) expenses incurred in
preparing, printing and distributing the Portfolios' prospectuses and
statements of additional information.
The Distribution Plan continues in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Trustees of the Trust, including a majority vote of the Rule 12b-1 Trustees,
cast in person at a meeting called for the purpose of voting on such
continuance. The Distribution Plan may be terminated with respect to any
Portfolio at any time, without penalty, by the vote of a majority of the Rule
12b-1 Trustees or by the vote of the holders of a majority of the outstanding
shares of the Portfolio. The Distribution Plan may not be amended to increase
materially the amounts to be paid by a Portfolio for the services described
therein without approval by the shareholders of the Portfolio, and all material
amendments are required to be approved by the Board of Trustees in the manner
described above. The Distribution Plan will automatically terminate in the
event of its assignment. A Portfolio will not be contractually obligated to pay
expenses incurred under the Distribution Plan if the Plan is terminated or not
continued with respect to the Portfolio.
Under the Distribution Plan, the Distributor is compensated for
distribution-related expenses with respect to the Portfolios at the following
annual rates, payable monthly, based on the average daily net assets of each
Portfolio: for the Series A Portfolios, 0.25%; for the Money Market Portfolio,
0.15%; for the Series B and C Portfolios (other than the Government Portfolio B
and C), 0.75%; for the Government Portfolio B and C, 0.50%. The Distributor
recovers the distribution expenses it incurs through the receipt of compensation
payments from the Trust under the Distribution Plan and the receipt of that
portion of initial sales charges on purchases of shares of the Portfolios
remaining after the Distributor's reallowance to selected dealers. No separate
compensation is paid to the Distributor for distributing shares of the
Institutional Portfolios.
If the Distributor incurs expenses greater than the maximum
distribution fees payable under the Distribution Plan, as described above, with
respect to a Portfolio, the Portfolio will not reimburse the Distributor for the
excess in the subsequent fiscal year. However, because the Distribution Plan is
a "compensation-type" plan, the distribution fees are payable even if the
Distributor's actual distribution related expenses are less than the percentages
described above.
The Distributor pays broker-dealers and others out of its distribution
fees quarterly trail commissions of up to the following annual percentages of
the average daily net assets attributable to shares of respective Portfolios
held in the accounts of their customers: 0.25% for the Series A and B
Portfolios; 0.15% for the Money Market Portfolio; 0.75% for the Series C Core
Growth, Emerging Growth, Income & Growth, Balanced, Worldwide,
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International Growth and Emerging Countries Portfolios; and 0.50% for the Series
C Government Portfolio.
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SHAREHOLDER SERVICE PLAN
The Trust has also adopted a Shareholder Service Plan with respect to
the Portfolios. Under the Shareholder Service Plan, the Distributor is
compensated at the annual rate of 0.10% of each Series A Portfolio's average
daily net assets, 0.10% of the Money Market Portfolio's average daily net
assets, and 0.25% of each Series B and C Portfolio's average daily net assets,
for certain shareholder service expenses provided by the Distributor and fees
paid to broker-dealers and others for the provision of support services to their
clients who are beneficial owners of shares of the Portfolios.
Support services include, among other things, establishing and
maintaining accounts and records relating to their clients that invest in
Portfolio shares; processing dividend and distribution payments from the
Portfolios on behalf of clients; preparing tax reports; arranging for bank
wires; responding to client inquiries concerning their investments in Portfolio
shares; providing the information to the Portfolios necessary for accounting and
subaccounting; preparing tax reports, forms and related documents; forwarding
shareholder communications from the Trust (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to clients; assisting in processing exchange and redemption requests
from clients; assisting clients in changing dividend options, account
designations and addresses; and providing such other similar services.
The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Trustees of the Trust, including a majority of the Trustees who
have no direct or indirect financial interest in the operation of the
Shareholder Service Plan or in any agreement related to the Shareholder Service
Plan (the "Independent Trustees"), cast in person at a meeting called for the
purpose of voting on such continuance. The Shareholder Service Plan may be
amended at any time by the Board, provided that any material amendments of the
terms of the Plan will become effective only upon the approval by a majority of
the Board and a majority of the Independent Trustees pursuant to a vote cast in
person at a meeting called for the purpose of voting on the Plan. The
Shareholder Service Plan may be terminated with respect to any Portfolio at any
time, without penalty, by the Board.
Under the Shareholder Service Plan, the Distributor pays
broker-dealers and others an account servicing fee of up to 0.25% annually of
the average daily net assets of the Series C Portfolios, attributable to shares
in the accounts of their customers, as compensation for providing certain
shareholder-related services.
MISCELLANEOUS
Pursuant to the Distribution Plan and Shareholder Service Plan, the
Board of Trustees reviews at least quarterly a written report of the
distribution and service expenses incurred on behalf of shares of the Portfolios
by the Distributor. The report includes an itemization of the distribution and
service expenses and the purposes of such expenditures. In addition, as long as
the Plans remain in effect, the selection and nomination of Trustees who are not
interested persons of the Trust is committed to the Trustees who are not
interested persons of the Trust.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Master Trust's Board of
Trustees, the Investment Adviser is primarily responsible for the execution of
the Funds' portfolio transactions and the allocation of the brokerage business.
In executing such transactions, the Investment Adviser will seek to obtain the
best price and execution for the Funds, taking into account such factors as
price, size of order, difficulty and risk of execution and operational
facilities of the firm involved. Securities in which the Funds invest may be
traded in the over-the-counter markets, and the Funds deal directly with the
dealers who make markets in such securities except in those circumstances where
better prices and execution are available elsewhere. Commission rates are
established pursuant to negotiation with brokers or dealers based on the quality
or quantity of services provided in light of generally prevailing rates, and
while the Investment Adviser generally seeks reasonably competitive commission
rates, the Funds do not necessarily pay the lowest commissions available. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Board of Trustees of the Master Trust.
The Funds have no obligation to deal with any broker or group of
brokers in executing transactions in portfolio securities. Subject to obtaining
the best price and execution, brokers who sell shares of the Portfolios or
provide supplemental research, market and statistical information and other
research services and products to the Investment Adviser may receive orders for
transactions by the Funds. Such information, services and products are those
which brokerage houses customarily provide to institutional investors, and
include items such as statistical and economic data, research reports on
particular companies and industries, and computer software used for research
with respect to investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement, and
the expenses of the Investment Adviser are not necessarily reduced as a result
of the receipt of such supplemental information, services and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Master Trust, and not all such
information, services and products are used by the Investment Adviser in
connection with the Funds. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers through whom other
clients of the Investment Adviser effect securities transactions may be useful
to the Investment Adviser in providing services to the Funds. The Investment
Adviser is authorized to pay higher commission on brokerage transactions for the
Funds to brokers in order to secure the information, services and products
described above, subject to review by the Master Trust's Board of Trustees from
time to time as to the extent and continuation of this practice.
Although investment decisions for the Master Trust are made
independently from those of the other accounts managed by the Investment
Adviser, investments of the kind made by the Funds may often also be made by
such other accounts. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Funds and one or more other
accounts managed by the Investment Adviser, available investments are allocated
in the discretion of the Investment Adviser by such means as, in its judgment,
result in fair treatment. The Investment Adviser aggregates orders for
purchases and sales of securities of the same issuer on the same day among the
Funds and its other managed accounts, and the price paid to or received by the
Funds and those accounts is the average obtained in those orders. In some
cases, such aggregation and
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<PAGE>
Allocation procedures may affect adversely the price paid or received by the
funds or the size of the position purchased or sold by the Funds.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's commission or discount. On occasion, certain
money market instruments and agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid.
During the fiscal year ended March 31, 1996, the following Funds
acquired securities of their regular brokers or dealers (as defined in Rule
10b-1 under the Investment Company Act) or their parents:
_________________________.
The aggregate dollar amount of brokerage commissions paid by the Funds
during the last three fiscal years of the Trust were as follows:
NEW TAB GRID YEAR ENDED
-------------------------------------------------
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
-------------- -------------- --------------
International Core Growth
Fund $ 0 $ 0
Worldwide Fund 484,310 344, 167
International Small Cap
Growth Fund 116,735 69,187
Emerging Countries Fund 169,728 20,701
Large Cap Growth Fund 0 0
Core Growth Fund 862,396 728,347
Emerging Growth Fund 1,038,140 649,053
Income & Growth Fund 83,459 174,247
Balanced Fund 51,038 44,386
Government Fund 3 0
Money Market Fund 0 0
Of the total commissions paid during the fiscal year ended March 31, 1997,
$____________ (____%) were paid to firms which provided research, statistical or
other services to the Investment Adviser.
PURCHASE AND REDEMPTION OF PORTFOLIO SHARES
Shares of the Series A, B, and C Portfolios may be purchased and
redeemed at their net asset value without any initial or deferred sales charge
by former partners of Whitehall Partners and Coventry Partners, California
limited partnerships, who received shares of the Trust's Core Growth
Institutional Portfolio and Income & Growth
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<PAGE>
Institutional Portfolio, respectively, in the reorganization and conversion of
such partnerships into such Portfolios. Similarly, shares of the Portfolios may
be purchased and redeemed at their net asset value without any initial or
deferred sales charge by former partners and participants of Stratford Partners
and Nicholas-Applegate Emerging Growth Pooled Trust who received shares of the
Trust's Emerging Growth Institutional Portfolio in the reorganization and
conversion of such partnerships and pooled trust into such Portfolio.
The price paid for purchase and redemption of shares of the Portfolios
is based on the net asset value per share, which is calculated once daily at the
close of trading (currently 4:00 P.M. New York time) each day the New York Stock
Exchange is open. The New York Stock Exchange is currently closed on weekends
and on the following holidays: New Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
Day. The offering price is effective for orders received by the Transfer Agent
prior to the time of determination of net asset value. Dealers are responsible
for promptly transmitting purchase orders to the Transfer Agent. The Trust
reserves the right in its sole discretion to suspend the continued offering of
the Portfolios' shares and to reject purchase orders in whole or in part when
such rejection is in the best interests of the Trust and the affected
portfolios. Payment for shares redeemed will be made more than seven days after
receipt of a written or telephone request in appropriate form, except as
permitted by the 1940 Act and the Rules thereunder.
REDUCED SALES CHARGES
Sales charges on purchases of Series A Portfolio shares are subject to
a reduction in certain circumstances, as indicated in the Prospectuses for the
Series A Portfolios.
RIGHTS OF ACCUMULATION. Each Series A Portfolio makes available to
its shareholders the ability to aggregate the value (at the current maximum
offering price on the date of the purchase) of their existing holdings of all
Series A Portfolio shares to determine the reduced sales charge, provided the
shares are held in a single account. The value of existing holdings for
purposes of determining the reduced sales charge is calculated using the maximum
offering price (net asset value plus sales charge) as of the previous business
day. The Transfer Agent must be notified at the time of purchase that the
shareholder is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investor's holdings.
CONCURRENT PURCHASES. Purchasers may combine concurrent purchases of
shares of two or more Series A Portfolios to qualify for a reduced sales charge.
If the shares of the Portfolios purchased concurrently are subject to different
sales charges, the concurrent purchases are aggregated to determine the reduced
sales charge applicable to each Portfolio purchased, and each separate reduced
sales charge is imposed on the amount of shares purchased for that Portfolio.
To illustrate, suppose an investor concurrently purchases $40,000 of
the Series A Core Growth Portfolio and $20,000 of the Series A Government Income
Portfolio, for an aggregate concurrent purchase of $60,000. Because the sales
charges are reduced for purchases of $50,000 or more and because concurrent
purchases can be combined, the applicable sales charge imposed on the $40,000
purchase of shares of the Core Growth Portfolio would be reduced to 4.50% (from
5.25%), and the sales charge imposed on the
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concurrent $20,000 purchase of shares of the Government Income Portfolio would
be reduced to 4.00% (from 4.75%).
LETTER OF INTENT. Reduced sales charges are available to purchasers
of Series A Portfolio shares who enter into a written Letter of Intent providing
for the purchase, within a 13-month period, of shares of the Series A
Portfolios, provided the shares are held in a single account. All shares of the
Series A Portfolios which were previously purchased and are still owned are also
included in determining the applicable reduction. The Letter of Intent
privilege may be withdrawn by the Distributor or the Transfer Agent for future
purchases upon receipt of information that any shares subject to the Letter of
Intent have been transferred or redeemed during the 13-month Period.
A Letter of Intent permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a 13-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Investors should refer to their Letter of Intent when placing
orders for shares of a Series A Portfolio. During the 13-month period, an
investor may increase his or her Letter of Intent goal and all subsequent
purchases will be treated as a new Letter of Intent except as to the 13-month
period, which does not change. The sales charge paid on purchases made before
the increase to the Letter of Intent goal will be retroactively reduced at the
end of the period.
Shares of the Series A Portfolios totaling 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent in the name of
the purchaser. Any dividends and capital gains distributions on the escrowed
shares will be paid to the investor or as otherwise directed by the investor.
The effective date of a Letter of Intent may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal. Upon completion of the Letter of Intent goal within the 13-month period,
the escrowed shares will be promptly delivered to the investor or as otherwise
directed by the investor.
The Letter of Intent does not obligate the investor to purchase, or
any Series A Portfolio to sell, the indicated amount. In the event the Letter
of Intent goal is not achieved within the 13-month period, the investor is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Transfer Agent or, if not paid within 20
days after written request, the Transfer Agent will liquidate sufficient
escrowed shares to obtain such difference. If the redemption or liquidation
proceeds are inadequate to cover the differences, investors will be liable for
the extent of the inadequacy. By executing the Letter of Intent, investors
irrevocably appoint the Transfer Agent as attorney in fact with full power of
substitution in the premises to surrender for redemption any or all escrowed
shares. If the goal Letter of Intent is exceeded in an amount which qualified
for a lower sales charge, a price adjustment is made by refunding to the
purchaser the amount of excess sales charge, if any, paid during the 13-month
period.
DEALER COMMISSIONS
The following commissions will be paid by the Distributor to dealers
who initiate and are responsible for purchases of Portfolio shares of $1 million
or more and for
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<PAGE>
purchases made at net asset value by certain retirement plans of organizations
with 50 or more eligible employees. Such commissions are paid twice monthly at
the following annual rates:
CURRENT MARKET VALUE
OF ACCOUNTS AT
COMMISSION RATE TIME OF PURCHASE
--------------- --------------------
1.00% $1,000,000 up to $2,000,000.
.80% over $2,000,000 up to $5,000,000.
.50% over $5,000,000 up to $25,000,000.
.25% over $25,000,000.
For this purpose, exchanges between Portfolios are not considered to be
purchases. The Distributor reserves the right to require reimbursement of any
such commissions paid with respect to such purchases if such shares are redeemed
within twelve months after purchase. Dealers requesting further information may
call (800) 551-8045.
REDEMPTION IN KIND
The Trust intends to pay in cash for all shares of a Portfolio
redeemed, but when the Master Trust makes payment to a Portfolio in readily
marketable investment Securities, the Trust reserves the right to make payment
wholly or partly in shares of such securities. In such cases, a shareholder may
incur brokerage costs in converting such securities to cash. However, the Trust
has elected to be governed by the provisions of Rule 18f-1 under the Investment
Company Act, pursuant to which it is obligated to pay in cash all requests for
redemptions by any shareholder of record, limited in amount with respect to each
shareholder during any 90-day period to the lesser of $250,000 or 1% of the net
asset value of the Trust at the beginning of such period.
WAIVER OF CDSC
The CDSC is waived for redemptions of by: (1) current or retired
directors, trustees, partners, officers and employees of the Trust, the Master
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) former limited partners and participants of certain investment
partnerships and pooled trusts previously managed by the investment adviser; and
(3) participants in certain pension, profit-sharing or employee benefit plans
that are sponsored by the distributor and its affiliates.
The CDSC is also waived for:
(1) Exchanges of shares of the Series B or C Portfolios (however, the
shares acquired by exchange will continue to be subject to a CDSC on the
same basis as the shares exchanged);
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<PAGE>
(2) Redemptions in connection with mergers, acquisitions and exchange
offers involving a Series B or C Portfolio;
(3) Qualifying distributions from qualified retirement plans and other
employee benefit plans;
(4) Distributions from custodial accounts under Section 403(B)(7) Of the
Internal Revenue Code or IRAs due to death, disability or attainment of age
59 1/2;
(5) tax-free returns of excess contributions to IRAs; and
(6) Any partial or complete redemptions following the death or disability
of a shareholder, provided the redemption is made within one year of death
or initial determination of disability.
SHAREHOLDER SERVICES
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of a Portfolio, a shareholder
investment account is established for each investor under which the shares are
held for the investor by the transfer agent. If a share certificate is desired,
it must be requested in writing for each transaction. Certificates are issued
only for full shares and may be redeposited in the account at any time. There
is no charge to the investor for issuance of a certificate. Whenever a
transaction takes place in the shareholder investment account, the shareholder
will be mailed a statement showing the transaction and the status of the
account. No certificates will be issued for shares of the Money Market or
Institutional Portfolios.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the applicable
Portfolio at net asset value. An investor may direct the transfer agent in
writing not less than five full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly to
the dealer. Any shareholder who receives a cash payment representing a dividend
or distribution may reinvest such distribution at net asset value by returning
the check or the proceeds to the transfer agent within 30 days after the payment
date. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the transfer agent.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, an investor may arrange to have a
fixed amount automatically invested in shares of a Portfolio on a monthly or
quarterly basis on any day of the month or quarter by authorizing his or her
bank account to be debited to invest specified dollar amounts in shares of the
Portfolio. The investor's bank must be a member of the Automatic Clearing House
System. Stock certificates are not issued to
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participants of the Automatic Investment Plan. Participation in the Plan will
begin within 30 days after receipt of the account application. If the
investor's bank account cannot be charged due to insufficient funds, a
stop-payment order or closing of the account, the investor's Plan may be
terminated and the related investment reversed. The investor may change the
amount of the investment or discontinue the Plan at any time by writing to the
transfer Agent. Further information about this program and an application form
can be obtained from the Transfer Agent or the Distributor.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A shareholder in one Portfolio may elect to cross-reinvest dividends
or dividends and capital gain distributions paid by that Portfolio (the "paying
Portfolio") into any other Portfolio (the "receiving Portfolio") subject to the
following conditions: (i) the aggregate value of the shareholder's account(s)
in the paying Portfolio(s) must equal or exceed $5,000 (this condition is waived
if the value of the account in the receiving Portfolio equals or exceeds that
Portfolio's minimum initial investment requirement), (ii) as long as the value
of the account in the receiving Portfolio is below that Portfolio's minimum
initial investment requirement, dividends and capital gain distributions paid by
the receiving Portfolio must be automatically reinvested in the receiving
Portfolio, (iii) there is no cross-reinvestment from a Portfolio of one series
to a Portfolio of another series, and (iv) if this privilege is discontinued
with respect to a particular receiving Portfolio, the value of the account in
that portfolio must equal or exceed the Fund's minimum initial investment
requirement or the Portfolio will have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and capital
gain distributions will be at net asset value (without a sales charge).
AUTOMATIC WITHDRAWAL
The Transfer Agent arranges for the redemption by the Portfolio of
sufficient shares, deposited by the shareholder with the Transfer Agent, to
provide the withdrawal payment specified. Withdrawal payments should not be
considered as dividends, yield or income. Automatic investments may not be made
into a shareholder account from which there are automatic withdrawals.
Withdrawals of amounts exceeding reinvested dividends and distributions and
increases in share value will reduce the aggregate value of the shareholder's
account.
NET ASSET VALUE
The net asset value of a share of a Portfolio is calculated by
dividing (i) the value of the securities held by the Portfolio (I.E., the value
of its investments in a Fund), plus any cash or other assets, minus all
liabilities (including accrued estimated expenses on an annual basis), by (ii)
the total number of shares of the Portfolio outstanding. The net asset value of
an interest in a Fund is calculated in the same manner. The value of the
investments and assets of the Portfolio or a Fund is determined each business
day.
Investment securities, including ADRs and EDRs, that are traded on a
stock exchange or on the NASDAQ National Market System are valued at the last
sale price as of the close of business on the New York Stock Exchange (normally
4:00 P.M. New York time) on the day the securities are being valued, or lacking
any sales, at the mean between
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the closing bid and asked prices. Securities listed or traded on certain
foreign exchanges whose operations are similar to the United States
over-the-counter market are valued at the price within the limits of the latest
available current bid and asked prices deemed by the Investment Adviser best to
reflect fair value. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security by the Investment Adviser. Listed securities that are
not traded on a particular day and other over-the-counter securities are valued
at the mean between the closing bid and asked prices.
In the event that the New York Stock Exchange or the national
securities exchange on which stock or stock options are traded adopt different
trading hours on either a permanent or temporary basis, the Boards of Trustees
of the Trust and the Master Trust will reconsider the time at which net asset
value is computed. In addition, the asset value of the Portfolio or the Fund
may be computed as of any time permitted pursuant to any exemption, order or
statement of the Commission or its staff.
Long-term debt obligations are valued at the quoted bid prices for
such securities or, if such prices are not available, at prices for securities
of comparable maturity, quality and type; however, when the Investment Adviser
deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used, as discussed below. Debt securities with
maturities of 60 days or less are valued at amortized cost if their term to
maturity from date of purchase is less than 60 days, or by amortizing, from the
sixty-first day prior to maturity, their value on the sixty-first day prior to
maturity if their term to maturity from date of purchase by the Portfolio or the
Fund is more than 60 days, unless this is determined by the Board of Trustees of
the Master Trust not to represent fair value. Repurchase agreements are valued
at cost plus accrued interest.
U.S. Government securities are traded in the over-the-counter market
and are valued at the last available bid prices, except that securities with a
demand feature exercisable within one to seven days are valued at par. Such
valuations are based on quotations of one or more dealers that make markets in
the securities as obtained from such dealers, or on the evaluation of a pricing
service.
Options, futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale or settlement price as of the close of
such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes later
than 4:00 p.m. New York time, the options or futures traded on it are valued
based on the sale price, or on the mean between the bid and ask prices, as the
case may be, as of 4:00 p.m. New York time.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of business
day in New York. In addition, foreign securities trading may not take place on
all business days in New York, and may occur in various foreign markets on days
which are not business days in New York and on which net asset value is not
calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the calculation of net asset value
unless the Board of Trustees of the Master Trust deems that the particular event
would materially affect net asset value, in which case an adjustment will be
made. Assets or liabilities initially expressed in terms of foreign currencies
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are translated prior to the next determination of the net asset value into U.S.
dollars at the spot exchange rates at 1:00 p.m. New York time or at such other
rates as the Investment Adviser may determine to be appropriate in computing net
asset value.
Securities and assets for which market quotations are not readily
available, or for which the Master Trust's Board of Trustees or persons
designated by the Board determine that the foregoing methods do not accurately
reflect current market value, are valued at fair value as determined in good
faith by or under the direction of the Master Trust's Board of Trustees. Such
valuations and procedures will be reviewed periodically by the Board of
Trustees.
The Master Trust may use a pricing service approved by its Board of
Trustees. Prices provided by such a service represent evaluations of the mean
between current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics, indications
of values from dealers and other market data. Such services may use electronic
data processing techniques and/or a matrix system to determine valuations. The
procedures of such services are reviewed periodically by the officers of the
Master Trust under the general supervision and responsibility of its Board of
Trustees, which may replace a service at any time if it determines that it is in
the best interests of the Funds to do so.
MONEY MARKET PORTFOLIO
The calculation of the net asset value per share of the Money Market
Portfolio, as well as the Money Market Fund, is based upon the penny-rounding
method of pricing pursuant to Rule 2a-7 under the Investment Company Act. Under
the rule, the Money Market Portfolio and its corresponding Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
instruments having remaining maturities of 13 months or less only (25 months or
less in the case of U.S. Government securities), and invest only in securities
determined by the Board of Trustees to be of high quality with minimal credit
risks. The net asset value per share of the Money Market Portfolios and Fund
will normally remain constant at $1.00.
The Money Market Fund determines the value of its portfolio securities by
the amortized cost method. This method involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. During these periods, the yield to an existing shareholder may
differ somewhat from that which could be obtained from a similar fund which
marks its portfolio securities to market each day.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Balanced and Income & Growth Portfolios declare and pay quarterly
dividends of net investment income. The Government Portfolios declare and pay
monthly dividends of net investment income. The Money Market Portfolio declares
daily dividends of net investment income and distributes the accrued dividends
to shareholders each month.
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All other Portfolios declares and pay annual dividends of all investment income.
Each Portfolio makes distributions at least annually of its net capital gains,
if any. In determining amounts of capital gains to be distributed by a
Portfolio, any capital loss carryovers from prior years will be offset against
its capital gains.
MASTER TRUST'S TAX STATUS
Each Fund of the Master Trust will be treated as a partnership rather
than as a regulated investment company or a corporation under the Internal
Revenue Code (the "Code"). As a partnership under the Code, any interest,
dividends and gains or losses of the Master Trust attributable to each Fund will
be deemed to have been "passed through" to the Trust and other investors in such
Fund, regardless of whether such interest, dividends or gains have been
distributed by the Fund or such losses have been realized and recognized by the
Trust and other investors. Therefore, to the extent a Fund were to accrue but
not distribute any interest, dividends or gains, the Trust and other investors
in the Fund would be deemed to have realized and recognized their proportionate
shares of interest, dividends, gains or losses realized and recognized by the
Fund without receipt of any corresponding distribution. However, the Master
Trust will seek to minimize recognition by investors in the Funds of interest,
dividends, gains or losses allocable to the Funds without a corresponding
distribution.
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify each Portfolio as a regulated
investment company under Subchapter M of the Code, and intends that each
Portfolio will remain so qualified.
As a regulated investment company, a Portfolio will not be liable for
federal income tax on its income and gains provided it distributes all of its
income and gains currently. Qualification as a regulated investment company
under the Code requires, among other things, that each Portfolio (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) derive less than 30% of its
gross income from the sale or other disposition of stock, securities, options,
futures, forward contracts, certain foreign currencies and certain options,
futures, and forward contracts on foreign currencies held less than three
months; (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the Portfolio's assets is represented by
cash, U.S. Government securities and securities of other regulated investment
companies, and other securities (for purposes of this calculation generally
limited, in respect of any one issuer, to an amount not greater than 5% of the
market value of the Portfolio's assets and 10% of the outstanding voting
securities of such issuer) and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government or
foreign government securities or the securities of other regulated investment
companies), or two or more issuers which the Trust controls and which are
determined to be engaged in the same or similar trades or businesses; and
(d) distribute at least 90% of its investment company taxable income (which
includes dividends, interest, and net short-term capital gains in excess of net
long-term capital losses) each taxable year.
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A Portfolio generally will be subject to a nondeductible excise tax of
4% to the extent that it does not meet certain minimum distribution requirements
as of the end of each calendar year. To avoid the tax, a Portfolio must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income and net capital gain (not taking into account any
capital gains or losses as an exception) for the calendar year, (2) at least 98%
of its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by the Portfolio in
October, November, or December of that year to shareholders of record on a date
in such a month and paid by the Portfolio during January of the following year.
Such distributions will be taxable to shareholders (other than those not subject
to federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To avoid the excise tax, the Portfolios intend to make timely distributions of
their income in compliance with these requirements and anticipate that they will
not be subject to the excise tax.
Dividends paid by a Portfolio from ordinary income, and distributions
of the Portfolio's net realized short-term capital gains, are taxable to its
shareholders as ordinary income. Distributions to corporate shareholders will
be eligible for the 70% dividends received deduction to the extent that the
income of the Portfolios is derived from dividends on common or preferred stock
of domestic corporations. Dividend income earned by a Portfolio will be
eligible for the dividends received deduction only if the Portfolio and
corresponding Fund have satisfied a 46-day holding period requirement with
respect to the underlying portfolio security (91 days in the case of dividends
derived from preferred stock). In addition, a corporate shareholder must have
held its shares in the Portfolio for not less than 46 days (91 days in the case
of dividends derived from preferred stock) in order to claim the dividend
received deduction. Not later than 60 days after the end of its taxable year,
the Portfolio will send to its shareholders a written notice designating the
amount of any distributions made during such year which may be taken into
account by its shareholders for purposes of such deduction provisions of the
Code. Net capital gain distributions are not eligible for the dividends
received deduction.
Under the Code, any distributions designated as being made from net
capital gains are taxable to a Portfolio's shareholders as long-term capital
gains, regardless of the holding period of such shareholders. Such
distributions of net capital gains will be designated by the Portfolio as a
capital gains distribution in a written notice to its shareholders which
accompanies the distribution payment. Any loss on the sale of shares held for
less than six months will be treated as a long-term capital loss for federal tax
purposes to the extent a shareholder receives net capital gain distributions on
such shares. The maximum federal income tax rate applicable to long-term
capital gains is currently 28% for individual shareholders and 35% for corporate
shareholders. Dividends and distributions are taxable as such whether received
in cash or reinvested in additional shares of a Portfolio.
Any loss realized on a sale, redemption or exchange of shares of a
Portfolio by a shareholder will be disallowed to the extent the shares are
replaced within a 61-day period (beginning 30 days before the disposition of
shares). Shares purchased pursuant to the reinvestment of a dividend will
constitute a replacement of shares.
A shareholder who acquires shares of a Portfolio and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain
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sales charges incurred in acquiring such shares for purposes of calculating gain
or loss realized upon a sale or exchange of shares of the Portfolio if the
shareholder acquires shares in a Portfolio of the Trust pursuant to a
reinvestment right that reduces the sales charges in the subsequent acquisition
of shares.
SPECIAL TAX CONSIDERATIONS
U.S. GOVERNMENT OBLIGATIONS. Income received on direct U.S.
Government obligations is exempt from tax at the state level when received
directly and may be exempt, depending on the state, when received by a
shareholder from a Portfolio provided that certain conditions are satisfied.
Interest received on repurchase agreements collateralized by U.S. Government
obligations normally is not exempt from state taxation. The Trust will inform
shareholders annually of the percentage of income and distributions derived from
direct U.S. Government obligations. Shareholders should consult their tax
advisers to determine whether any portion of the income dividends received from
the Portfolio is considered tax exempt in their particular states.
With respect to investments in STRIPS and CUBES made by the Money
Market Fund that are sold at original issue discount and thus do not make
periodic cash interest payments, the Fund and the Money Market Portfolios will
be required to include as part of their current income the imputed interest on
such obligations even though the Fund and the Portfolios have not received any
interest payment on such obligations during that period. Because the Fund may
have to sell portfolio securities to distribute such imputed income, which may
occur at a time when the Investment Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
SECTION 1256 CONTRACTS. Many of the futures contracts and forward
contracts used by the Funds are "section 1256 contracts." Any gains or losses
on section 1256 contracts are generally credited 60% long-term and 40%
short-term capital gains or losses ("60/40") although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character. Also,
section 1256 contracts held by the Funds at the end of each taxable year (and,
for purposes of the 4% excise tax, on certain other dates as prescribed under
the Code) are "marked to market" with the result that unrealized gains or losses
are treated as though they were realized and the resulting gain or loss is
treated as ordinary or 60/40 gain or loss, depending on the circumstances.
STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the Funds
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Portfolios.
In addition, losses realized by the Portfolio on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the tax consequences of transactions in options,
futures and forward contracts to the Portfolio are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by the
Portfolio which is taxed as ordinary income when distributed to shareholders.
The Portfolios may make one or more of the elections available under
the Code which are applicable to straddles. If the Portfolios make any of the
elections, the
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amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because applications of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options,
futures, and forward contracts held less than three months and the qualifying
income and diversification requirements applicable to the Portfolios' and the
Funds' assets may limit the extent to which the Funds will be able to engage in
transactions in options, futures contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of the Portfolio's investment company taxable income to be
distributed to the shareholders.
FOREIGN TAX. Income received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. In addition, the Investment Adviser intends to manage the
Funds with the intention of minimizing foreign taxation in cases where it is
deemed prudent to do so. If more than 50% of the value of a Fund's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to elect to "pass-through" to the Portfolio's
shareholders the amount of foreign income and similar taxes paid by the Fund.
Each shareholder will be notified within 60 days after the close of the
Portfolio's taxable year whether the foreign taxes paid by the Fund will be
"pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his or her
total foreign source taxable income. For this purpose, if the pass-through
election is made, the source of the Fund's income will flow through to
shareholders of the Portfolio. With respect to such election, gains from the
sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, and to certain
other types of income. Shareholders may be unable to claim a credit for the
full amount of their proportion at share of the foreign taxes paid by the Fund.
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The foreign tax credit is modified for purposes of the federal alternative
minimum tax and can be used to offset only 90% of the alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.
SHORT SALES. Generally, capital gain or loss realized by the Fund in
a short sale may be long-term or short-term depending on the holding period of
the short position. Under a special rule, however, the capital gain will be
short-term gain if (1) as of the date of the short sale, the Fund owned property
for the short-term holding period that was substantially identical to that which
the Fund used to close the sale or (2) after the short sale and on or before its
closing, the Fund acquired substantially similar property. Similarly, if
property substantially identical to that sold short was held by the Fund for the
long-term holding period as of the date of the short sale, any loss on closing
the short position will be long-term capital loss. These special rules do not
apply to substantially similar property to the extent such property exceeds the
property used by the Fund to close its short position.
ORIGINAL ISSUE DISCOUNT. Some of the debt securities (with a fixed
maturity date of more than one year from the date of issuance) that may be
acquired by the Funds may be treated as debt securities that are issued
originally at a discount. Generally, the amount of the original issue discount
("OID") is treated as interest income and is included in income over the term of
the debt security, even though payment of that amount is not received until a
later time, usually when the debt security matures. A portion of the OID
includable in income with respect to certain high-yield corporation debt
securities may be treated as a dividend for Federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Funds in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. The Funds may make one or more of the elections applicable to
debt securities having market discount, which could affect the character and
timing the recognition of income.
Some of the debt securities (with a fixed maturity date of one year or
less from the date of issuance) that may be acquired by the Funds may be treated
as having an acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
the debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Portfolios generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includible in income, even though cash representing such income may not have
been received by the Funds. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Funds.
OTHER TAX INFORMATION
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The Portfolios may be required to withhold for U.S. federal income
taxes 31% of all taxable distributions payable to shareholders who fail to
provide the Portfolios with their correct taxpayer identification number or to
make required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal tax liability.
The Trust may also be subject to state or local taxes in certain other
states where it is deemed to be doing business. Further, in those states which
have income tax laws, the tax treatment of the Trust and of shareholders of a
Portfolio with respect to distributions by the Portfolio may differ from federal
tax treatment. Distributions to shareholders may be subject to additional state
and local taxes. Shareholders should consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
The Trust may from time to time advertise total returns and yields for
the Portfolios, compare Portfolio performance to various indices, and publish
rankings of the Portfolios prepared by various ranking services. Any
performance information should be considered in light of the Portfolio's and
Fund's investment objectives and policies, characteristics and quality of the
its portfolio, and the market conditions during the given time period, and
should not be considered to be representative of what may be achieved in the
future.
TOTAL RETURN
The total return for a Portfolio is computed by assuming a
hypothetical initial payment of $1,000. It is assumed that all investments are
made at net asset value (as opposed to market price) and that all of the
dividends and distributions by the Portfolio over the relevant time periods are
invested at net asset value. It is then assumed that, at the end of each
period, the entire amount is redeemed without regard to any redemption fees or
costs. The average annual total return is then determined by calculating the
annual rate required for the initial payment to grow to the amount which would
have been received upon redemption. Total return does not take into account any
federal or state income taxes.
Total return is computed according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the period (or
fractional portion thereof) of a hypothetical $1,000 payment made at the
beginning of the period.
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YIELD
The yield for a Portfolio (other than the Money Market Portfolios) is
calculated based on a 30-day or one-month period, according to the following
formula:
6
Yield = 2[{a -b + 1) -1]
----
{c x d }
For purposes of this formula, "a" is total dividends and interest
earned during the period; "b" is total expenses accrued for the period (net of
reimbursements); "c" is the average daily number of shares outstanding during
the period that were entitled to receive dividends; and "d" is the maximum
offering price per share on the last day of the period.
Yields for the following Portfolios for the thirty-day period ended
March 31, 1997 were as follows:
Income & Growth Portfolio A
Income & Growth Portfolio B
Income & Growth Portfolio C
Balanced Growth Portfolio A
Balanced Growth Portfolio B
Balanced Growth Portfolio C
Government Income Portfolio A
Government Income Portfolio B
Government Income Portfolio C
The Money Market Portfolio will prepare a current quotation of yield
daily. The yield quoted will be the simple annualized yield for an identified
seven-calendar-day period. The yield calculation will be based on a
hypothetical account having a balance of exactly one share at the beginning of
the seven-day period. The base return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the shares, but excluding any capital
changes. The yield will vary as interest rates and market conditions change.
Yield also depends on the quality, length of maturity and type of instruments in
the Money Market Fund, and its operating expenses. The Money Market Portfolio
may also prepare an effective annual yield computed by compounding the
unannualized seven-day period return as follows: by adding 1 to the
unannualized seven-day period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result. The yield for the Money Market
Portfolio for the seven days ended March 31, 1997 was ____%.
PRIOR PERFORMANCE OF CERTAIN PORTFOLIOS AND THEIR PREDECESSORS
The following table sets forth historical performance information for the Core
Growth, Emerging Growth, Income & Growth and International Growth Portfolios and
the following predecessor investment partnerships and pooled trust which were
operated by the Investment Adviser prior to the organization of such Portfolios:
Core Growth Portfolio -- includes performance information for Whitehall
Partners, a California limited partnership the assets of which were transferred
to the Core Growth Fund on April 19, 1993; Emerging Growth Portfolio -- includes
performance information for Stratford Partners, a California limited
partnership, and Nicholas-Applegate Emerging Growth Pooled Trust, a tax-exempt
trust, the
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assets of which were transferred to the Emerging Growth Fund on December 27,
1993; Income and Growth Portfolio -- includes performance information for
Coventry Partners, a California limited partnership the assets of which were
transferred to the Income & Growth Fund on April 19, 1993; International Growth
Portfolio -- includes performance information for Huntington Partners, a
California limited partnership the assets of which were transferred to the
International Fund on August 31, 1994.
The Investment Adviser has advised the Trust that its net performance results in
the table are calculated as set forth above under "General
Information-Performance Information." All information set forth in the table
relies on data supplied by the Investment Adviser or from statistical services,
reports or other sources believed by the Investment Adviser to be reliable.
However, such information has not been verified and is unaudited. See
"Performance Information" in the Statement of Additional Information for further
information about calculation of total return.
The Investment Adviser has advised the Trust that such partnerships and pooled
trusts were operated in substantially the same manner as such Portfolios, and
their assets were transferred to the Portfolios prior to the effective date of
the Portfolios' registration statement. It has indicated that such results for
the prior partnerships and pooled trust have been adjusted to reflect the
deduction of the fees and expenses of the Portfolios (including Rule 12b-1
fees), and their proportionate shares of the operating expenses of the
corresponding Funds (including advisory fees), as stated under "Summary of
Expenses" in the Portfolios' Prospectus, and give effect to transaction costs
(such as sales loads) as well as reinvestment of income and gains. However, the
prior investment partnerships and pooled trust were not registered under the
1940 act and were not subject to certain investment restrictions imposed by such
Act; if they had been so registered, their performance might have been adversely
affected.
The results presented on the following pages may not necessarily equate with the
return experienced by any particular shareholder, partner or trust beneficiary
as a result of the timing of investments and redemptions. In addition, the
effect of taxes on any shareholder, partner or trust beneficiary will depend on
such person's tax status, and the results have not been reduced to reflect any
income tax which may have been payable.
B-62
<PAGE>
<TABLE>
<CAPTION>
SERIES A PORTFOLIOS
---------------------------------------------------------------------------------------------------------------------
CORE GROWTH EMERGING GROWTH INCOME & GROWTH INTERNATIONAL GROWTH
PERFORMANCE PERFORMANCE PERFORMANCE PERFORMANCE
--------------- ------------------------ ------------------------ ---------------------------
RUSSELL CS FIRST INTER-
CORE EMERGING 2000 INCOME & BOSTON NATIONAL MSCI
GROWTH S&P 500 GROWTH GROWTH GROWTH CONVERTIBLE GROWTH EAFA
YEAR PORTFOLIO INDEX(1) PORTFOLIO INDEX(2) PORTFOLIO INDEX(3) PORTFOLIO INDEX(4)
- ---- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 18.02% 17.14% 5.20% 6.97%
1986 25.14 18.64 0.07 3.58
1987(5) (2.44) 5.27 (9.55) (10.48) (8.76%) (0.22%)
1988 6.12 16.55 19.46 20.37 12.92 13.41
1989 26.15 31.61 19.98 20.17 20.94 13.76
1990(5) (5.13) (3.04) (13.81) (17.41) (4.08) (6.89) (22.07%) (13.67%)
1991 46.51 30.46 46.92 51.19 30.33 29.11 5.34 12.13
1992 6.95 7.62 6.04 7.77 3.45 17.58 (17.42) (12.17)
1993 12.82 10.07 9.15 13.36 19.84 18.55 18.77 32.57
1994 (15.67) 1.32 (9.07) (2.43) (13.05) (4.72) 3.10 7.76
1995 30.41 37.60 27.79 31.06 15.29 23.72 (0.03) 11.02
1996 10.36 13.49 14.48 10.97 10.23 10.56 6.13 4.25
1997(6)
Last
year(6)
Last
5 years(6)
Last
10 years(6)
Since
inception(6)
</TABLE>
(1) The S&P 500 Index is an unmanaged index containing common stocks of
500 industrial, transportation, utility and financial companies,
regarded as generally representative of the U.S. stock market. The
Index reflects the reinvestment of income dividends and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
B-63
<PAGE>
(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher
price-to-book and price-to-earnings ratios than the average for all
companies in the 2000 Index. The Russell 2000 Index is a widely
regarded small-cap index of the 2,000 smallest securities in the
Russell 3000 Index, which comprises the 3,000 largest U.S. securities
as determined by total market capitalization. The Index reflects the
reinvestment of income dividends and capital gains distributions, if
any, but does not reflect fees, brokerage commissions, or other
expenses of investing.
(3) The CS First Boston Convertible Index is an unmanaged market weighted
index representing the universe of convertible securities, whether
they are convertible preferred stocks or convertible bonds. The Index
reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage
commissions or markups, or other expenses of investing.
(4) The Morgan Stanley Capital International World Index consists of more
than 1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East. The Index is a market-value
weighted combination of countries and is unmanaged. The Index
reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage
commissions or other expenses of investing.
(5) Inception dates are as follows: Core Growth Portfolio - September 30,
1985 (registration statement effective April 19, 1993); Emerging
Growth Portfolio - September 30, 1985 (registration statement
effective December 27, 1993); Income & Growth Portfolio - December 31,
1986 (registration statement effective April 19, 1993); International
Growth Portfolio - June 7, 1990 (registration statement effective
August 31, 1994).
(6) Through March 31, 1997.
B-64
<PAGE>
<TABLE>
<CAPTION>
SERIES B PORTFOLIOS
---------------------------------------------------------------------------------------------------------------------
CORE GROWTH EMERGING GROWTH INCOME & GROWTH INTERNATIONAL GROWTH
PERFORMANCE PERFORMANCE PERFORMANCE PERFORMANCE
--------------- ------------------------ ------------------------ ---------------------------
RUSSELL CS FIRST INTER-
CORE EMERGING 2000 INCOME & BOSTON NATIONAL MSCI
GROWTH S&P 500 GROWTH GROWTH GROWTH CONVERTIBLE GROWTH EAFA
YEAR PORTFOLIO INDEX(1) PORTFOLIO INDEX(2) PORTFOLIO INDEX(3) PORTFOLIO INDEX(4)
- ---- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 18.16% 17.14% 5.20% 6.97%
1986 24.68 18.64 (0.32) 3.58
1987(5) (2.82) 5.27 (9.91) (10.46) (9.12%) (0.22%)
1988 5.72 16.55 19.02 20.37 12.49 13.41
1989 25.68 31.61 19.53 20.17 20.49 13.76
1990(5) (5.50) (3.04) (14.15) (17.41) (4.45) (6.89) (22.17%) (13.67%)
1991 45.97 30.46 46.39 51.19 29.85 29.11 4.94 12.13
1992 6.55 7.62 5.64 7.77 3.06 17.58 (17.75) (12.17)
1993 12.44 10.07 8.74 13.36 19.24 18.55 18.32 32.57
1994 (16.06) 1.32 (9.64) (2.43) (13.31) (4.72) 1.96 7.76
1995 30.07 37.60 27.20 31.06 14.87 23.72 (0.49) 11.02
1996 10.15 13.49 14.02 10.97 10.10 10.56 5.88 4.25
1997(6)
Last
year(6)
Last 5
years(6)
Last 10
years(6)
Since in
ception(6)
</TABLE>
(1) The S&P 500 Index is an unmanaged index containing common stocks of
500 industrial, transportation, utility and financial companies,
regarded as generally representative of the U.S. stock market. The
Index reflects the reinvestment of income dividends and capital
B-65
<PAGE>
gain distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher
price-to-book and price-to-earnings ratios than the average for all
companies in the 2000 Index. The Russell 2000 Index is a widely
regarded small-cap index of the 2,000 smallest securities in the
Russell 3000 Index, which comprises the 3,000 largest U.S. securities
as determined by total market capitalization. The Index reflects the
reinvestment of income dividends and capital gains distributions, if
any, but does not reflect fees, brokerage commissions, or other
expenses of investing.
(3) The CS First Boston Convertible Index is an unmanaged market weighted
index representing the universe of convertible securities, whether
they are convertible preferred stocks or convertible bonds. The Index
reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage
commissions or markups, or other expenses of investing.
(4) The Morgan Stanley Capital International World Index consists of more
than 1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East. The Index is a market-value
weighted combination of countries and is unmanaged. The Index
reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage
commissions or other expenses of investing.
(5) Inception dates are as follows: Core Growth Portfolio - September 30,
1985 (registration statement effective May 31, 1995); Emerging Growth
Portfolio - September 30, 1985 (registration statement effective May
31, 1995); Income & Growth Portfolio - December 31, 1986 (registration
statement effective May 31, 1995); International Growth Portfolio -
June 7, 1990 (registration statement effective May 31, 1995).
(6) Through March 31, 1997
B-66
<PAGE>
<TABLE>
<CAPTION>
SERIES C PORTFOLIOS
---------------------------------------------------------------------------------------------------------------------
CORE GROWTH EMERGING GROWTH INCOME & GROWTH INTERNATIONAL GROWTH
PERFORMANCE PERFORMANCE PERFORMANCE PERFORMANCE
--------------- ------------------------ ------------------------ ---------------------------
RUSSELL CS FIRST INTER-
CORE EMERGING 2000 INCOME & BOSTON NATIONAL MSCI
GROWTH S&P 500 GROWTH GROWTH GROWTH CONVERTIBLE GROWTH EAFA
NAME PORTFOLIO INDEX(1) PORTFOLIO INDEX(2) PORTFOLIO INDEX(3) PORTFOLIO INDEX(4)
- ---- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 23.13% 17.14% 9.63% 6.97%
1986 31.24 18.64 4.93 3.58
1987(5) 2.30 5.27 (5.17) (10.48) (4.33%) (0.22%)
1988 11.28 16.55 25.28 20.37 18.41 13.41
1989 32.30 31.61 25.82 20.17 26.83 13.76
1990(5) (0.52) (3.04) (9.63) (17.41) 0.57 (6.89) (18.89%) (13.67%)
1991 53.66 30.46 54.09 51.19 36.68 29.11 10.46 12.13
1992 12.15 7.62 11.20 7.77 8.48 17.58 (13.42) (12.17)
1993 18.23 10.07 14.46 13.36 25.51 18.55 24.55 32.57
1994 (11.53) 1.32 (4.73) (2.43) (8.75) (4.72) 8.77 7.76
1995 36.80 37.60 34.22 31.06 20.83 23.72 3.57 11.02
1996 14.82 13.49 19.04 10.97 14.66 10.56 10.40 4.25
1997(6)
Last
year(6)
Last 5
years(6)
Last 10
years(6)
Since
inception(6)
</TABLE>
(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
B-67
<PAGE>
(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher price-to-book
and price-to-earnings ratios than the average for all companies in the 2000
Index. The Russell 2000 Index is a widely regarded small-cap index of the
2,000 smallest securities in the Russell 3000 Index, which comprises the
3,000 largest U.S. securities as determined by total market capitalization.
The Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
(3) The CS First Boston Convertible Index is an unmanaged market weighted index
representing the universe of convertible securities, whether they are
convertible preferred stocks or convertible bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or markups, or other
expenses of investing.
(4) The Morgan Stanley Capital International World Index consists of more than
1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East. The Index is a market-value
weighted combination of countries and is unmanaged. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or other expenses of
investing.
(5) Inception dates are as follows: Core Growth Portfolio - September 30, 1985
(registration statement effective April 19, 1993); Emerging Growth
Portfolio - September 30, 1985 (registration statement effective December
27, 1993); Income & Growth Portfolio -December 31, 1986 (registration
statement effective April 19, 1993); International Growth Portfolio - June
7, 1990 (registration statement effective August 31, 1994).
(6) Through March 31, 1997.
B-68
<PAGE>
The following tables set forth the Investment Adviser's composite
performance data relating to the historical performance of institutional private
accounts managed by the Investment Adviser, since the dates indicated, that have
investment objectives, policies, strategies and risks substantially similar to
those of the Large Cap and Balanced Portfolios. The data is provided to
illustrate the past performance of the Investment Adviser in managing
substantially similar accounts as measured against specified market indices and
does not represent the performance of the Portfolios. Investors should not
consider this performance data as an indication of future performance of the
Portfolios or of the Investment Adviser.
The Investment Adviser's composite performance data shown below were
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"1/), retroactively applied to all time
periods. All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and loses. All returns reflect the deduction of investment advisory fees,
brokerage commissions and execution costs paid by the Investment Adviser's
institutional private accounts, without provision for federal or state income
taxes. Custodial fees, if any, were not included in the calculation. The
Investment Adviser's composites include all actual, fee-paying, discretionary
institutional private accounts managed by the Investment Adviser that have
investment objectives, policies, strategies and risks substantially similar to
those of the Large Cap and Balanced Portfolios. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. The monthly returns of the
Investment Adviser's composites combine the individual accounts' returns
(calculated on a time-weighted rate of return that is revalued whenever cash
flows exceed $500) by asset-weighing each individual account's asset value as of
the beginning of the month. Quarterly and yearly returns are calculated by
geometrically linking the monthly and quarterly returns, respectively. The
yearly returns are computed by geometrically linking the returns of each quarter
within the calendar year.
The institutional private accounts that are included in the Investment
Adviser's composite are not subject to the same types of expenses to which the
Large Cap and Balanced Portfolios are subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Portfolios by the Investment Company Act or Subchapter M of the Internal
Revenue Code. Consequently, the performance results for the Investment
Adviser's composites could have been adversely affected if the institutional
private accounts included in the composites had been regulated as investment
companies under the federal securities laws.
The investment results of the Investment Adviser's composites
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the Large Cap or Balanced Portfolios or an
individual investor investing in such Portfolios. Investors should also be
aware that the uses of a methodology different form that used below to
calculated performance could result in different performance data.
- -----------------
1/ AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and
(ii) ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
B-69
<PAGE>
<TABLE>
<CAPTION>
60% S&P 500
INVESTMENT BALANCED INDEX 40%
ADVISER'S PORTFOLIOS LEHMAN BROS. LEHMAN BROS.
BALANCED ---------- S&P 500 GOVT./CORP. LEHMAN BROS.
YEAR COMPOSITE A B C INDEX(1) INDEX(2) INDEX
- ---- --------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NEW FN #
1988(3) 4.98% 10.25% 3.80% 7.76%
1989 17.61 31.61 14.23 24.59
1990 5.69 (3.04) 8.29 1.58
1991 32.73 30.46 16.13 24.61
1992 9.40 3.62 7.57 7.67
1993 20.14 (3.80) 11.06 10.52
1994 (5.37) 1.32 (3.61) (0.67)
1995 29.23 37.60 19.24 30.02
1996
1997(3)
Last Year(3)
Last 5 Years(3)
Since Inception(3)
</TABLE>
- ------------------------
(1) The S&P 500 Index is an unmanaged index containing common stocks of
500 industrial, transportation, utility and financial companies, regarding as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.
(2) The Lehman Brothers Government/Corporate Bond Index is an unmanaged
market weighted index consisting of all public obligations of the U.S.
Government, its agencies and instrumentalities, and all corporate issuers of
fixed rate, non-convertible, investment grade U.S. dollar denominated bonds
having maturities of greater than one year. It is generally regarded as
representative of the market for domestic bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any, but
does not reflect fees, brokerage commissions or markups, or other expenses of
investing.
(3) Through March 31, 1997.
B-70
<PAGE>
INVESTMENT ADVISER'S
LARGE CAP GROWTH S&P 500
YEAR COMPOSITE(1) INDEX(1,2)
---- -------------------- ----------
1995(3) 35.36% 25.37%
1996 25.91 3.49
1997(4)
Since Inception(4) 42.75 26.56
- --------------------
1 Annualized.
2 The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarding as
generally representative of the U.S. Stock Market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
3 Commencement of investment operations was April 1, 1995.
4 Through March 31, 1997.
COMPARISON TO INDICES AND RANKINGS
Performance information for a Portfolio may be compared to various
unmanaged indices, such as the Standard & Poor's 500 Stock Price Index, the
Dow Jones Industrial Average, the IFC Emerging Markets Investible Index, the
MSCI Emerging Markets Free Index, and indices prepared by Lipper Analytical
Services. Unmanaged indices (I.E., other than Lipper) generally do not
reflect deductions for administrative and management costs and expenses.
Performance rankings are prepared by a number of mutual fund ranking
entities that are independent of the Trust and its affiliates. These
entities categorize and rank funds by various criteria, including fund type,
performance over a given period of years, total return, standardized yield,
variations in sales charges and risk\reward considerations.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
INDEPENDENT AUDITORS AND LEGAL COUNSEL
PNC Bank, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, serves as Custodian for the portfolio
securities and cash of the Portfolios and Funds and in that capacity maintains
certain financial and accounting books and records pursuant to agreements with
the Trust and Master Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington,
Delaware, an affiliate of the Custodian, provides additional accounting services
to the Portfolios and Funds.
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor,
North Quincy, Massachusetts, 02171, serves as the Dividend Disbursing Agent and
as the Transfer Agent
B-71
<PAGE>
for the Portfolios and Funds. The Transfer Agent provides customary transfer
agency services to the Trust, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, and related functions. The Dividend Disbursing
Agent provides customary dividend disbursing services to the Trust, including
payment of dividends and distributions and related functions.
The following act as sub-transfer agents for the Portfolios: Financial
Data Services, Inc., 4800 Deer Lake Drive, 2nd Floor, Jacksonville, Florida
32246; and William M. Mercer Plan Participant Services, Inc., 1417 Lake Cook
Road, Deerfield, Illinois 60015.
Ernst & Young, L.L.P., 515 South Flower Street, Los Angeles,
California 90071, serves as the independent auditors for the Trust and Master
Trust, and in that capacity examines the annual financial statements of the
Trust and Master Trust.
Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, Los
Angeles, California 90071, is legal counsel for the Trust and Master Trust. It
also acts as legal counsel for the Investment Adviser and Distributor.
MISCELLANEOUS
SHARES OF BENEFICIAL INTEREST
The Trust is currently comprised of 57 series of shares -- 10 A
Portfolios, 10 B Portfolios, 10 C Portfolios, 16 Institutional Portfolios, one
Money Market Portfolio, and 10 Qualified Portfolios.
On any matter submitted to a vote of shareholders of the Trust, all
shares then entitled to vote will be voted by the affected Portfolio(s) unless
otherwise required by the Investment Company Act, in which case all shares of
the Trust will be voted in the aggregate. For example, a change in a Portfolio's
fundamental investment policies would be voted upon only by shareholders of that
Portfolio, as would the approval of any advisory or distribution contract for
the Portfolio. However, all shares of the Trust may vote together in the
election or selection of Trustees, principal underwriters and accountants for
the Trust.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of the series of
the Trust affected by the matter. Under Rule 18f-2, a series is presumed to be
affected by a matter, unless the interests of each series in the matter are
identical or the matter does not affect any interest of such series. Under Rule
18f-2 the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Portfolio only if approved by a majority of its outstanding shares. However,
the rule also provides that the ratification of independent public accountants,
the approval of principal underwriting contracts and the election of directors
may be effectively acted upon by the shareholders of the Trust voting without
regard to Portfolio.
As used in the Portfolios' prospectuses and in this Statement of
Additional Information, the term "majority," when referring to approvals to be
obtained from
B-72
<PAGE>
shareholders of a Portfolio, means the vote of the lesser of (i) 67% of the
shares of the Portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the Portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Portfolio. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Trust, means the vote of the lesser of (i) 67% of the Trust's shares
represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held. Unless
otherwise provided by law (for example, by Rule 18f-2 discussed above) or by the
Trust's Declaration of Trust or Bylaws, the Trust may take or authorize any
action upon the favorable vote of the holders of more than 50% of the
outstanding shares of the Trust.
Whenever a Portfolio or the Trust is requested to vote on a matter
with respect to the Master Trust, the Trust will hold a meeting of its
shareholders and will cast its votes as instructed by such shareholders and, in
the case of a matter affecting only a Fund, as instructed by the shareholders of
the corresponding Portfolio(s).
The Trust will dispense with annual meetings of shareholders in any
year in which it is not required to elect Trustees under the Investment Company
Act. However, the Trust undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Trustee
or Trustees if requested in writing by the holders of at least 10% of the
Trust's outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Investment Company Act.
Each share of a Portfolio represents an equal proportional interest in
the Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Portfolio
as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Portfolio are
entitled to receive the assets attributable to the Portfolio that are available
for distribution, and a distribution of any general assets not attributable to a
particular Portfolio that are available for distribution in such manner and on
such basis as the Trustees in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and nonassessable by the Trust.
DECLARATIONS OF TRUST
In accordance with Delaware law and in connection with the tax
treatment sought by the Master Trust, the Master Trust's Declaration of Trust
provides that its investors will be personally and jointly and severally
responsible (with rights of contribution among them in proportion to their
respective ownership interests in the Master Trust) for the Master Trust's
liabilities and obligations in the event that the Master Trust fails to satisfy
such liabilities and obligations. However, to the extent assets are available
from the Master Trust, the Master Trust will indemnify each investor from any
claim or liability to which the investor may become subject solely by reason of
his or her having been an investor, and will reimburse the investor for all
legal and other expenses reasonably incurred by him or her in connection with
any such claim or liability.
B-73
<PAGE>
The Declarations of Trust of both the Trust and Master Trust provide
that obligations of the Trust and the Master Trust are not binding upon their
respective Trustees, officers, employees and agents individually and that the
Trustees, officers, employees and agents will not be liable to the trusts or
their respective investors for any action or failure to act, but nothing in the
Declarations of Trust protect a Trustee, officer, employee or agent against any
liability to the trusts or their respective investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declarations of Trust also provide that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Portfolio or Fund shall be enforceable against the assets and
property of such Portfolio or Fund only (and, in the case of a Fund, its
investors), and not against the assets or property of any other Portfolio or
Fund (or in the case of a Portfolio, the investors therein).
FINANCIAL STATEMENTS
The Trust's 1997 Annual Reports to Shareholders of the Portfolios
accompany this Statement of Additional Information. The financial statements in
such Annual Reports are incorporated in this Statement of Additional Information
by reference. Such financial statements for the fiscal years ended March 31,
1996 and 1997 have been audited by the Fund's independent auditors, Ernst &
Young L.L.P., whose reports thereon appear in such Annual Reports. Such
financial statements have been incorporated herein in reliance upon such reports
given upon their authority as experts in accounting and auditing. Such financial
statements for periods prior to 1996 have been audited by another firm, whose
reports thereon appear in the Trust's 1997 Annual Reports to Shareholders of the
Portfolios. Additional copies of the Trust's 1996 Annual Reports to
Shareholders may be obtained at no charge by writing or telephoning the Trust at
the address or number on the front page of this Statement of Additional
Information.
REGISTRATION STATEMENT
The Registration Statement of the Trust and the Master Trust,
including the Portfolios' Prospectuses, the Statements of Additional Information
and the exhibits filed therewith, may be examined at the office of the
Commission in Washington, D.C. Statements contained in the Portfolios'
Prospectuses or the Statements of Additional Information as to the contents of
any contract or other document referred to herein or in the Prospectuses are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to these Registration
Statements, each such statement being qualified in all respects by such
reference.
B-74
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating symbols
of securities.
COMMERCIAL PAPER
The following paragraphs summarize the description for the rating
symbols of commercial paper.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings, which are also applicable to
commercial paper investments permitted to be made by the Master Trust, are
opinions of the ability of issuers to repay punctually their senior debt
obligations which have an original maturity not exceeding one year. Moody's
employs the following designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:
PRIME 1: Issuers (or related supporting institutions) rated PRIME-1
have a superior ability for repayment of short-term promissory obligations.
PRIME-1 repayment ability will often be evidenced by the following
characteristics: (a) leading market positions in well-established industries;
(b) high rates of return on funds employed; (c) conservative capitalization
structures with moderate reliance on debt and ample asset protection; (d) broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and (e) well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2: Issuers rated PRIME-2 (or related supporting institutions)
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above in the
PRIME-1 category but to a lesser degree. Earning trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME 3: Issuers rated PRIME-3 (or related supporting institutions)
have an acceptable ability for repayment of short-term debt obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
Standard & Poor's ratings are a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained by Standard & Poor's from
A-1
<PAGE>
other sources it considers reliable. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues within the "A" category are delineated with the numbers 1, 2, and 3 to
indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to possess
overwhelming safety characteristics are denoted with a "PLUS" (+) designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C: Issues rated "C" are regarded as having a doubtful capacity for
payment.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally strong credit quality. Commercial paper assigned
this rating is regarded as having the strongest degree of assurance for timely
payment.
F-1: Very strong credit quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated F-
1+.
F-2: Good credit quality. Commercial paper assigned this rating has
a satisfactory degree of assurance for timely payment but the margin of safety
is not as great as for issuers assigned F-1+ and F-1 ratings.
F-3: Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near term adverse changes could cause these securities to be
rated below investment grade.
DUFF & PHELPS
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
DUFF 1+ - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
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<PAGE>
DUFF 1 - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
DUFF 1- - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
DUFF 2 - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
DUFF 3 - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
DUFF 4 - Debt possesses speculative investment characteristics.
DUFF 5 - Issuer has failed to meet scheduled principal and/or interest
payments.
THOMSON BANKWATCH
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
TBW-1 - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
TBW-3 - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
IBCA
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
A1+ - Obligations are supported by the highest capacity for timely
repayment.
A1 - Obligations are supported by a strong capacity for timely
repayment.
A-3
<PAGE>
A2 - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
CORPORATE BONDS
MOODY'S
Moody's corporate bond ratings are opinions of the relative investment
qualities of bonds. Moody's employs nine designations to indicate such relative
qualities, ranging from "Aaa" for the highest quality obligations to "C" for the
lowest. Issues are further refined with the designation 1,2, and 3 to indicate
the relative ranking within designations. Bonds with the following Moody's
ratings have the following investment qualities:
Aaa: Bonds in this category are judged to be of the highest quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds in this category are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in AAA
securities.
A: Bonds in this category possess many favorable investment
attributes and are considered to be as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds in this category are considered medium-grade obligations,
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds in this category are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
A-4
<PAGE>
B: Bonds in this category generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds in this category are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds in this category represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcoming.
C: Bonds in this category are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
Ratings are graded into ten categories, ranging from "AAA" for the highest
quality obligation to "D" for debt in default. Issues are further refined with
a "PLUS" or "MINUS" sign to show relative standing within the categories. Bonds
with the following Standard & Poor's ratings have the following investment
qualities:
AAA: Bonds in this category have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds in this category have a very strong capacity to pay
interest and repay principal and differ from the higher rated issues only in
small degree.
A: Bonds in this category have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB: Bonds in this category have an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB: Bonds in this category have less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BBB-" rating.
B: Bonds in this category have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating is also used
for debt subordinated to senior debt that is assigned an actual or implied "BB"
or "BB-" rating.
A-5
<PAGE>
CCC: Bonds in this category have currently identifiable vulnerability
to default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
C: This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
DUFF & PHELPS
The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:
AAA - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
FITCH INVESTORS SERVICE, INC.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
A-6
<PAGE>
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D - Bonds that possess one of these
ratings are considered by Fitch to be speculative investments. The ratings "BB"
to "C" represent Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
ICBA
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
A-7
<PAGE>
BB, B, CCC, CC, AND C - Obligations are assigned one of these ratings
where it is considered that speculative characteristics are present. "BB"
represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
THOMSON BANKWATCH
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
AAA - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
AA - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
A - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
BB, B, CCC, AND CC, - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
D - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FORM N-1A
PART C: OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. Registrant's Schedules of Investments as of March 31, 1997, Statements
of Assets and Liabilities as of March 31, 1997, Statements of Changes
in Net Assets for the period ended March 31, 1997, and related Notes
and Report of Independent Auditors are incorporated by reference in
Part B and filed as Exhibit 19.
b. 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).
(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.
(1.18) Form of Amendment No. 14 to Amended and Restated Declaration
of Trust.
(2.1) Amended Bylaws of Registrant (f).
(2.2) Amendment to Section 2.5 of Bylaws of Registrant (f).
C-1
<PAGE>
(3) None.
(4) None.
(5) None.
(6.1) Distribution Agreement between Registrant and Nicholas-
Applegate Securities dated as of April 19, 1993 (f).
(6.2) Letter agreement between Registrant and Nicholas-Applegate
Securities dated May 17, 1993, adding certain Institutional
(formerly Qualified) Portfolio series and Emerging Growth
Portfolio series to Distribution Agreement (f).
(6.3) Letter agreement between Registrant and Nicholas-Applegate
Securities dated December 15, 1993, adding International
Growth Portfolio series to Distribution Agreement (f).
(6.4) Letter agreement between Registrant and Nicholas-Applegate
Securities dated April 22, 1994, adding Qualified Portfolio
series to Distribution Agreement (f).
(6.5) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Emerging Countries Growth Portfolio
series, Global Growth & Income Portfolio series and Mini-Cap
Growth Portfolio series to Distribution Agreement (f).
(6.6) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Series B Portfolios to Distribution
Agreement (f).
(6.7) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Fixed Income and Qualified Portfolio
series to Distribution Agreement (f).
(6.8) Form of letter agreement between Registrant and Nicholas-
Applegate Securities, adding Value Institutional Portfolio
series to Distribution Agreement (a).
(6.9) Form of letter agreement between Registrant and Nicholas-
Applegate Securities, adding High Yield Bond and Strategic
Income Institutional Portfolio series to Distribution
Agreement (b).
(6.10) Form of letter agreement between Registrant and Nicholas-
Applegate Securities adding Large Cap Growth and Core Growth
International Portfolio series to Distribution Agreement
(i).
(6.11) Form of letter agreement between Registrant and Nicholas-
Applegate Securities adding Core Growth International
Portfolio C series to Distribution Agreement (i).
(6.12) Form of letter agreement between Registrant and Nicholas-
Applegate Securities adding Large Cap Growth Portfolio A, B,
C and Q series to Distribution Agreement.
(7) None.
(8.1) Custodian Services Agreement between Registrant and PNC Bank
dated as of April 1, 1993 (f).
(8.2) Letter agreement between Registrant and PNC Bank dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Custodian Services Agreement (f).
(8.3) Letter agreement between Registrant and PNC Bank dated
August 20, 1993, adding Emerging Growth Portfolio series to
Custodian Services Agreement (f).
(8.4) Letter agreement between Registrant and PNC Bank dated
December 15, 1993, adding International Growth Portfolio
series to Custodian Services Agreement (f).
C-2
<PAGE>
(8.5) Letter agreement between Registrant and PNC Bank dated April
22, 1994, adding Core Growth Qualified Portfolio series to
Custodian Services Agreement (f).
(8.6) Letter agreement between Registrant and PNC Bank, adding
Emerging Countries Growth Portfolio series, Global Growth &
Income Portfolio series and Mini-Cap Growth Portfolio series
to Custodian Services Agreement (f).
(8.7) Letter agreement between Registrant and PNC Bank, adding
Series B Portfolios to Custodian Services Agreement (f).
(8.8) Letter agreement between Registrant and PNC Bank, adding
Fixed Income Portfolio series to Custodian Services
Agreement (f).
(8.9) Form of letter agreement between Registrant and PNC Bank
adding Value Institutional Portfolio series to Custodian
Services Agreement (a).
(8.10) Form of letter agreement between Registrant and PNC Bank
adding High Yield Bond and Strategic Income Institutional
Portfolio series to Custodian Services Agreement (b).
(8.11) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth and Core Growth International
Portfolio series to Custodian Services Agreement (i).
(8.12) Form of letter agreement between Registrant and PNC Bank
adding Core Growth International Portfolio C series to
Custodian Services Agreement (i).
(8.13) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth Portfolio A, B, C and Q series to
Custodian Services Agreement.
(9.1) Administration Agreement between Registrant and Investment
Company Administration Corporation dated as of April 1, 1993
(f).
(9.2) Administration Services Agreement between Registrant and
Nicholas-Applegate Capital Management dated as of November
18, 1996 (i).
(9.3) Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company dated as of April 1,
1993 (f).
(9.4) 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).
(9.5) 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).
(9.6) 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).
(9.7) 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).
(9.8) 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).
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<PAGE>
(9.9) Letter agreement between Registrant and State Street Bank
and Trust Company, adding Series B Portfolios to Transfer
Agency and Service Agreement (f).
(9.10) 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).
(9.11) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Value Institutional Portfolio
series to Transfer Agency and Service Agreement (a).
(9.12) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding High Yield Bond and Strategic
Income Institutional Portfolio series to Transfer Agency and
Service Agreement (b).
(9.13) 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).
(9.14) 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).
(9.15) Form of letter agreement between Registrant and State Street
Bank and Trust Company adding Large Cap Growth Portfolio A,
B, C and Q series to Transfer Agent and Service Agreement.
(9.16) Shareholder Service Plan between Registrant and Nicholas-
Applegate Securities (f).
(9.17) License Agreement dated as of December 17, 1992, between
Registrant and Nicholas-Applegate Capital Management (f).
(9.18) Accounting Services Agreement between Registrant and PFPC
Inc. dated as of April 1, 1993 (f).
(9.19) Letter agreement between Registrant and PFPC Inc. dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Accounting Services Agreement (f).
(9.20) Letter agreement between Registrant and PFPC Inc. dated
August 20, 1993, adding Emerging Growth Portfolio series to
Accounting Services Agreement (f).
(9.21) Letter agreement between Registrant and PFPC Inc. dated
December 15, 1993, adding International Growth Portfolio
series to Accounting Services Agreement (f).
(9.22) Letter agreement between Registrant and PFPC Inc. dated
April 22, 1994, adding Core Growth Qualified Portfolio
series to Accounting Services Agreement (f).
(9.23) 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).
(9.24) Letter agreement between Registrant and PFPC Inc., adding
Series B Portfolios to Accounting Services Agreement (f).
(9.25) Letter agreement between Registrant and PFPC Inc., adding
Fixed Income Portfolio series to Accounting Services
Agreement (f).
(9.26) Form of letter agreement between Registrant and PFPC Inc.
adding Value Institutional Portfolio series to Accounting
Services Agreement (a).
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<PAGE>
(9.27) Form of letter agreement between Registrant and PFPC Inc.
adding High Yield Bond and Strategic Income Institutional
Portfolio series to Accounting Services Agreement (b).
(9.28) Form of letter agreement between Registrant and PFPC Inc.
adding Large Cap Growth and Core Growth International
Portfolio series to Accounting Services Agreement (i).
(9.29) Form of letter agreement between Registrant and PFPC Inc.
adding Core Growth International Portfolio C series to
Accounting Services Agreement (i).
(9.30) Form of letter agreement between Registrant and PFPC Inc.
adding Large Cap Growth Portfolio A, B, C and Q series to
Accounting Services Agreement.
(9.31) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated September 27, 1993 regarding
expense reimbursements (f).
(9.32) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated December 15, 1993, adding
International Growth Portfolio series to agreement regarding
expense reimbursements (f).
(9.33) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated April 22, 1994, adding Qualified
Portfolio series to agreement regarding expense
reimbursements (f).
(9.34) 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).
(9.35) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Series B Portfolios to agreement
regarding expense reimbursement (f).
(9.36) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Qualified and Fixed Income
Portfolio series to agreement regarding expense
reimbursement (f).
(9.37) Letter agreement between Registrant and Nicholas-Applegate
Capital Management revising expense reimbursement agreement
with respect to Government Income Portfolios (f).
(9.38) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Value Institutional
Portfolio series to agreement regarding expense
reimbursement (a).
(9.39) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding High Yield Bond and
Strategic Income Institutional Portfolio series to agreement
regarding expense reimbursement (b).
(9.40) 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).
(9.41) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Core Growth
International Portfolio C series to agreement regarding
expense reimbursement (i).
(9.42) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Large Cap Growth
Portfolio A, B, C and Q series to agreement regarding
expense reimbursement.
C-5
<PAGE>
(9.43) Credit Agreement among Registrant, Chemical Bank and certain
other banks dated April 10, 1996 (f).
(9.44) First Amendment Agreement to Credit Agreement dated as of
April 9, 1997 among Registrant, The Chase Manhattan Bank,
and certain other banks -- to be filed by amendment.
(10) Opinion of Counsel (c).
(11) Consent of independent auditors -- to be filed by amendment.
(12) Not applicable.
(13) Investment Letter of initial investor in Registrant dated
April 1, 1993 (f).
(14.1) IRA Plan Materials (d).
(14.2) 401(k) Profit-Sharing Plan Materials (d).
(15) Amended Distribution Plan of Registrant (f)
(16) Schedule of Computation of Performance Quotations (c).
(17) Not applicable.
(18) Financial Data Schedules -- to be filed by amendment.
(19.1) Limited Powers of Attorney of Trustees (d).
(19.2) Limited Power of Attorney of Walter E. Auch (e).
(19.3) Limited Power of Attorney of John D. Wylie (h).
(19.4) Certified Resolution of Board of Trustees of Registrant
regarding Limited Power of Attorney of John D. Wylie (h).
(19.5) 1997 Annual Report of Registrant (filed pursuant to Rule 303
of Regulation S-T) -- to be filed by amendment.
______________________________
(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.
C-6
<PAGE>
(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.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Fred C. Applegate, Arthur B. Laffer and Charles E. Young, members of the
Board of Trustees of Registrant, are also three of the seven members of the
Board of Directors of Nicholas-Applegate Fund, Inc., a registered investment
company. Accordingly, Registrant and Nicholas-Applegate Fund, Inc. may be
deemed to be under common control.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1997, the number of record holders of each series of
Registrant was as follows:
Title of Series Number of Record Holders
--------------- ------------------------
Large Cap Growth Portfolio A
Core Growth Portfolio A
Emerging Growth Portfolio A
Income & Growth Portfolio A
Balanced Growth Portfolio A
Government Income Portfolio A
Money Market Portfolio
International Core Growth Portfolio A
Worldwide Growth Portfolio A
International Small Cap Growth Portfolio A
Emerging Countries Portfolio A
Large Cap Growth Portfolio B
Core Growth Portfolio B
Emerging Growth Portfolio B
Income & Growth Portfolio B
Balanced Growth Portfolio B
Government Income Portfolio B
International Core Growth Portfolio B
Worldwide Growth Portfolio B
International Small Cap Growth Portfolio B
C-7
<PAGE>
Emerging Countries Portfolio B
Large Cap Growth Portfolio C
Core Growth Portfolio C
Emerging Growth Portfolio C
Income & Growth Portfolio C
Balanced Growth Portfolio C
Government Income Portfolio C
International Core Growth Portfolio C
Worldwide Growth Portfolio C
International Small Cap Growth Portfolio C
Emerging Countries Portfolio C
Large Cap Growth Institutional Portfolio
Core Growth Institutional Portfolio
Emerging Growth Institutional Portfolio
Income & Growth Institutional Portfolio
Balanced Growth Institutional Portfolio
International Core Growth Institutional Portfolio
Worldwide Growth Institutional Portfolio
International Small Cap Growth Institutional Portfolio
Emerging Countries Institutional Portfolio
Mini Cap Growth Institutional Portfolio
Fully Discretionary Institutional Fixed Income Portfolio
Short-Intermediate Institutional Fixed Income Portfolio
Value Institutional Portfolio
High Yield Bond Institutional Portfolio
Strategic Income Institutional Portfolio
Global Growth & Income Institutional Portfolio
Large Cap Growth Qualified Portfolio
Core Growth Qualified Portfolio
Emerging Growth Qualified Portfolio
Income & Growth Qualified Portfolio
Balanced Growth Qualified Portfolio
Government Income Qualified Portfolio
International Core Growth Qualified Portfolio
Worldwide Growth Qualified Portfolio
International Small Cap Growth Qualified Portfolio
Emerging Countries Qualified Portfolio
Item 27. INDEMNIFICATION.
Registrant's trustees, officers, employees and agents against liabilities
incurred by them in connection with the defense or disposition of any action or
proceeding in which they may be involved or with which they may be threatened,
while in office or thereafter, by reason of being or having been in such office,
except with respect to matters as to which it has been determined that they
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office ("Disabling
Conduct").
Section 8 of Registrant's Administration Agreement, filed herewith as
Exhibit 9.1, provides for the indemnification of Registrant's Administrator
against all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct.
Section 9 of Registrant's Distribution Agreement, filed herewith as Exhibit 6,
provides for the indemnification of Registrant's Distributor against all
liabilities incurred by it in performing its obligations under the Agreement,
except with respect to matters involving its Disabling Conduct. Section 4 of
the Shareholder Service Agreement, filed herewith as Exhibit 9.3, provides for
the indemnification of Registrant's Distributor against all liabilities incurred
by it in performing its obligations under the Agreement, except with respect to
matters involving its Disabling Conduct.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful
C-8
<PAGE>
defense of any action, suit or proceeding) is asserted by such trustee, officer,
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Nicholas-Applegate Capital Management, the investment adviser to the Master
Trust, is a California limited partnership, the general partner of which is
Nicholas-Applegate Capital Management, Inc. (the "General Partner"). During the
two fiscal years ended December 31, 1996, Nicholas-Applegate Capital Management
has engaged principally in the business of providing investment services to
institutional and other clients. All of the additional information required by
this Item 28 with respect to the Investment Adviser is set forth in the Form
ADV, as amended, of Nicholas-Applegate Capital Management (File No. 801-21442),
which is incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Nicholas-Applegate Securities does not act as a principal underwriter,
depositor or investment adviser to any investment company other than Registrant.
(b) Nicholas-Applegate Securities, the Distributor of the shares of
Registrant's Portfolios, is a California limited partnership and its general
partner is Nicholas-Applegate Capital Management Holdings, L.P. (the "General
Partner"). Information is furnished below with respect to the officers,
partners and directors of the General Partner and Nicholas-Applegate Securities.
The principal business address of such persons is 600 West Broadway, 30th Floor,
San Diego, California 92101, except as otherwise indicated below.
Positions and Positions and
Name and Principal Offices with Principal Offices with
Business Address Underwriter Registrant
- ------------------ ----------- ----------
Arthur E. Nicholas Chairman and President None
Peter J. Johnson Vice President Vice President
Thomas Pindelski Chief Financial Officer Chief Financial
Officer
E. Blake Moore, Jr. Secretary Secretary
Todd Spillane Director of Compliance None
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained either at the offices of the Registrant (600 West
Broadway, 30th Floor, San Diego, California 92101); the Investment Adviser to
the Trust and Master Trust, Nicholas-Applegate Capital Management (600 West
Broadway, 30th Floor, San Diego, California 92101); the primary administrator
for the Trust and Master Trust, Investment Company Administration Corporation
(4455 East Camelback Road, Suite 261-E, Phoenix, Arizona 85018); the Custodian,
PNC Bank (Airport Business Center, International Court 2, 200 Stevens Drive,
Lester, Pennsylvania 19113); or the Transfer and Dividend Disbursing Agent,
State Street Bank & Trust Company (2 Heritage Drive, 7th Floor, North Quincy,
Massachusetts 02171).
Item 31. MANAGEMENT SERVICES.
C-9
<PAGE>
Not Applicable.
Item 32. UNDERTAKINGS.
Registrant hereby undertakes to file a Post-Effective amendment containing
reasonably current financial statements with respect to its Large Cap Growth
Portfolio A, B, C and Q Portfolio series, which need not be certified, within
four to six months from the effective date of this Amendment.
Registrant hereby undertakes that if it is requested by the holders of at
least 10% of its outstanding shares to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee, it will do so and
will assist in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 30th day
of April, 1997.
NICHOLAS-APPLEGATE MUTUAL FUNDS
By John D. Wylie*
-------------------------
John D. Wylie
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
John D. Wylie* Principal Executive April 30, 1997
- -------------------------- Officer
John D. Wylie
s/Thomas Pindelski Principal Financial and April 30, 1997
- -------------------------- Accounting Officer
Thomas Pindelski
Fred C. Applegate* Trustee April 30, 1997
- --------------------------
Fred C. Applegate
Arthur B. Laffer* Trustee April 30, 1997
- --------------------------
Arthur B. Laffer
Charles E. Young* Trustee April 30, 1997
- --------------------------
Charles E. Young
* s/E. Blake Moore, Jr.
- --------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
C-11
<PAGE>
SIGNATURES
Nicholas-Applegate Investment Trust has duly caused this Amendment to
Registration Statement on Form N-1A of Nicholas-Applegate Mutual Funds to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Diego, State of California, on the 30th day of April, 1997.
NICHOLAS-APPLEGATE INVESTMENT TRUST
By John D. Wylie*
--------------------
John D. Wylie
President
This Amendment to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
John D. Wylie* Principal Executive April 30, 1997
- ----------------------- Officer
John D. Wylie
s/Thomas Pindelski Principal Financial April 30, 1997
- ----------------------- and Accounting Officer
Thomas Pindelski
George F. Keane* Trustee April 30, 1997
- -----------------------
George F. Keane
Dann V. Angeloff* Trustee April 30, 1997
- -----------------------
Dann V. Angeloff
Walter E. Auch* Trustee April 30, 1997
- -----------------------
Walter E. Auch
Theodore J. Coburn* Trustee April 30, 1997
- -----------------------
Theodore J. Coburn
Darlene DeRemer* Trustee April 30, 1997
- -----------------------
Darlene DeRemer
Arthur E. Nicholas* Trustee April 30, 1997
- -----------------------
Arthur E. Nicholas
* s/E. Blake Moore, Jr.
- -----------------------
By: E. Blake Moore, Jr.
Attorney in Fact
C-12
<PAGE>
EXHIBIT INDEX
NICHOLAS-APPLEGATE MUTUAL FUNDS
AMENDMENT NO. 42 TO
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-7428
Exhibit No. Title of Exhibit
- ----------- ----------------
(1.17) Amendment No. 13 to Amended and Restated Declaration of Trust.
(1.18) Form of Amendment No. 14 to Amended and Restated Declaration of
Trust.
(6.12) Form of letter agreement between Registrant and Nicholas-
Applegate Securities adding Large Cap Growth Portfolio A, B, C
and Q series to Distribution Agreement.
(8.13) Form of letter agreement between Registrant and PNC Bank adding
Large Cap Growth Portfolio A, B, C and Q series to Custodian
Services Agreement.
(9.15) Form of letter agreement between Registrant and State Street Bank
and Trust Company adding Large Cap Growth Portfolio A, B, C and Q
series to Transfer Agent and Service Agreement.
(9.30) Form of letter agreement between Registrant and PFPC Inc. adding
Large Cap Growth Portfolio A, B, C and Q series to Accounting
Services Agreement.
(9.42) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Large Cap Growth Portfolio
A, B, C and Q series to agreement regarding expense
reimbursement.
C-13
<PAGE>
Exhibit 1.17
AMENDMENT NO. 13 TO
AMENDED AND RESTATED DECLARATION OF TRUST
OF NICHOLAS-APPLEGATE MUTUAL FUNDS
THIS AMENDMENT NO. 13 TO THE AMENDED AND RESTATED
DECLARATION OF TRUST OF NICHOLAS-APPLEGATE MUTUAL FUNDS is made as of the
3rd day of March, 1997 by the undersigned, constituting a majority of the
Trustees of the Trust.
WHEREAS, the Amended and Restated Declaration of Trust of
the Trust adopted as of December 17, 1992, as heretofore amended, designated
certain series of Interests of the Trust; and
WHEREAS, the undersigned wish to change the name of the
various International Growth Portfolios of the Trust to the International
Small Cap Growth Portfolios;
NOW THEREFORE, the Board of Trustees hereby amends the
first sentence of Section 8.8 of the Amended and Restated Declaration of Trust
of the Trust to read in full as follows:
"Without limiting the authority of the Trustees
set forth in this Section 8.8 to establish and designate any further
series, the Trustees hereby establish and designate fifty-nine
series,
as follows:
Nicholas-Applegate Core Growth Portfolio A
Nicholas-Applegate Core Growth Portfolio B
Nicholas-Applegate Core Growth Portfolio C
Nicholas-Applegate Core Growth Institutional Portfolio
Nicholas-Applegate Core Growth Qualified Portfolio
Nicholas-Applegate Government Income Portfolio A
Nicholas-Applegate Government Income Portfolio B
Nicholas-Applegate Government Income Portfolio C
Nicholas-Applegate Government Income Institutional
Portfolio
Nicholas-Applegate Government Income Qualified
Portfolio
Nicholas-Applegate Income & Growth Portfolio A
Nicholas-Applegate Income & Growth Portfolio B
Nicholas-Applegate Income & Growth Portfolio C
Nicholas-Applegate Income & Growth Institutional
Portfolio
Nicholas-Applegate Income & Growth Qualified Portfolio
Nicholas-Applegate Balanced Growth Portfolio A
Nicholas-Applegate Balanced Growth Portfolio B
Nicholas-Applegate Balanced Growth Portfolio C
Nicholas-Applegate Balanced Growth Institutional
Portfolio
Nicholas-Applegate Balanced Growth Qualified Portfolio
Nicholas-Applegate Worldwide Growth Portfolio A
Nicholas-Applegate Worldwide Growth Portfolio B
Nicholas-Applegate Worldwide Growth Portfolio C
Nicholas-Applegate Worldwide Growth Institutional
Portfolio
Nicholas-Applegate Worldwide Growth Qualified Portfolio
Nicholas-Applegate Emerging Growth Portfolio A
Nicholas-Applegate Emerging Growth Portfolio B
Nicholas-Applegate Emerging Growth Portfolio C
<PAGE>
Nicholas-Applegate Emerging Growth Institutional
Portfolio
Nicholas-Applegate Emerging Growth Qualified Portfolio
Nicholas-Applegate International Small Cap Growth
Portfolio A
Nicholas-Applegate International Small Cap Growth
Portfolio B
Nicholas-Applegate International Small Cap Growth
Portfolio C
Nicholas-Applegate International Small Cap Growth
Institutional Portfolio
Nicholas-Applegate International Small Cap Growth
Qualified Portfolio
Nicholas-Applegate Money Market Portfolio
Nicholas-Applegate Money Market Institutional Portfolio
Nicholas-Applegate Emerging Countries Portfolio A
Nicholas-Applegate Emerging Countries Portfolio B
Nicholas-Applegate Emerging Countries Portfolio C
Nicholas-Applegate Emerging Countries Institutional
Portfolio
Nicholas-Applegate Emerging Countries Qualified
Portfolio
Nicholas-Applegate Global Growth & Income Portfolio A
Nicholas-Applegate Global Growth & Income Portfolio B
Nicholas-Applegate Global Growth & Income Portfolio C
Nicholas-Applegate Global Growth & Income Institutional
Portfolio
Nicholas-Applegate Global Growth & Income Qualified
Portfolio
Nicholas-Applegate Short-Intermediate Institutional
Fixed Income Portfolio
Nicholas-Applegate Fully Discretionary Institutional
Fixed Income Portfolio
Nicholas-Applegate Mini-Cap Growth Institutional
Portfolio
Nicholas-Applegate Value Institutional Portfolio
Nicholas-Applegate High Yield Bond Institutional
Portfolio
Nicholas-Applegate Strategic Income Institutional
Portfolio
Nicholas-Applegate Large Cap Growth Institutional
Portfolio
Nicholas-Applegate International Core Growth Portfolio A
Nicholas-Applegate International Core Growth Portfolio B
Nicholas-Applegate International Core Growth Portfolio C
Nicholas-Applegate International Core Growth
Institutional Portfolio
Nicholas-Applegate International Core Growth Qualified
Portfolio
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
s/Arthur B. Laffer ...............s/Fred C. Applegate
--------------------------------..........------------------------
Arthur B. Laffer .................Fred C. Applegate
s/Charles E. Young
--------------------------------
Charles E. Young
-2-
<PAGE>
Exhibit 1.18
AMENDMENT NO. 14 TO
AMENDED AND RESTATED DECLARATION OF TRUST
OF NICHOLAS-APPLEGATE MUTUAL FUNDS
THIS AMENDMENT NO. 14 TO THE AMENDED AND RESTATED DECLARATION OF TRUST
OF NICHOLAS-APPLEGATE MUTUAL FUNDS is made as of the 16th day of May, 1997 by
the undersigned, constituting a majority of the Trustees of the Trust.
WHEREAS, the Amended and Restated Declaration of Trust of the Trust
adopted as of December 17, 1992, as heretofore amended, designated certain
series of Interests of the Trust; and
WHEREAS, the undersigned wish to designate as additional series of
Interests of the Trust the Nicholas-Applegate Large Cap Growth Portfolios A, B
and C and the Nicholas-Applegate Large Cap Growth Qualified Portfolio;
NOW THEREFORE, the Board of Trustees hereby amends the first sentence
of Section 8.8 of the Amended and Restated Declaration of Trust of the Trust
to read in full as follows:
"Without limiting the authority of the Trustees
set forth in this Section 8.8 to establish and designate any
further series, the Trustees hereby establish and designate
fifty-nine series, as follows:
Nicholas-Applegate Core Growth Portfolio A
Nicholas-Applegate Core Growth Portfolio B
Nicholas-Applegate Core Growth Portfolio C
Nicholas-Applegate Core Growth Institutional Portfolio
Nicholas-Applegate Core Growth Qualified Portfolio
Nicholas-Applegate Government Income Portfolio A
Nicholas-Applegate Government Income Portfolio B
Nicholas-Applegate Government Income Portfolio C
Nicholas-Applegate Government Income Institutional
Portfolio
Nicholas-Applegate Government Income Qualified Portfolio
Nicholas-Applegate Income & Growth Portfolio A
Nicholas-Applegate Income & Growth Portfolio B
Nicholas-Applegate Income & Growth Portfolio C
Nicholas-Applegate Income & Growth Institutional
Portfolio
Nicholas-Applegate Income & Growth Qualified Portfolio
Nicholas-Applegate Balanced Growth Portfolio A
Nicholas-Applegate Balanced Growth Portfolio B
Nicholas-Applegate Balanced Growth Portfolio C
Nicholas-Applegate Balanced Growth Institutional
Portfolio
Nicholas-Applegate Balanced Growth Qualified Portfolio
Nicholas-Applegate Worldwide Growth Portfolio A
Nicholas-Applegate Worldwide Growth Portfolio B
Nicholas-Applegate Worldwide Growth Portfolio C
Nicholas-Applegate Worldwide Growth Institutional
Portfolio
Nicholas-Applegate Worldwide Growth Qualified Portfolio
Nicholas-Applegate Emerging Growth Portfolio A
<PAGE>
Nicholas-Applegate Emerging Growth Portfolio B
Nicholas-Applegate Emerging Growth Portfolio C
Nicholas-Applegate Emerging Growth Institutional
Portfolio
Nicholas-Applegate Emerging Growth Qualified Portfolio
Nicholas-Applegate International Small Cap Growth
Portfolio A
Nicholas-Applegate International Small Cap Growth
Portfolio B
Nicholas-Applegate International Small Cap Growth
Portfolio C
Nicholas-Applegate International Small Cap Growth
Institutional Portfolio
Nicholas-Applegate International Small Cap Growth
Qualified Portfolio
Nicholas-Applegate Money Market Portfolio
Nicholas-Applegate Money Market Institutional Portfolio
Nicholas-Applegate Emerging Countries Portfolio A
Nicholas-Applegate Emerging Countries Portfolio B
Nicholas-Applegate Emerging Countries Portfolio C
Nicholas-Applegate Emerging Countries Institutional
Portfolio
Nicholas-Applegate Emerging Countries Qualified Portfolio
Nicholas-Applegate Global Growth & Income Portfolio A
Nicholas-Applegate Global Growth & Income Portfolio B
Nicholas-Applegate Global Growth & Income Portfolio C
Nicholas-Applegate Global Growth & Income Institutional
Portfolio
Nicholas-Applegate Global Growth & Income Qualified
Portfolio
Nicholas-Applegate Short-Intermediate Institutional Fixed ................
Income Portfolio
Nicholas-Applegate Fully Discretionary Institutional
Fixed Income Portfolio
Nicholas-Applegate Mini-Cap Growth Institutional
Portfolio
Nicholas-Applegate Value Institutional Portfolio
Nicholas-Applegate High Yield Bond Institutional
Portfolio
Nicholas-Applegate Strategic Income Institutional
Portfolio
Nicholas-Applegate Large Cap Growth Portfolio A
Nicholas-Applegate Large Cap Growth Portfolio B
Nicholas-Applegate Large Cap Growth Portfolio C
Nicholas-Applegate Large Cap Growth Institutional
Portfolio
Nicholas-Applegate Large Cap Growth Qualified Portfolio
Nicholas-Applegate International Core Growth Portfolio A
Nicholas-Applegate International Core Growth Portfolio B
Nicholas-Applegate International Core Growth Portfolio C
Nicholas-Applegate International Core Growth
Institutional Portfolio
Nicholas-Applegate International Core Growth Qualified
Portfolio
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
----------------------- .....-------------------------
Arthur B. Laffer .................................Fred C. Applegate
--------------------------
Charles E. Young
-2-
<PAGE>
Exhibit 6.12
Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, California 92101
_______________, 1997
Nicholas-Applegate Securities
600 West Broadway
30th Floor
San Diego, CA 92101
Ladies and Gentlemen:
This will confirm our agreement that the Distribution Agreement
between us dated April 19, 1993, as previously amended, is hereby further
amended by adding the following as additional Portfolios thereunder:
Nicholas-Applegate Large Cap Growth Portfolio A
Nicholas-Applegate Large Cap Growth Portfolio B
Nicholas-Applegate Large Cap Growth Portfolio C
Nicholas-Applegate Large Cap Growth Qualified Portfolio
In all other respects, 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,
________________________
John D. Wylie, President
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>
Nicholas-Applegate Mutual Funds
600 West Broadway
.....30th Floor
San Diego, CA 92101
__________________, 1997
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").
Pursuant to Section 2 of the Agreement, we wish to add the following
Portfolios to the Agreement:
Nicholas-Applegate Large Cap Growth Portfolio A
Nicholas-Applegate Large Cap Growth Portfolio B
Nicholas-Applegate Large Cap Growth Portfolio C
Nicholas-Applegate Large Cap Growth Qualified Portfolio
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
APPOINTMENT ACCEPTED:
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------
Title:
------------------------
<PAGE>
Exhibit 9.15
Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, California 92101
________________, 1997
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").
Pursuant to Section 10.01 of the Agreement, we wish to add the
following Portfolios to the Agreement:
Nicholas-Applegate Large Cap Growth Portfolio A
Nicholas-Applegate Large Cap Growth Portfolio B
Nicholas-Applegate Large Cap Growth Portfolio C
Nicholas-Applegate Large Cap Growth Qualified Portfolio
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
APPOINTMENT ACCEPTED:
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------
Title:
------------------------
<PAGE>
Exhibit 9.30
Nicholas-Applegate Mutual Funds
600 West Broadway
.....30th Floor
San Diego, CA 92101
___________, 1997
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").
Pursuant to Section 2 of the Agreement, we wish to add the following
Portfolios to the Agreement:
Nicholas-Applegate Large Cap Growth Portfolio A
Nicholas-Applegate Large Cap Growth Portfolio B
Nicholas-Applegate Large Cap Growth Portfolio C
Nicholas-Applegate Large Cap Growth Qualified Portfolio
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
APPOINTMENT ACCEPTED:
PFPC INC.
By:
----------------------------
Title:
------------------------
<PAGE>
Exhibit 9.38
Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, California 92101
________________, 1997
Nicholas-Applegate Capital Management
600 West Broadway
30th Floor
San Diego, CA 92101
Ladies and Gentlemen:
This will confirm our agreement that the expense limitation letter
agreement between us dated September 27, 1993, as previously amended, is hereby
further amended to add the following new Portfolios and Percentage Limitations
to Appendix A thereof:
Name of Portfolio Percentage Limitation
----------------- ---------------------
Nicholas-Applegate Large Cap
Growth Portfolio A .........................................
1.25%
Nicholas-Applegate Large Cap
Growth Portfolio B .........................................
0.90%
Nicholas-Applegate Large Cap
Growth Portfolio C .........................................
1.30%
Nicholas-Applegate Large Cap
Growth Qualified Portfolio .........................................
1.30%
The Percentage Limitations set forth above will continue until March
31, 1998, unless voluntarily extended by you, and will be subject to the
reimbursement provisions set forth in the Portfolios' prospectuses.
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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.
Sincerely,
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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:
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E. Blake Moore, Jr.
Secretary
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