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As filed with the Securities and Exchange Commission on April 8, 1998
Securities Act Registration No. 333-47229
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ Pre-Effective Amendment No. 2 / / Post-Effective Amendment No.__
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:
Number, Street, City, State, Zip Code)
(818) 852-1000
(Area Code and Telephone Number)
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)
Copies to:
Jane A. Kanter, Esq. Charles Field, Esq.
Dechert Price & Rhoads Vice President
1775 Eye Street, N.W. Nicholas-Applegate Capital Management
Washington, D.C. 20006 600 West Broadway, 30th Floor
San Diego, California 92101
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940, as amended. The Registrant's Rule 24f-2 Notice for the fiscal year
ended March 31, 1998 will be filed prior to June 29, 1998. Pursuant to Rule 429
under the Securities Act of 1933, this Registration Statement relates to shares
previously registered on the aforesaid Registration Statement.
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NICHOLAS-APPLEGATE MUTUAL FUNDS
FORM N-14
Pre-Effective Amendment No. 2
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
Item No. Location in Combined Proxy Statement and
- -------- ----------------------------------------
Prospectus
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Part A
1. Cover Page Cover Page
2. Beginning and Outside Table of Contents
Back Coverage Page
3. Synopsis and Risk Factors Summary; Risk Considerations
4. Information About the Summary; 1. To Approve or Disapprove of
Transaction the Reorganization Agreement; 2. To
Approve or Disapprove of the Proposed
Amendment; Comparison of (1) The Fontaine
Trust Capital Appreciation Fund and the
Nicholas-Applegate Balanced Growth Fund -
Class A shares; (2) The Fontaine Trust
Global Growth Fund and the Nicholas-
Applegate Worldwide Growth Fund - Class A
shares; and (3) The Fontaine Trust Global
Income Fund and the Nicholas-Applegate
Worldwide Growth Fund - Class A shares
5. Information About the Summary; 1. To Approve or Disapprove of
Registrant the Reorganization Agreement; Additional
Information About Each Fund
6. Information About the Summary; 1. To Approve or Disapprove of
Company Being Acquired the Reorganization Agreement; 2. To
Approve or Disapprove of the Proposed
Amendment; Additional Information About
Each Fund
7. Voting Information Summary; Information Relating to Voting
Matters
8. Interest of Certain Additional Information About Each Fund
Persons and Experts
9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Part B
10. Cover Page Cover Page
11. Table of Contents Cover Page
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12. Additional Information Statement of Additional Information of
About the Registrant the Nicholas-Applegate Funds, dated July
16, 1997, incorporated by reference
13. Additional Information Statement of Additional Information of
About the Company Being The Fontaine Trust, dated May 1, 1997,
Acquired incorporated by reference
14. Financial Statements Annual Report of the Funds, incorporated
by reference
Part C
15. Indemnification Indemnification
16. Exhibits Exhibits
17. Undertakings Undertakings
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PARTS A and B
Pursuant to Rule 411 under the Securities Act of 1933, as amended, and Rules 0-4
and 8b-23 under the Investment Company Act of 1940, as amended, the information
required to be included in Part A and Part B of this Form N-14 Registration
Statement is incorporated by reference to the Registrant's Prospectus and
Statement of Additional Information included in Post-Effective Amendment No. 52
as filed in electronic format via EDGAR with the Securities and Exchange
Commission on February 19, 1998 (File Nos. 33-56094 and 811-7428). The
Registrant's Annual Report to Shareholders dated March 31, 1997 and Semi-Annual
Report to Shareholders dated September 30, 1997, as filed in electronic format
via EDGAR with the Securities and Exchange Commission (File No. 811-7428) are
incorporated by reference into Part A and Part B of this Form N-14 Registration
Statement as specified in those documents. The Annual Report of The Fontaine
Trust dated December 31, 1997 as filed in electronic format via EDGAR with the
Securities and Exchange Commission (File No. 811-05835) is incorporated by
reference into Part B of this Form N-14 Registration Statement.
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Dear Shareholder:
I invite you to attend a Special Meeting of Shareholders of The Fontaine Trust's
three series: the Capital Appreciation Fund, the Global Growth Fund, and the
Global Income Fund (the "Funds") to be held on April 30, 1998, at 10:00
a.m. The meeting will be held at the offices of The Fontaine Trust, 210 West
Pennsylvania Avenue, Suite 240, Towson, Maryland.
The accompanying Combined Proxy Statement/Prospectus contains an important
proposal for your consideration as a shareholder of one or more of the Funds.
Your Board of Trustees has proposed that the Funds be merged into certain
portfolios of Nicholas-Applegate Mutual Funds (the "Nicholas-Applegate
Funds"). If approved by the shareholders of the Funds, following the Special
Meeting of Shareholders, on April 30, 1998 substantially all of the assets of
each of the Funds (less a reserve for liabilities) will be exchanged for
shares of the portfolios of the Nicholas-Applegate Funds described in the
accompanying Notice and Combined Proxy Statement/Prospectus. On that same
date, your Fund shares will be exchanged for an equal dollar amount of
Nicholas-Applegate Fund shares with no tax effect to you.
In light of the comparatively small asset size, lack of expected asset
growth, and lack of economies of scale of each of the Funds, the Board of
Trustees of The Fontaine Trust has determined that it is in the best
interests of the shareholders to reorganize each of the Funds into larger
funds having, in most cases, similar investment objectives, policies and
restrictions, and employing similar investment strategies. The Board has
determined that the portfolios of the Nicholas-Applegate Funds described in
the accompanying Combined Proxy Statement and Prospectus meet those criteria.
The portfolios of the Nicholas-Applegate Funds also offer superior
historical returns and more favorable expense ratios than the corresponding
series of The Fontaine Fund. In addition, the Nicholas-Applegate Funds
currently offers numerous portfolios, which provide an abundance of
investment alternatives to investors.
ACCORDINGLY, THE BOARD OF TRUSTEES STRONGLY URGES YOU TO VOTE FOR THE PROPOSED
REORGANIZATION.
The enclosed materials provide more information about the proposed
reorganization.
Your vote is important. We urge you to complete, SIGN AND RETURN THE ENCLOSED
PROXY VOTING CARD FOR EACH FUND IN WHICH YOU ARE A SHAREHOLDER so that your
shares will be represented. EVERYTHING YOU NEED IS ENCLOSED. By promptly
returning the proxy, you help avoid the necessity and expense of follow-up
mailings and telephone solicitations to assure a quorum. If you later
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decide to attend the meeting, you may revoke your proxy and vote your shares in
person. If you have any questions, please call us at 1-800-247-1550.
Sincerely,
Richard H. Fontaine
Chairman
The Fontaine Trust
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THE FONTAINE TRUST:
CAPITAL APPRECIATION FUND
GLOBAL GROWTH FUND
GLOBAL INCOME FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of The
Fontaine Trust's three series: the Capital Appreciation Fund, the Global Growth
Fund, and the Global Income Fund (the "Funds") will be held at 210 West
Pennsylvania Avenue, Suite 240, Towson, Maryland on April 30, 1998, at
10:00 a.m., Eastern time to consider and act on the proposals noted below and to
transact such other business as may properly come before the Special Meeting or
any adjournments of the Special Meeting.
ITEM 1. To approve or disapprove an Agreement and Plan of Reorganization
by and between The Fontaine Trust on behalf of the Capital Appreciation
Fund and the Nicholas-Applegate Mutual Funds on behalf of the Balanced
Growth Portfolio A, and the transactions contemplated thereby.
ITEM 2. To approve or disapprove an Agreement and Plan of Reorganization
by and between The Fontaine Trust on behalf of the Global Growth Fund and
the Nicholas-Applegate Mutual Funds on behalf of the Worldwide Growth
Portfolio A, and the transactions contemplated thereby.
ITEM 3. To approve or disapprove an Agreement and Plan of Reorganization
by and between The Fontaine Trust on behalf of the Global Income Fund and
the Nicholas-Applegate Mutual Funds on behalf of the Worldwide Growth
Portfolio A, and the transactions contemplated thereby.
Only shareholders of record at the close of business on March 31, 1998,
the record date for this Special Meeting, shall be entitled to vote at the
Special Meeting or any adjournments of the Special Meeting.
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YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
______________________________________________________________________________
AS A SHAREHOLDER OF ONE OR MORE OF THE FUNDS, YOU ARE ASKED TO ATTEND THE
SPECIAL MEETING EITHER IN PERSON OR BY PROXY. IF YOU ARE UNABLE TO ATTEND THE
SPECIAL MEETING IN PERSON, WE URGE YOU TO COMPLETE, SIGN, DATE, AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. YOUR PROMPT RETURN OF
THE PROXY WILL HELP ASSURE A QUORUM AT THE SPECIAL MEETING AND AVOID ADDITIONAL
EXPENSES ASSOCIATED WITH FURTHER SOLICITATION. SENDING IN YOUR PROXY WILL NOT
PREVENT YOU FROM VOTING YOUR SHARES IN PERSON AT THE SPECIAL MEETING AND YOU
MAY REVOKE YOUR PROXY BY ADVISING THE SECRETARY OF THE FONTAINE TRUST IN
WRITING (BYSUBSEQUENT PROXY OR OTHERWISE) OF SUCH REVOCATION AT ANY TIME
BEFORE IT IS VOTED.
______________________________________________________________________________
By Order of the Board of Trustees,
KIMBERLY A. MALKOWSKI
SECRETARY
The Fontaine Trust
Towson, Maryland
April 9, 1998
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THE FONTAINE TRUST: NICHOLAS-APPLEGATE MUTUAL FUNDS:
------------------- --------------------------------
CAPITAL APPRECIATION FUND BALANCED GROWTH PORTFOLIO A
GLOBAL GROWTH FUND
GLOBAL INCOME FUND WORLDWIDE GROWTH PORTFOLIO A
210 West Pennsylvania Avenue, Suite 240 600 West Broadway, 30th Floor
Towson, Maryland 21204 San Diego, California 92101
Telephone: (410) 825-7890 Telephone: (818) 852-1000
Toll Free: (800) 247-1550 Toll Free: (800) 551-8043
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated April 9, 1998
This Combined Proxy Statement and Prospectus ("Statement") is furnished in
connection with the solicitation of proxies by the Board of Trustees of The
Fontaine Trust in connection with the Special Meeting of Shareholders (the
"Special Meeting") of the Capital Appreciation Fund, Global Growth Fund and
Global Income Fund to be held on April 30, 1998, at 10:00 a.m., Eastern
time. The meeting will be held at the offices of The Fontaine Trust, 210 West
Pennsylvania Avenue, Suite 240, Towson, Maryland 21204. At the Special
Meeting, the shareholders of each of the three series of The Fontaine Trust will
be asked to approve the following proposals, as appropriate:
1. To approve or disapprove an Agreement and Plan of Reorganization by
and between The Fontaine Trust on behalf of the Capital Appreciation
Fund (an "Acquired Fund"), the Nicholas-Applegate Mutual Funds ("NA
Funds") on behalf of the Balanced Growth Portfolio A (an "Acquiring
Fund"), and the transactions contemplated thereby.
2. To approve or disapprove an Agreement and Plan of Reorganization by
and between The Fontaine Trust on behalf of the Global Growth Fund
(an "Acquired Fund"), the NA Funds on behalf of the Worldwide Growth
Portfolio A (an "Acquiring Fund"), and the transactions contemplated
thereby.
3. To approve or disapprove an Agreement and Plan of Reorganization by
and between The Fontaine Trust on behalf of the Global Income Fund (an
"Acquired Fund"), the NA Funds on behalf of the Worldwide Growth
Portfolio A (an "Acquiring Fund"), and the transactions contemplated
thereby.
1
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(The Agreement and Plan of Reorganization noted above in 1, 2, and 3 is
referred to herein as the "Reorganization Agreement" and the transactions
contemplated thereby are referred to herein as the "Reorganization.") None of
the transactions is contingent upon one another.
The Fontaine Trust and NA Funds are open-end management investment
companies. The Board of Trustees of The Fontaine Trust, including the
non-interested Trustees, has determined that it is in the best interests of
each Acquired Fund and its shareholders to be reorganized into the Acquiring
Funds, as indicated in Items 1, 2 and 3 above. In reaching that
determination, the Board of Trustees considered the small asset size, the
lack of expected asset growth of the Acquired Funds, and the problems related
to the lack of economies of scale. The Board of Trustees concluded that each
of these disadvantages would be addressed by the Reorganization as a result
of combining the assets of each Acquired Fund with the assets of the
Acquiring Funds. Further, the Board of Trustees concluded that, among other
advantages, the Reorganization will provide Acquired Fund shareholders with
an investment vehicle that in most cases, has similar investment objectives,
policies, restrictions, and strategies as the Acquired Fund, while offering
superior historical returns and more favorable expense ratios than the
Acquired Funds.
The Reorganization Agreement provides that, on the closing date for the
Reorganization (the "Closing Date"), which is currently scheduled to take
place on May 1, 1998, substantially all of the property, assets and goodwill
of each Acquired Fund (except a reserve for certain expenses and liabilities)
will be transferred to the designated Acquiring Fund. In exchange, each
Acquiring Fund will simultaneously issue its shares ("Acquiring Fund Shares")
to the corresponding Acquired Fund. Each Acquiring Fund will then make a
liquidating distribution of the Acquiring Fund Shares so received to the
shareholders of the corresponding Acquired Fund, so that a holder of shares
of the Acquired Fund ("Acquired Fund Shares") on the Closing Date will
receive that number of full and fractional Acquiring Fund Shares having a
value equal to the value of the shareholder's Acquired Fund Shares
immediately prior to the Closing Date. Following the Reorganization, The
Fontaine Trust and each of its series will be deregistered as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
This Statement sets forth concisely the information that shareholders of
each Acquired Fund should know before voting on the Reorganization Agreement
(and the Reorganization contemplated thereby) and should be retained for
future reference. The Reorganization Agreement is attached to this Statement
as Exhibit A and is incorporated herein by reference.
A Prospectus for NA Funds dated July 16, 1997, which describes the
investment objectives, program, policies and risks of each Acquiring Fund,
accompanies this Statement. (A Prospectus for The Fontaine Trust, dated May 1,
1997, was previously provided to each Acquired Fund shareholder.) Additional
information concerning the Acquiring Funds is set forth in their Statement of
Additional Information dated July 16, 1997, and additional information
concerning the Acquired Funds is set forth in their Statement of Additional
Information dated
2
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May 1, 1997. Moreover, further information concerning the matters considered
in this Statement is set forth in the Statement of Additional Information to
this Statement, dated April 9, 1998. Each of these documents is on file with
the Securities and Exchange Commission ("SEC"), and is available without
charge upon oral or written request by writing or calling The Fontaine Trust
or NA Funds at the address and telephone numbers shown above. The Prospectus
for the NA Funds is also available on its website at http:\\www.NACM.com. The
SEC maintains a website at http:\\www.sec.gov that contains the Prospectuses,
Statements of Additional Information, material incorporated by reference and
other information regarding The Fontaine Trust, the NA Funds, and other
registrants that file electronically with the SEC. The information contained
in each of these Prospectuses and Statements of Additional Information is
incorporated into this Statement by reference.
The Statement constitutes (i) the proxy statement of the Acquired Funds
for the Special Meeting of Shareholders and (ii) the Prospectuses for each of
the Acquiring Fund Shares, which have been registered with the SEC and are to
be issued in connection with the Reorganization.
The Notice, this Statement, and the accompanying proxy are expected to
first be sent to shareholders of the Acquired Funds on or about April 9,
1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON
THE ACCURACY OR ADEQUACY OF THIS STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS STATEMENT AND IN THE
MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE FONTAINE TRUST OR NA FUNDS, OR THEIR RESPECTIVE INVESTMENT
ADVISERS OR DISTRIBUTORS.
VOTE REQUIRED: EACH PROPOSAL FOR EACH FUND MUST BE APPROVED BY THE AFFIRMATIVE
VOTE OF A MAJORITY OF THE OUTSTANDING ACQUIRED FUND SHARES FOR THAT FUND.
3
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TABLE OF CONTENTS
PAGE
----
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Proposed Reorganization and Reorganization Agreement. . . . . . . 6
Reasons for Reorganization. . . . . . . . . . . . . . . . . . . . 7
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . 7
Overview of the Acquired Funds and the Acquiring Funds. . . . . . 8
Comparative Fee Table. . . . . . . . . . . . . . . . . . . . 8
Capital Appreciation and Balanced Growth . . . . . . . . . . 10
Global Growth and Worldwide Growth . . . . . . . . . . . . . 10
Global Income and Worldwide Growth . . . . . . . . . . . . . 10
RISK CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Balanced Growth . . . . . . . . . . . . . . . . . . . . . . . . . 11
Worldwide Growth. . . . . . . . . . . . . . . . . . . . . . . . . 11
Differences in Risk Considerations Between the Acquired
Funds and the Acquiring Funds . . . . . . . . . . . . . . . . . . 12
COMPARISON OF THE ACQUIRED FUNDS AND THE ACQUIRING FUNDS . . . . . . . 13
Investment Objectives, Policies and Restrictions. . . . . . . . . 14
Capital Appreciation and Balanced Growth . . . . . . . . . . 14
Global Growth and Worldwide Growth . . . . . . . . . . . . . 15
Global Income and Worldwide Growth . . . . . . . . . . . . . 17
Fundamental Versus Nonfundamental Investment Limitations. . . . . 19
Purchase and Redemption Information, Exchange Privileges,
Distributions and Pricing . . . . . . . . . . . . . . . . . . . . 19
The Trusts: Massachusetts Business Trust versus Delaware
Business Trust. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Liability of Shareholders. . . . . . . . . . . . . . . . . . 21
Election of Trustees; Shareholder Meetings . . . . . . . . . 21
Terms of Trustees. . . . . . . . . . . . . . . . . . . . . . 21
Removal of Trustees. . . . . . . . . . . . . . . . . . . . . 22
Special Meetings of Shareholders . . . . . . . . . . . . . . 22
Liability of Trustees and Officers; Indemnification. . . . . 23
Termination. . . . . . . . . . . . . . . . . . . . . . . . . 24
Voting Rights of Shareholders. . . . . . . . . . . . . . . . 24
Certain Service Provider Arrangements . . . . . . . . . . . . . . 25
Investment Advisory Fees . . . . . . . . . . . . . . . . . . 25
Transfer Agents. . . . . . . . . . . . . . . . . . . . . . . 25
Custodial Services . . . . . . . . . . . . . . . . . . . . . 26
VOTING ITEMS - APPROVAL OR DISAPPROVAL OF THE AGREEMENT AND PLAN OF
REORGANIZATION AS TO:. . . . . . . . . . . . . . . . . . . . . . . . . 26
1. The proposed Reorganization of The Fontaine Trust
Capital Appreciation Fund into Nicholas-Applegate
Mutual Funds Balanced Growth Fund. . . . . . . . . . . . . . 26
2. The proposed Reorganization of The Fontaine Trust
Global Growth Fund into
4
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Nicholas-Applegate Mutual Funds Worldwide Growth Fund. . . . 26
3. The proposed Reorganization of The Fontaine Trust
Global Income Fund into Nicholas-Applegate Mutual
Funds Worldwide Growth Fund. . . . . . . . . . . . . . . . . 26
Description of the Reorganization Agreement . . . . . . . . . . . 26
Board Consideration . . . . . . . . . . . . . . . . . . . . . . . 28
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 30
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . 31
INFORMATION RELATING TO VOTING MATTERS . . . . . . . . . . . . . . . . 32
General Information . . . . . . . . . . . . . . . . . . . . . . . 32
Shareholder and Board Approvals . . . . . . . . . . . . . . . . . 32
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ADDITIONAL INFORMATION ABOUT EACH FUND . . . . . . . . . . . . . . . . 34
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . 34
Financial Information for the Acquired Funds. . . . . . . . . . . 35
Financial Information for the Acquiring Funds . . . . . . . . . . 35
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 38
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SHAREHOLDER INQUIRIES. . . . . . . . . . . . . . . . . . . . . . . . . 38
Exhibit A: Agreement and Plan of Reorganization. . . . . . . . . . . . A-1
Exhibit B: NACM Investment Review for the Acquiring Funds. . . . . . . B-1
5
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SUMMARY
The following is a summary of certain background information relating to
the proposed Reorganization, the parties thereto and the transactions
contemplated thereby, and is qualified by reference to the more complete
information contained elsewhere in this Statement and the Statement of
Additional Information with respect to this Statement, the Prospectus and
Statement of Additional Information of each Acquired Fund and each Acquiring
Fund, and the Reorganization Agreement dated March 31, 1998, attached to
this Statement as Exhibit A.
PROPOSED REORGANIZATION AND REORGANIZATION AGREEMENT
Based on their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board
of Trustees of The Fontaine Trust, including all of the non-interested
Trustees, have determined that the proposed Reorganization is in the best
interests of the shareholders of each Acquired Fund. The Board of Trustees
of The Fontaine Trust recommends the approval of the Reorganization Agreement
and related transactions by the shareholders of each Acquired Fund at the
Special Meeting.
Subject to shareholder approval, the Reorganization Agreement provides
for: (a) the transfer to the corresponding Acquiring Fund of substantially
all of the property, assets and goodwill of each Acquired Fund (except a
reserve for certain expenses and liabilities) (the "Acquired Fund Net
Assets") in exchange for Acquiring Fund Shares equal in value to the Acquired
Fund Net Assets; (b) the distribution of Acquiring Fund Shares to the
shareholders of each Acquired Fund in liquidation of the Acquired Funds; (c)
the cancellation of all outstanding Acquired Fund Shares; and (d) the
deregistration of The Fontaine Trust and each of its series as an investment
company under the 1940 Act.
As a result of the proposed Reorganization, each shareholder of each
Acquired Fund will become a shareholder of the corresponding Acquiring Fund
and will hold, immediately after the Closing Date, Acquiring Fund Shares
having a net asset value equal to the net asset value of the Acquired Fund
Shares held by the shareholder immediately before the Closing Date with no
tax effect.
The investment adviser to the Acquired Funds, Richard Fontaine
Associates, Inc. ("Fontaine Associates") and the investment adviser to the
Acquiring Funds, Nicholas-Applegate Capital Management ("NACM"), have entered
into an Asset Purchase Agreement that, in addition to the duties and
responsibilities described in the Reorganization Agreement also memorializes
the proposed remuneration to be received by Fontaine Associates in connection
with the proposed transaction.
6
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For further information, see the discussion below on whether to approve
or disapprove the Reorganization, which includes a description of the
Reorganization Agreement.
REASONS FOR THE REORGANIZATION
In light of certain potential benefits and other factors, the Board of
Trustees of The Fontaine Trust, including the non-interested Trustees, has
determined that it is in the best interests of each of the Acquired Funds and
its shareholders to reorganize into each of the Acquiring Funds specified on
the first page of this Statement. In making that determination, the Board of
Trustees considered, among other things, the small asset size and lack of
expected asset growth of each of the Acquired Funds, and the resulting
problems associated with the inability to achieve adequate economies of
scale, including relatively high expense ratios, as described more fully
below under "Voting Items" -- "Board Consideration." The Board of Trustees
believes that each of these problems would be addressed by the proposed
Reorganization.
In addition, among other advantages, the Board of Trustees of The
Fontaine Trust believes that the Reorganization with respect to each Acquired
Fund in most cases will: (a) provide Acquired Fund shareholders with an
Acquiring Fund that has similar investment objectives, investment policies,
restrictions, and investment strategies as the corresponding Acquired Fund;
(b) provide Acquired Fund shareholders with an Acquiring Fund that has
provided superior historical returns; and (c) provide Acquired Fund
shareholders with overall expense ratios that are more favorable than those
of the Acquired Funds. The Reorganization would be a tax-free event. In
addition, the Board of Trustees of The Fontaine Trust noted that the NA Funds
currently offer numerous portfolios, which provide an abundance of investment
alternatives to investors.
The Board of Trustees also considered the possible risks and
disadvantages of the Reorganization and determined that the Reorganization is
likely to provide benefits to the Acquired Funds and their shareholders that
outweigh any possible risks and disadvantages of the Reorganization.
Finally, the Board of Trustees concluded that there are no significant risks
or disadvantages to the Acquired Funds or their shareholders from the
Reorganization and that the interests of each Acquired Fund's shareholders
would not be diluted.
Similarly, the Board of Trustees of NA Funds, in approving the
Reorganization, determined that it would be advantageous for each of the
Acquiring Funds and its current shareholders to acquire the Acquired Fund Net
Assets of each of the corresponding Acquired Funds in exchange for Acquiring
Fund Shares and that the interests of each of the Acquiring Fund's existing
shareholders would not be diluted.
FEDERAL INCOME TAX CONSEQUENCES
7
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Counsel for this transaction will issue an opinion as of the Closing
Date to the effect that the Reorganization will not give rise to the
recognition of income, gain, or loss for federal income tax purposes to any
of the Acquired Funds, any of the Acquiring Funds, or their respective
shareholders. See the discussion below on whether to approve or disapprove
the Reorganization, which includes a description of the Reorganization
Agreement.
OVERVIEW OF THE ACQUIRED FUNDS AND THE ACQUIRING FUNDS
The investment objectives, investment policies and restrictions of the
Acquired Funds and the corresponding Acquiring Funds are in many respects
similar. The investment objectives of each of the Acquired Funds and each of
the Acquiring Funds are fundamental, meaning that they may not be changed
without a vote of the holders of a majority of the particular Fund's
outstanding shares.
Acquired Fund Shares are sold on a 100% no-load basis, meaning that such
shares may be purchased, redeemed, or exchanged at their net asset value
without payment of a sales charge. In addition, the Acquired Funds do not
charge any redemption fees or Rule 12b-1 fees. Conversely, a sales charge of
up to 5.25% in most instances is imposed on purchases of Acquiring Fund
Shares. However, Acquiring Fund Shares acquired by shareholders of each
Acquired Fund as a result of the Reorganization and additional purchases of
Acquiring Fund Shares by Acquired Fund Shareholders will not be subject to
any sales charge. The Acquiring Fund shares are subject to an annual Rule
12b-1 expense of 0.25% of the average daily net assets of each Acquiring
Fund's Class A shares.
Each Fund's policies, procedures, and restrictions concerning share
redemption and exchange, dividend payment, and the determination of net asset
value are identical, as set forth in the Prospectus for each Fund.
A more detailed description of each of the Funds appears below in the
section entitled "Comparison of the Acquired Funds and the Acquiring Funds."
COMPARATIVE FEE TABLE
The following table sets forth the current fees and expenses of the
Acquired Funds as of December 31, 1997, and of the Acquiring Funds as of
March 31, 1997. Excluding extraordinary expenses, the current fees and
expenses of the Acquiring Funds are expected to remain unchanged as a result
of the Reorganization.
8
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Capital Global Global Balanced Worldwide
Appreciation Growth Income Growth Growth
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.95% 0.80% 0.75% .75% 1.00%
- --------------------------------------------------------------------------------------
12b-1 Fees None None None 0.25% 0.25%
- --------------------------------------------------------------------------------------
Other Operating Expenses 1.04% 1.57% 2.15% 0.60% 0.60%
Total Fund Operating 1.99%* 2.37%* 2.90%* 1.60%** 1.85%**
Expenses
</TABLE>
*Effective May 1, 1997, the Expense Limitation Agreements with the
Acquired Funds, under which Fontaine Associates had agreed to assume and
reimburse all annual Fund operating expenses of each Fund (other than certain
expenses that are capitalized and certain other non-recurring expenses) which
in any year exceeded 1.50% of the average daily net assets for the Capital
Appreciation Fund and the Global Growth Fund and 1.25% of the average daily
net assets for the Global Income Fund, were discontinued.
**NACM has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by Balanced Growth and Worldwide Growth,
subject to possible later reimbursement during a five year period. Total Fund
Operating Expenses would have been 3.00% and 2.17%, respectively and Other
Operating Expenses would have been 2.00% and 0.92%, respectively, absent the
deferral.
Example: An investor in an Acquired Fund or an Acquiring Fund would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return, and
(2) redemption at the end of the following periods.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Fontaine Trust:
Capital Appreciation $20.20 $ 62.44 $107.26 $231.67
Global Growth $24.01 $ 73.95 $126.54 $270.54
Global Income $29.30 $ 89.77 $152.81 $322.35
NA Funds:
Balanced Growth $68 $100 $135 $283
Worldwide Growth $70 $108 $147 $258
</TABLE>
The Example is based on each Fund's "Total Fund Operating Expenses," as
described above. PLEASE REMEMBER THAT THE EXAMPLE SHOULD NOT BE CONSIDERED
AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN. The assumption in the Example of 5% annual
return is required by regulations of the SEC applicable to all mutual Funds.
The assumed 5% annual return is not a prediction of, and does not represent,
the projected or actual performance of a Fund's shares.
9
<PAGE>
CAPITAL APPRECIATION FUND ("CAPITAL APPRECIATION") AND BALANCED GROWTH
PORTFOLIO A ("BALANCED GROWTH")
Both Funds seek long-term capital appreciation and current income,
though current income is a secondary objective of Capital Appreciation.
Capital Appreciation employs a "valuation" discipline to identify stocks for
its portfolio, and Balanced Growth focuses on a "bottom-up" growth analysis.
Both Funds may invest up to 20% of their total assets in the securities of
foreign issuers. The primary distinction between the Acquired Fund and the
Acquiring Fund is that, under normal market conditions, Capital Appreciation
invests up to 80% of the Fund's total assets in common stocks (which are
expected to be traded on the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market, and certain foreign stock exchanges),
while Balanced Growth allocates about 60% of its total assets (but no more
than 70% and no less than 50%) to equity securities, and invests about 40% of
its total assets in debt securities issued by corporations and the U.S.
Government, its agencies and instrumentalities.
GLOBAL GROWTH FUND ("GLOBAL GROWTH") AND WORLDWIDE GROWTH PORTFOLIO A
("WORLDWIDE GROWTH")
Both Funds seek long-term capital appreciation by investing primarily in
equity and equity-related securities of domestic and foreign issuers such as
common stocks, preferred stocks, securities convertible into or exchangeable
for common stocks, and warrants. Global Growth employs a "valuation"
discipline to identify stock for its portfolio and Worldwide Growth focuses
on a "bottom-up" growth analysis. Under normal market conditions Global
Growth invests 65% of its total assets in equity and equity-related
securities of established medium and large capitalization issuers in at least
three different countries, one of which may be the United States. Global
Growth invests in the equity and equity-related securities of foreign issuers
primarily through the purchase of American Depository Receipts ("ADRs"), as
well as securities traded on foreign stock exchanges and established foreign
over-the-counter markets. Under normal conditions Worldwide Growth 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 United States. Worldwide
Growth may invest up to 50% of its total assets in United States issuers.
Global Growth may invest 65% of its total assets in equity and equity-related
securities, while Worldwide Growth may invest at least 75% of its total
assets in such instruments.
GLOBAL INCOME FUND ("GLOBAL INCOME") AND WORLDWIDE GROWTH PORTFOLIO A
("WORLDWIDE GROWTH")
Global Income seeks a high level of current income, with a secondary
objective of capital appreciation. Worldwide Growth seeks maximum long-term
capital appreciation. Under normal market conditions, Global Income invests
65% of its total assets in high and medium quality bonds, debentures and
notes of issuers in at least three different countries, one of which may be
10
<PAGE>
the United States. Global Income is a non-diversified investment company
under the 1940 Act to enable it to invest more than 5% of its total assets in
securities of one issuer. Worldwide Growth is a diversified investment
company under the 1940 Act. Under normal conditions, Worldwide Growth
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 United States.
Worldwide Growth may invest up to 50% of its total assets in United States
issuers, and invests at least 75% of its total assets in equity and
equity-related securities.
Global Income may invest anywhere in the world, but normally most of its
investments are made in securities of issuers located in developed countries
in North America, Western Europe, and the Pacific Basin. In selecting
companies within those countries and geographic regions, Global Income's
investment adviser, Fontaine Associates, considers certain factors, such as:
fundamental market attractiveness, the outlook for currency relationships,
current and anticipated interest rates, levels of inflation in various
countries, and local market factors including government policies influencing
currency exchange rates and business conditions. NACM, as investment adviser
for Worldwide Growth, focuses on a "bottom-up" growth analysis that evaluates
the financial condition and competitiveness of individual companies
worldwide.
RISK CONSIDERATIONS
The permitted investments of the Acquired Funds and the Acquiring Funds
are similar. The following is an overview of the risks involved in investing
in the Acquiring Funds. In addition, there are certain risk considerations
that differ from those of the Acquired Funds, as described below. A detailed
description of the risks involved in investing in the Acquiring Funds is
contained in each Acquiring Fund's Prospectus and Statement of Additional
Information.
BALANCED GROWTH
The value of an investment in Balanced Growth will fluctuate in response
to movements in the stock and bond markets. The equity and equity-related
securities of the companies in which Balanced Growth invests may be more
volatile than securities of larger, more established companies. The values
of Balanced Growth's debt securities will change as interest rates fluctuate:
if rates go up, the values of debt securities fall; if rates go down, the
values of debt securities go up. In addition, the lower rated debt
securities in which Balanced Growth may invest are considered speculative and
are subject to greater volatility and risk of loss than investment grade
securities, particularly in deteriorating economic periods.
WORLDWIDE GROWTH
The value of an investment in Worldwide Growth varies from day to day in
response to the activities of individual companies, and general market and
economic conditions. The securities of small, less well-known companies in
which the Fund may invest may be more
11
<PAGE>
volatile than the securities of larger companies. As with any international
fund, performance also depends on changing currency values, different
political and regulatory environments, and other overall economic factors in
the countries where Worldwide Growth invests. The risks are magnified in
countries with emerging markets, since those countries may have unstable
governments and less-established markets.
DIFFERENCES IN RISK CONSIDERATIONS BETWEEN THE ACQUIRED FUNDS AND THE
ACQUIRING FUNDS
There are additional risks associated with investing in the Acquiring
Funds of which investors should be aware. For example, while the Acquired
Funds may invest in options, the current operating policies of the Acquired
Funds precludes them from doing so. The Acquiring Funds are permitted to
invest in options. In addition, the Acquired Funds may not invest in
futures, but Worldwide Growth may do so. 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 fund. This may cause the futures contract or the options
to react differently than the fund's portfolio securities to market changes.
In addition, the investment adviser could be incorrect in its expectations
about the direction or the extent of market movements. In these events, a
fund could lose money on the futures contracts or options. It is not certain
that a secondary market for positions in futures contracts or for options
will exist at all times. Although NACM will consider liquidity before
entering into these transactions, there is no assurance that a liquid
secondary market will exist for these instruments.
Worldwide Growth is permitted to maintain short positions in securities,
which means that the Fund may sell a security that has been borrowed from a
third party on the expectation that the market price will drop. (Neither
Global Growth nor Global Income may engage in this strategy.) If Worldwide
Growth has sold a security short and the price of the security drops,
Worldwide Growth will make a profit by purchasing the security in the open
market at a lower price than it sold the security. Conversely, if the price
of the security rises in such circumstance, Worldwide Growth may have to
cover its short position at a higher price than the short sale price,
resulting in a loss. The use of an uncovered short sale, where Worldwide
Growth does not already own the security it sells short or have the value of
the security covered in a segregated account, is a speculative investment
technique and has potentially unlimited risk. Accordingly, Worldwide Growth
will not make uncovered short sales in an amount exceeding the lesser of 2%
of Worldwide Growth's net assets or 2% of the securities of the class of the
issuer. The NA Funds Board of Trustees has determined that Worldwide Growth
will not make short sales if to do so would create liabilities or require
collateral deposits of more than 25% of its total assets to be segregated.
Global Income is registered as a non-diversified investment company
under the 1940 Act to enable it to invest more than 5% of its total assets in
securities of one issuer, including, in particular, securities of foreign
governments. While Global Income is non-diversified for
12
<PAGE>
securities law purposes, it intends to qualify as a regulated investment
company ("RIC") for purposes of Subchapter M of the Internal Revenue Code of
1986, as amended ("Code"). Such qualification requires the Fund to limit its
investment so that, among other things, at least 50% of its total assets is
comprised of cash, cash items, U.S. Government securities, securities of RICs
and other securities, limited so that the securities of a single issuer
(other than U.S. Government securities) do not comprise more than 5% of the
value of the Fund's total assets. Since, as a non-diversified investment
company, Global Income is permitted to invest a greater proportion of its
assets in the securities of a smaller number of issuers, the Fund may be
subject to greater risk with respect to its portfolio securities than an
investment company that is more broadly diversified. Worldwide Growth, the
Acquiring Fund into which Global Income is being reorganized, is a
diversified fund. As such, it has a fundamental policy that limits its
investments so that, with respect to 75% of its assets, (i) no more than 5%
of the Fund's total assets will be invested in the securities of a single
issuer, and (ii) the Fund will purchase no more than 10% of the outstanding
voting securities of a single issuer. These limitations do not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements fully collateralized by U.S.
Government securities.
COMPARISON OF THE ACQUIRED FUNDS AND THE ACQUIRING FUNDS
The Acquired Funds are each series of The Fontaine Trust, a
Massachusetts business trust. NA Funds are currently structured as a
master-feeder fund, with NA Funds investing all of the assets of each of its
portfolios in the Nicholas-Applegate Investment Trust, a separate Delaware
business trust operating as a master fund ("Master Fund"). The Master Fund
is supervised by a Board of Trustees, which selects the investment adviser,
administrator and custodian for its separate investment portfolios. A
separate Board of Trustees supervises the overall activities of the NA Funds
and selects the transfer agent, administrator, distributor and other service
providers for the NA Funds.
Pursuant to a Special Meeting of Shareholders of NA Funds scheduled to
be held on May 8, 1998, NA Funds will be restructured so that it can manage
its assets directly rather than through the Master Fund, and each of the
separate portfolios, including the Acquiring Funds will be reorganized as
separate series of NA Funds having separate "classes of shares." The
restructuring of the NA Funds from a master-feeder structure to the structure
described above is expected to be completed in June 1998.
The investment objectives, investment policies and restrictions of the
Acquired Funds and the corresponding Acquiring Funds are in many respects
similar. There are, however, some noteworthy differences between the
Acquired Funds and the Acquiring Funds. The following discusses some of the
more significant similarities and differences in the investment objectives
and policies of each of the Acquired Funds and each of the Acquiring Funds
and is qualified in its entirety by the discussion elsewhere in this
Statement, and in the Prospectus and Statement of Additional Information of
each Acquired Fund and each Acquiring Fund, which are incorporated into this
Statement by reference.
13
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
- -------------------------------------------------------------------------------
THE FONTAINE TRUST: NICHOLAS-APPLEGATE MUTUAL FUNDS:
CAPITAL APPRECIATION FUND AND BALANCED GROWTH PORTFOLIO A
- -------------------------------------------------------------------------------
The investment objectives of the Capital Appreciation Fund ("Capital
Appreciation") and the Balanced Growth Portfolio A ("Balanced Growth") are
fundamental, meaning that they may not be changed without a vote of the
holders of a majority of the particular Fund's outstanding shares. This
section describes certain policies that are common to Capital Appreciation
and Balanced Growth and certain noteworthy differences.
Both Funds seek long-term capital appreciation and current income.
(Current income is a secondary objective of Capital Appreciation.) Capital
Appreciation employs a "valuation" discipline to identify stocks that are
undervalued or out of favor with investors, have prospects for price
appreciation, and that the Fund's investment adviser, Fontaine Associates,
believes will exceed the risk of loss of market value over time. Similarly,
NACM, as investment adviser for Balanced Growth, focuses on a "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies. In doing so, 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.
Both Funds may invest up to 20% of their total assets in the securities
of foreign issuers. Capital Appreciation invests only in equity and debt
securities of foreign issuers in developed countries, such as those in North
America, Western Europe and the Pacific Basin, and in investment-grade debt
securities rated by any nationally recognized statistical rating organization
("NRSRO") Baa or higher, or, if unrated, of comparable investment quality as
determined by Fontaine Associates.
The primary distinction between the Funds is that Capital Appreciation
invests up to 80% of its total assets in common stocks (which are expected to
be traded on the New York Stock Exchange, the American Stock Exchange, the
NASDAQ National Market, and certain foreign stock exchanges), while Balanced
Growth allocates about 60% of its total assets (but no more than 70% and no
less than 50%) to equity securities, and invests about 40% of its total
assets in debt securities issued by corporations and the U.S. Government, its
agencies and instrumentalities. The equity securities of Balanced Growth
will be issued primarily by companies with market capitalizations over $100
million.
The assets of Capital Appreciation that are not invested in common
stocks may be invested in: (i) privately places securities; (ii)
equity-related securities (I.E., preferred stocks, securities convertible
into or exchangeable for common stocks, and warrants); and (iii) foreign
equity and debt securities (limited to 20% of the Fund's total assets).
Capital Appreciation's investment in privately placed securities, convertible
securities, and preferred stocks is limited in
14
<PAGE>
each case to 10% of its total assets. However, as an operating policy
Capital Appreciation does not invest more than 5% of its total assets in
illiquid securities. Balanced Growth may invest up to 15% of its net assets
in illiquid securities.
In addition to foreign debt securities, as described above, Capital
Appreciation may also use U.S. dollar-denominated high-quality money market
instruments and short-term debt securities that are rated within the two
highest credit categories by any NRSRO or, if unrated, are of comparable
investment quality as determined by Fontaine Associates in order to reduce
downside exposure to uncertain or declining market conditions. For temporary
or defensive purposes, Capital Appreciation may invest without limitation in
high-quality U.S. dollar-denominated money market instruments and short-term
debt securities. Balanced Growth, on the other hand, may invest up to 35% of
its assets in debt securities rated below investment grade.
Each Fund may invest in warrants, bank certificates of deposit, commercial
paper, short-term notes, repurchase agreements, banker's acceptances, and other
short-term fixed income securities, and Balanced Growth may invest in zero
coupon securities issued or guaranteed by the U.S. Government and its agencies
and instrumentalities. Each Fund may also borrow funds for emergency purposes,
and may invest in securities purchased on a when-issued or delayed delivery
basis. While both Funds may lend portfolio securities, Capital Appreciation
does not currently engage in that activity. Both Funds may engage in options
and futures transactions, but Capital Appreciation has no current intention of
doing so.
- -------------------------------------------------------------------------------
THE FONTAINE TRUST: NICHOLAS-APPLEGATE MUTUAL FUNDS:
GLOBAL GROWTH FUND and WORLDWIDE GROWTH PORTFOLIO A
- -------------------------------------------------------------------------------
The investment objectives of the Global Growth Fund ("Global Growth") and
the Worldwide Growth Portfolio A ("Worldwide Growth") are fundamental, meaning
that they may not be changed without a vote of the holders of a majority of
the particular Fund's outstanding shares. This section describes certain
policies that are common to Global Growth and Worldwide Growth and certain
noteworthy differences.
Both Funds seek long-term capital appreciation by investing primarily in
equity and equity-related securities of domestic and foreign issuers. Under
normal market conditions Global Growth invests 65% of its total assets in equity
and equity-related securities of established medium and large capitalization
issuers in at least three different countries, one of which may
15
<PAGE>
be the United States. Global Growth invests in the equity and equity-related
securities of foreign issuers primarily through the purchase of American
Depository Receipts ("ADRs"), as well as securities traded on foreign stock
exchanges and established foreign over-the-counter markets. Under normal
conditions Worldwide Growth 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 United States. Worldwide Growth may invest up to 50% of its
total assets in United States issuers.
In selecting companies within those countries and geographic regions,
Global Growth's investment adviser, Fontaine Associates, seeks to identify those
companies that are best positioned and managed to benefit from certain factors,
such as: relative economic growth; expected levels of inflation; government
policies affecting business conditions; and market trends throughout the world.
Fontaine Associates will not normally emphasize dividend income in choosing
securities for Global Growth, unless it believes the income will contribute to
the securities' investment return. NACM, as investment adviser for Worldwide
Growth, focuses on a "bottom-up" analysis that evaluates the financial condition
and competitiveness of individual companies worldwide. In doing so, 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 "change at the margin" -- positive business developments
that are not yet fully reflected in a company's stock price. NACM 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.
Both Funds invest in equity and equity-related securities such as common
stocks, preferred stocks, securities convertible into or exchangeable for common
stocks, and warrants. Global Growth invests 65% of its total assets in such
instruments, while Worldwide Growth invests at least 75% of its total assets in
such instruments.
The assets of Global Growth not invested in common stocks may be
invested in: (i) high and medium quality debt securities issued by domestic
and foreign corporations, governments, governmental entities, and
supranational entities; and (ii) short-term debt securities rated within the
two highest credit categories by any NRSRO or, if unrated, of comparable
investment quality as determined by Fontaine Associates. Global Growth's use
of money market instruments and short-term debt securities generally tend to
reflect Fontaine Associates' overall measure of valuation relating to the
global equity markets, and Fontaine Associates uses such securities to reduce
downside exposure to uncertain or declining market conditions.
The assets of Worldwide Growth not invested in equity and equity-related
stocks may be invested primarily in investment-grade debt securities rated at
least Baa by any NRSRO or unrated securities of comparable quality of foreign
companies and foreign governments and their agencies and instrumentalities. For
temporary or defensive purposes, each Fund may invest without limitation in
high-quality domestic money market instruments and short-term debt securities.
Each Fund may invest in warrants, may also borrow funds for emergency
purposes and may invest in securities purchased on a when-issued or delayed
delivery basis. Both Funds may
16
<PAGE>
invest in Eurodollars, and Worldwide Growth may invest in securities swaps and
may sell short. While both Funds may lend portfolio securities, Global Growth
does not currently engage in that activity. Both Funds may engage in options
and futures transactions, although Global Growth has no current intention of
doing so.
- -------------------------------------------------------------------------------
THE FONTAINE TRUST: NICHOLAS-APPLEGATE MUTUAL FUNDS:
GLOBAL INCOME FUND and WORLDWIDE GROWTH PORTFOLIO A
- -------------------------------------------------------------------------------
The investment objectives of the Global Income Fund ("Global Income") and
the Worldwide Growth Portfolio A ("Worldwide Growth") are fundamental,
meaning that they may not be changed without a vote of the holders of a
majority of the particular Fund's outstanding shares. This section describes
certain policies that are common to the Acquired Fund and the Acquiring Fund
and certain noteworthy differences.
Global Income, a nondiversified fund, seeks a high level of current income
with a secondary objective of capital appreciation. Worldwide Growth seeks
maximum long-term capital appreciation. Under normal market conditions, Global
Income invests 65% of its total assets in debt securities of domestic and
foreign issuers in at least three different countries, one of which may be the
United States. Under normal conditions Worldwide Growth, a diversified 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 United States.
Worldwide Growth may invest up to 50% of its total assets in United States
issuers.
Global Income may invest anywhere in the world, but expects that most of
its investments will be made in debt securities of issuers located in developed
countries in North America, Western Europe and the Pacific Basin. In selecting
companies within those countries and geographic regions, Global Income's
investment adviser, Fontaine Associates, considers certain factors, such as:
fundamental market attractiveness, the outlook for currency relationships,
current and anticipated interest rates, levels of inflation in various
countries, and local market factors including government policies influencing
currency exchange rates and business conditions.
NACM, as investment adviser for Worldwide Growth, focuses on a
"bottom-up" analysis that evaluates the financial condition and
competitiveness of individual companies worldwide. In doing so, 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 "change at the margin" -- positive business
developments that are not yet fully reflected in a company's stock price.
NACM 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. Worldwide Growth invests at least 75% of its
total assets in equity and equity-related securities such as common stocks,
preferred stocks, securities convertible into
17
<PAGE>
or exchangeable for common stocks, and warrants of companies throughout the
world. The assets of the Worldwide Growth not invested in equity and
equity-related securities will be invested in investment-grade debt
securities rated at least Baa or its equivalent by any NRSRO or unrated
securities of comparable quality as determined by NACM. Such debt securities
may include securities issued by foreign companies and foreign governments
and their agencies and instrumentalities.
The debt securities purchased by Global Income are high and medium
quality bonds, debentures, and notes rated, for example, at least Baa or its
equivalent by any NRSRO or, if unrated, of comparable investment quality as
determined by Fontaine Associates. Global Income may invest in debt
securities issued by: (i) domestic and foreign governments and their agencies
and political subdivisions; (ii) corporations and financial institutions, and
(iii) supranational entities such as the International Bank for
Reconstruction and Development ("World Bank"), the Asian Development Bank,
the European Investment Bank, and the European Community. Although Global
Income may invest in debt securities of domestic and foreign corporations and
financial institutions, its investments in issuers located outside the United
States have been principally in government and quasi-governmental issuers in
order to maintain liquidity and reduce credit risk.
The assets of Global Income not invested in debt securities may be invested
in: (i) equity and equity-related securities of domestic and foreign issuers;
and (ii) high-quality money market instruments of domestic and foreign issuers
that are rated within the two highest credit categories by an NRSRO or, if
unrated, are of comparable investment quality as determined by Fontaine
Associates. For temporary or defensive purposes, each Fund may invest without
limitation in high-quality domestic money market instruments, high-quality
domestic short-term debt securities, or may hold the Fund's assets in cash or
cash equivalents.
Each Fund may invest in warrants, may also borrow funds for emergency
purposes and may invest in securities purchased on a when-issued or delayed
delivery basis. Both Funds may also invest in Eurodollars, and Worldwide Growth
may invest in securities swaps and may sell its securities short. While both
Funds may lend portfolio securities, Global Income does not currently engage in
that activity. Both Funds may engage in options and futures transactions, but
Global Income has no current intention of doing so.
* * *
PLEASE SEE THE PROSPECTUS FOR EACH FUND FOR FURTHER INFORMATION CONCERNING
EACH FUND'S INVESTMENT POLICIES AND RISKS. PLEASE ALSO REFER TO THE SECTION OF
THE STATEMENT ENTITLED "RISK CONSIDERATIONS."
* * *
18
<PAGE>
FUNDAMENTAL VERSUS NONFUNDAMENTAL INVESTMENT LIMITATIONS
None of the Acquired Funds or Acquiring Funds may change its fundamental
investment limitations without the affirmative vote of the holders of a majority
of its outstanding shares (as defined in the 1940 Act). However, investment
limitations that are (i) not fundamental or (ii) "operating" policies of the
Acquired Funds or Acquiring Funds may be changed by their respective Boards of
Trustees without shareholder approval.
PURCHASE AND REDEMPTION INFORMATION, EXCHANGE PRIVILEGES, DISTRIBUTIONS AND
PRICING
Acquired Fund Shares are sold on a continuous basis by The Fontaine Trust.
Acquired Fund Shares are sold on a 100% no-load basis, meaning that shares may
be purchased, redeemed, and exchanged directly at net asset value without paying
a sales charge. The Acquired Funds do not charge any redemption fees or Rule
12b-1 fees. Broker-dealers, financial institutions, and other service
providers, however, may charge an administrative fee on the purchase or
redemption of Acquired Fund Shares. The purchase price for Acquired Fund Shares
will be the net asset value next determined after the Acquired Fund receives the
shareholder's request in proper form.
Acquiring Fund Shares are sold on a continuous basis by NA Funds'
distributor, Nicholas-Applegate Securities. As previously noted, Class A shares
are generally subject to a sales charge of up to 5.25% of the offering price.
However, shareholders of each Acquired Fund becoming shareholders of the
Acquiring Fund as a result of the Reorganization are entitled to receive
Acquiring Fund Shares and may continue to purchase Acquiring Fund Shares without
paying a sales charge. Acquiring Fund Shares are subject to an annual Rule 12b-1
expense of 0.25% of each Acquiring Fund's average net assets attributable to
such shares. The purchase price for Acquiring Fund Shares will be net asset
value next determined after the Acquiring Fund receives the shareholder's
request in proper form.
NO SALES CHARGE WILL BE IMPOSED ON THE ISSUANCE OF ACQUIRING FUND SHARES IN
CONNECTION WITH THE REORGANIZATION.
The minimum initial investment for each Acquired Fund is $1,000 and for
each Acquiring Fund is $2,000 per account and $250 for UGMA/UTMA Accounts. The
minimum initial investment amount is waived for shareholders who enroll in an
Acquiring Fund's automatic investment plan. The minimum subsequent investment
for each Acquired Fund and each Acquiring Fund is $100 per account. Purchase
orders for shares of each Fund are effected on any "business day;" I.E., any day
on which the New York Stock Exchange is open for trading. Each Acquiring Fund
offers an automatic investment plan, payroll direct deposit plan, automatic
exchange plan, and systematic withdrawal plan in connection with the purchase
and redemption of its shares.
19
<PAGE>
Each Fund's policies, procedures, and restrictions concerning share
redemption and dividend payment, exchange of shares, and the determination of
net asset value are identical, as set forth in the Prospectus for each Fund.
Please refer to each Prospectus for further information on these subjects.
Please note that Acquiring Fund Shares may be exchanged for shares in any of the
other NA Funds.
THE TRUSTS: MASSACHUSETTS BUSINESS TRUST VERSUS DELAWARE BUSINESS TRUST
The Fontaine Trust is a Massachusetts business trust, and NA Funds is
organized as a Delaware business trust. The two forms of organization are very
similar. For example, the responsibilities, powers and fiduciary duties of the
Board of Trustees of NA Funds are substantially the same as those of the Board
of Trustees of The Fontaine Trust. However, the Delaware Business Trust Act
("DBTA") affords business trusts definable right and protections by virtue of
its terms having been set forth in the statute, and in some important respects
is deemed to have expanded the protections afforded by the business trust.
For example, if the Reorganization is approved and the transfer of assets
takes place, shareholders of the Acquired Funds will have the benefit of various
provisions that either do not exist or are not explicit under the laws governing
entities organized as Massachusetts business trusts. For example, while the
risk of shareholder liability is not great, the DBTA appears to provide
shareholders with greater protection from liabilities incurred by a business
trust organized under the DBTA. In addition, there are provisions of the DBTA
that may serve to reduce costs of operation as new technologies become
available, such as electronic communications. Other provisions of the DBTA
include the ability of an investment company or its series to merge or
consolidate with other entities and to deal with noninvestment-related
operational issues without a shareholder vote, which may afford enhanced
flexibility and may save an investment company substantial resources.
The specific differences between The Fontaine Trust and NA Funds are
discussed below. The operations of The Fontaine Trust, as a Massachusetts
business, are governed by its Declaration of Trust and Bylaws ("The Fontaine
Trust's Declaration of Trust") and Massachusetts law, while the operations of NA
Funds are governed by its Amended and Restated Declaration of Trust and Bylaws
("NA Funds' Declaration of Trust") and Delaware law.
20
<PAGE>
LIABILITY OF SHAREHOLDERS
Under Massachusetts law, shareholders of The Fontaine Trust may, under
certain circumstances, be held personally liable as partners for The Fontaine
Trust's obligations. However, the risk of a shareholder incurring financial
loss as a result of shareholder liability is limited to circumstances in which
both inadequate insurance exists and The Fontaine Trust, itself, is unable to
meet its obligations. The Fontaine Trust's Declaration of Trust specifically
states that no shareholder shall be subject to any personal liability whatsoever
to any person in connection with The Fontaine Trust's property or the acts,
obligations or affairs of The Fontaine Trust. The Fontaine Trust's Declaration
of Trust further states that The Fontaine Trust shall indemnify and hold each
shareholder harmless from and against all claims and liabilities to which the
shareholder may become subject by reason of his being or having been a
shareholder, and shall reimburse the shareholder out of The Fontaine Trust's
property for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability.
Under the DBTA, on the other hand, shareholders of a Delaware business
trust are entitled to the same limitations of liability extended to shareholders
of private for-profit corporations. As such, there is a possibility, albeit
remote, that under certain circumstances shareholders of a Delaware business
trust may be held personally liable for a Delaware business trust's obligations.
This might occur if the courts of another state not recognizing the limitation
on liability were to apply the laws of the state to a controversy involving the
Delaware business trust's obligations. To protect against such an occurrence,
the NA Funds' Declaration of Trust provides that NA Funds shall indemnify and
hold each of NA Funds' shareholders harmless from and against any claim or
liability to which the shareholder may become subject solely by reason of his or
her being or having been a shareholder, and that was not due to the
shareholder's acts or omissions or for some other reason. In such an instance,
NA Funds will reimburse the shareholder for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or
liability. Thus, the risk of a shareholder incurring financial loss beyond his
or her investment due to shareholder liability is limited to circumstances in
which NA Funds itself is unable to meet its obligations.
ELECTION OF TRUSTEES; SHAREHOLDER MEETINGS
Neither Massachusetts business trust law nor the DBTA require investment
companies to hold annual meetings of shareholders. The shareholders of both the
Acquired Funds and the Acquiring Funds may, from time to time, be entitled to
vote for the election of trustees in elections that are held as required by the
1940 Act, the Declaration of Trust or the Bylaws.
TERMS OF TRUSTEES
The Fontaine Trust's Declaration of Trust provides that, except in the
event of resignation or removal by the other trustees or shareholders of The
Fontaine Trust, each trustee shall hold
21
<PAGE>
office until such time as less than a majority of the trustees holding office
have been elected by shareholders. At that time, The Fontaine Trust's
Declaration of Trust states that the trustees then in office will call a
shareholders' meeting for the election of trustees. The Declaration of Trust
also provides that the term of office of a trustee shall terminate and a
vacancy shall occur in the event of his death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a trustee.
The NA Funds' Declaration of Trust provides that the trustees of NA Funds
shall hold office during the lifetime of NA Funds and until its termination as
provided for in the NA Fund's Declaration of Trust, unless the trustee resigns
or is removed by the other trustees or shareholders of NA Funds (as discussed
below). The NA Funds' Declaration of Trust also provides that the term of
office of a trustee shall terminate and a vacancy shall occur in the event of
the death, resignation, adjudicated incompetence or other incapacity to perform
the duties of the office, or removal, of a trustee.
REMOVAL OF TRUSTEES
A trustee of The Fontaine Trust may be removed from office for cause, at a
meeting duly called, by the action of two-thirds of the remaining trustees or by
action of two-thirds of the outstanding shares of beneficial interest of The
Fontaine Trust. The Fontaine Trust's Declaration of Trust provides that in the
case of a vacancy, subject to the provisions of the 1940 Act, the remaining
trustees shall fill the vacancy by the appointment of such other person as they
in their sole discretion shall see fit and such appointment shall be made by a
written instrument signed by a majority of the trustees then in office.
A trustee of NA Funds may be removed from office with or without cause by
the affirmative vote of the shareholders of two-thirds of the shares of
beneficial interest of NA Funds, or may be removed for cause by the action of
two-thirds of the remaining trustees. The NA Funds' Declaration of Trust
provides that in the case of a vacancy, the shareholders of at least a majority
of the shares of beneficial interest entitled to vote or, to the extent
permitted by the 1940 Act, a majority vote of the trustees continuing in office
may fill the vacancy.
SPECIAL MEETINGS OF SHAREHOLDERS
The Fontaine Trust's Declaration of Trust provides that shareholders'
meetings may be called at any time by the President of The Fontaine Trust, and
shall be called by the President or the Secretary of The Fontaine Trust at the
request, in writing or by resolution, of a majority of the trustees, or at the
written request of the shareholders of 10% or more of the total number of shares
then issued and outstanding of The Fontaine Trust entitled to vote at the
shareholders' meeting. The Fontaine Trust's Declaration of Trust further
provides that meetings of the shareholders of any series of The Fontaine Trust
shall be called by the President or the Secretary of The Fontaine Trust at the
written request of the shareholders of 10% or more of the total
22
<PAGE>
number of shares then issued and outstanding of the series of The Fontaine
Trust entitled to vote at the meeting. Any request for a shareholder meeting
shall state the purpose or purposes of the proposed meeting.
The NA Funds' Declaration of Trust provides that shareholders' meetings may
be called at any time by a majority of the trustees and shall be called by any
trustee upon written request of shareholders holding, in the aggregate, not less
than 10% of the issued and outstanding shares of beneficial interest.
Shareholder requests for a meeting must specify the purpose or purposes for
which the meeting is to be called.
LIABILITY OF TRUSTEES AND OFFICERS; INDEMNIFICATION
The Fontaine Trust's Declaration of Trust provides that trustees, officers,
employees or agents of The Fontaine Trust shall not be liable to The Fontaine
Trust, its shareholders, or to any shareholder, trustee, officer, employee or
agent of The Fontaine Trust or its shareholders for any action or failure to
act, except for his or her own bad faith, willful misfeasance, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
office. The Fontaine Trust's Declaration of Trust further provides that a
trustee or officer of The Fontaine Trust shall be indemnified by The Fontaine
Trust or by one or more series of The Fontaine Trust, as appropriate, to the
fullest extent permitted by law against all liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being or having been a trustee or officer and against
amounts paid or incurred by him or her in a settlement. Under The Fontaine
Trust's Declaration of Trust, no indemnification shall be provided to a trustee
or officer: (i) against any liability to The Fontaine Trust, a series of The
Fontaine Trust, or its shareholders by reason of a final adjudication by a court
or other body before which a proceeding was brought that he or she engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office; (ii) with respect to any
matter as to which he or she shall have been finally adjudicated not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of The Fontaine Trust or a series of The Fontaine Trust; or (iii)
in the event of a settlement or other disposition not involving a final
adjudication as provided in subparagraph (ii) above resulting in a payment by a
trustee or officer, unless there has been a determination that the trustee or
officer did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Under the NA Funds' Declaration of Trust, trustees, officers, employees or
agents of NA Funds when acting in those capacities shall not be subject to any
personal liability whatsoever, in his or her individual capacity, to any person,
other than to NA Funds or its shareholders. In addition, the NA Funds'
Declaration of Trust provides that the trustees, officers, employees or agents
of the NA Funds shall not be liable to NA Funds, its shareholders, or to any
trustee,
23
<PAGE>
officer, employee, or agent of NA Funds for any action or failure to act
except for his or her own bad faith, willful misfeasance, gross negligence,
or reckless disregard of his or her duties.
Delaware law allows a business trust to indemnify and hold harmless any
trustee or other person from and against all claims and demands. The NA Funds'
Declaration of Trust allows, under certain circumstances, for the
indemnification of NA Funds' trustees, officers, employees, and agents against
all liabilities and expenses reasonably incurred by him or her in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he or she may be involved or with which he or she
may be threatened, while in office or thereafter, by reason of his or her being
or having been a trustee, officer, employee or agent, except with respect to any
matter as to which he or she shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of his or her
duties.
TERMINATION
The Fontaine Trust's Declaration of Trust provides that The Fontaine Trust
or any series of The Fontaine Trust may be terminated by: (i) the affirmative
vote of the shareholders of not less than two-thirds of the shares outstanding
and entitled to vote at any meeting of shareholders of The Fontaine Trust or the
appropriate series of The Fontaine Trust; or (ii) an instrument in writing
signed by a majority of the trustees, stating that a majority of the trustees
has determined that the continuation of The Fontaine Trust or a series of The
Fontaine Trust is not in the best interest of the series, The Fontaine Trust, or
their respective shareholders as a result of factors or events adversely
affecting the ability of the series or The Fontaine Trust to conduct its
business and operations in an economically viable manner.
The NA Funds' Declaration of Trust provides that NA Funds may be terminated
(i) by the affirmative vote of the shareholders of not less that two-thirds of
the shares of beneficial interests in The Fontaine Trust at any meeting of the
shareholders, or (ii) by an instrument in writing, without a meeting, signed by
a majority of the trustees and consented to by the shareholders of not less than
two-thirds of such shares of beneficial interests, or (iii) by the trustees by
written notice to the shareholders.
VOTING RIGHTS OF SHAREHOLDERS
The Fontaine Trust's Declaration of Trust grants shareholders the power to
vote only with respect to: (i) the election of trustees; (ii) approval of any
investment advisory contract; (iii) the termination of The Fontaine Trust or any
series of The Fontaine Trust; (iv) any amendment of The Fontaine Trust's
Declaration of Trust, (v) approval of any merger, consolidation or sale of
assets, (vi) the incorporation of The Fontaine Trust; (vii) whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of The Fontaine Trust or a series of
The Fontaine Trust or the shareholders of either to the same extent as such
action would require shareholder approval by a Massachusetts
24
<PAGE>
business corporation; (viii) any plan adopted pursuant to Rule 12b-1 (or any
successor rule) under the 1940 Act, and related matters; and (ix) additional
matters relating to The Fontaine Trust as may be required by The Fontaine
Trust's Declaration of Trust or any registration of The Fontaine Trust as an
investment company under the 1940 Act with the SEC (or any successor agency)
or as the trustees may consider necessary or desirable.
The NA Funds' Declaration of Trust grants shareholders the power to vote
only with respect to: (i) the election of trustees; (ii) approval of any
investment advisory contract; (iii) the termination of NA Funds; (iv) any
merger, consolidation or sale of assets; (v) the incorporation of NA Funds; and
(vi) additional matters relating to NA Funds as may be required by the 1940 Act,
the DBTA or any other applicable law, the NA Funds' Declaration of Trust or any
registration of NA Funds with the SEC (or any successor agency) or any state, or
as and when the trustees may consider necessary or desirable.
CERTAIN SERVICE PROVIDER ARRANGEMENTS
INVESTMENT ADVISORY FEES
Fontaine Associates serves as investment adviser to the Acquired Funds and
NACM serves as investment adviser to the Acquiring Funds. Each is entitled to
receive a monthly advisory fee from the Funds it manages, computed on the basis
of each Fund's average daily net asset value at the following annual rates:
<TABLE>
<CAPTION>
Management Fee Management Fee
Acquired Fund (% of Average Acquiring (% of Average
Daily Net Asset Fund Daily Net Asset
Value) Value)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital 0.95% Balanced Growth 0.75% first $500 million
Appreciation 0.675% next $500 million
0.65% over $1 billion
Global Growth 0.85% Worldwide Growth 1.00% first $500 million
0.90% next $500 million
0.85% over $1 billion
Global Income 0.75% Worldwide Growth 1.00% first $500 million
0.90% next $500 million
0.85% over $1 billion
</TABLE>
TRANSFER AGENTS
Richard Fontaine and Company, Incorporated serves as the transfer agent and
dividend disbursing agent for The Fontaine Trust. State Street Bank and Trust
Company serves as the transfer agent and dividend disbursing agent for NA Funds.
25
<PAGE>
CUSTODIAL SERVICES
Custodial services are provided to The Fontaine Trust by Chase Manhattan
Bank, 270 Park Avenue, New York, NY 10017. Custodial services are provided to
NA Funds by PNC Bank, 2 Heritage Drive, 7th Floor, North Quincy, Massachusetts
02171.
VOTING ITEMS
------------
APPROVAL OR DISAPPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION
AS TO:
1. THE PROPOSED REORGANIZATION OF THE FONTAINE TRUST CAPITAL APPRECIATION
FUND INTO NICHOLAS-APPLEGATE MUTUAL FUNDS BALANCED GROWTH PORTFOLIO A
2. THE PROPOSED REORGANIZATION OF THE FONTAINE TRUST GLOBAL GROWTH FUND
INTO NICHOLAS-APPLEGATE MUTUAL FUNDS WORLDWIDE GROWTH PORTFOLIO A
3. THE PROPOSED REORGANIZATION OF THE FONTAINE TRUST GLOBAL INCOME FUND
INTO NICHOLAS-APPLEGATE MUTUAL FUNDS WORLDWIDE GROWTH PORTFOLIO A
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement and Plan of Reorganization (the "Reorganization
Agreement"). Significant provisions of the Reorganization Agreement are
summarized below. However, this summary is qualified in its entirety by
reference to the Reorganization Agreement, a copy of which is attached as
Exhibit A to this Statement and incorporated by reference into this Statement.
DESCRIPTION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that at the Closing Date
substantially all of the property and assets of each Acquired Fund will be
transferred to each corresponding Acquiring Fund free and clear of all liens,
encumbrances, and claims, except for a reserve for certain expenses and
liabilities (the "Reserve Account") in an amount necessary: (a) to pay its
costs and expenses of carrying out this Agreement (including but not limited to
fees of counsel and accountants, its income dividend payable prior to the
Closing Date, and expenses of its deregistration contemplated under the
Reorganization Agreement); (b) to discharge all of its unpaid liabilities on its
books and records at the Closing Date; and (c) to pay any contingent
liabilities, if any, that the Board of Trustees of The Fontaine Trust may
reasonably deem to exist against any of the Acquired Funds at the Closing Date.
(As previously noted, the property and
26
<PAGE>
assets to be transferred to the Acquiring Funds are referred to herein as the
"Acquired Fund Net Assets.") Upon the satisfaction or other resolution of
all such liabilities and obligations, any amount remaining from the Reserve
Account will be transferred to the Acquiring Funds.
In exchange for the transfer to the Acquiring Funds of the Acquired Fund
Net Assets as described, the Acquiring Funds will simultaneously issue at the
Closing Date full and fractional Acquiring Fund Shares to each Acquired Fund for
distribution PRO RATA by each Acquired Fund to its shareholders. The number of
Acquiring Fund Shares so issued by each Acquiring Fund will have an aggregate
net asset value equal to the value of the corresponding Acquired Fund Net Assets
on the Closing Date.
Following the close of business on the Closing Date, each Acquired Fund
will distribute PRO RATA to its shareholders the Acquiring Fund Shares received
by the Acquired Fund in liquidation thereof. Each shareholder owning Acquired
Fund Shares at the Closing Date will receive an amount of the corresponding
Acquiring Fund Shares equal to the value of their Acquired Fund Shares, plus the
right to receive any dividends or distributions that were declared before the
Closing Date but that remained unpaid at that time on the Acquired Fund Shares.
In connection with the Reorganization, The Fontaine Trust will be deregistered
as an investment company under the 1940 Act.
The stock transfer books of each Acquired Fund will be permanently closed
as of the close of business on the day immediately preceding the Closing Date.
Redemption requests received thereafter will be deemed to be redemption requests
for Acquiring Fund Shares. If any Acquired Fund Shares held by a former
Acquired Fund shareholder are represented by a share certificate, the
certificate must be surrendered to the Acquiring Fund's transfer agent for
cancellation, or verification of such certificate's loss and indemnification
with respect to such loss must be established, before the Acquiring Fund Shares
issued to the shareholder in the Reorganization can be redeemed or transferred.
The Reorganization with respect to each Acquired Fund is subject to a
number of conditions, including, among other things: (a) approval of the
Reorganization Agreement and the transactions contemplated thereby, as described
in this Statement, by such Acquired Fund's shareholders; (b) the receipt of
certain legal opinions described in Sections 7 and 8 of the Reorganization
Agreement (which include a legal opinion that the Acquiring Fund Shares issued
to Acquired Fund shareholders in accordance with the terms of the Reorganization
Agreement will be validly issued, fully paid, and non-assessable and a legal
opinion that the Reorganization will not give rise to the recognition of income,
gain, or loss for federal income tax purposes to any Acquired Fund, Acquiring
Fund, or their respective shareholders); (c) the receipt of certain certificates
from the parties concerning the continuing accuracy of the representations and
warranties in the Reorganization Agreement and other matters; and (d) the
parties' performance of their respective agreements and undertakings in the
Reorganization Agreement. Assuming
27
<PAGE>
satisfaction of the conditions in the Reorganization Agreement, the Closing
Date will be on May 1, 1998, or such other date as is agreed to by the
parties.
The Reorganization Agreement provides that NACM or the Acquiring Funds
shall be responsible for the payment of all reasonable expenses incurred in
connection with entering into and carrying out the Reorganization (which
expenses include the fees and disbursements of attorneys and auditors and proxy
printing and solicitation expenses) and any related transfer fees and brokerage
fees, unless the failure to consummate the transactions results from a breach by
Fontaine Associates or an Acquired Fund, except that Fontaine Associates shall
pay: (i) the costs and expenses of preparing all necessary supplements for each
Acquired Fund's Prospectus or Statement of Additional Information to be filed
prior to the Closing Date and (ii) the costs and expenses of preparing and
filing with the SEC the Form N-8F exemptive application and any amendments
thereto with respect to the deregistration of The Fontaine Trust and other
related state filings. As between NACM and the Acquiring Funds, the Acquiring
Funds will pay normal expenses associated with the transactions relating to the
Agreement, and NACM will pay extraordinary or unusual expenses. Any such
expenses that are so borne by NACM or the Acquiring Funds shall be solely and
directly related to the Reorganization within the meaning of Revenue Ruling
73-54, 1973-1 C.B. 187.
The Reorganization Agreement and the Reorganization described herein may be
abandoned at any time prior to the Closing Date by the mutual consent of the
parties to the Reorganization Agreement. In such event, there shall be no
liability for damages on the part of any Fund, or its respective Board of
Trustees or officers but NACM or the Acquiring Funds shall bear all expenses
incidental to the preparation and carrying out of the Reorganization Agreement.
The Reorganization Agreement provides further that at any time prior to or after
approval of the Reorganization Agreement by each Acquired Fund's shareholders,
the Funds, by written agreement, may amend, modify, or supplement the
Reorganization Agreement. The Reorganization Agreement further provides that no
such amendment, modification, or supplement may have the effect of changing the
provisions for determining the number of Acquiring Fund Shares to be distributed
to Acquired Fund shareholders under the Reorganization Agreement to the
detriment of the Acquired Fund shareholders, unless the Acquired Fund
shareholders approve such change or unless the amendment merely changes the
Closing Date.
BOARD CONSIDERATION
Based on their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board of
Trustees of The Fontaine Trust has unanimously determined that the proposed
Reorganization is in the best interest of the shareholders of each of the
Acquired Funds, and recommends the approval of the Reorganization Agreement by
such shareholders at the Special Meeting. The following is a summary of the
information that was considered by the Board of Trustees in making their
determination.
28
<PAGE>
Initially, the Board of Trustees, including the non-interested Trustees
reviewed several areas of concern regarding the Acquired Funds. The Board of
Trustees considered that the relatively small asset size of each of the Acquired
Funds had prevented each Acquired Fund from realizing significant economies of
scale in reducing its expense ratio. The Board of Trustees also considered that
there was little expectation that the assets of any of the Acquired Funds would
increase significantly, thereby reducing its expense ratio.
The Board of Trustees also considered as an alternative the complete
liquidation and dissolution of the Acquired Funds. The Board of Trustees
carefully considered the advantages and disadvantages of that alternative and
the effect that the alternative would have on each Acquired Fund's shareholders.
The alternative that the Board of Trustees believed offered the greatest
likelihood of addressing the asset size and growth problem faced by each
Acquired Fund and the alternative the Board considered would be most
beneficial to the Acquired Fund shareholders was the reorganization of the
Acquired Funds into a larger and more well established investment company
with similar investment objectives, investment policies and restrictions. At
meetings of the Board of Trustees of the Funds, the Board of Trustees of The
Fontaine Fund considered the available alternatives and the proposed
Reorganization. During the course of their review and deliberation, the
Trustees evaluated the potential benefits and detriments to the Acquired
Funds and their shareholders. The Trustees requested and received from NACM
written materials containing relevant information about the Acquired Funds
and the proposed Reorganization, including fee structure and expense
information, and comparative performance data. Fontaine Associates also
provided the Trustees with historical asset growth information, comparative
expense ratio information, analyses of the benefits to the shareholders of
the Acquired Funds resulting from the proposed Reorganization, and a variety
of other information relevant to the consideration of the proposed
Reorganization. In this regard, the Board of Trustees evaluated the current
actual and contractual expense levels of each Acquiring Funds and compared
such expense levels with the current actual and contractual expense levels of
the corresponding Acquired Fund and considered the anticipated expenses and
charges of the Acquiring Funds after the Reorganization that would be borne
directly and indirectly by the shareholders of the Acquired Funds.
The Board of Trustees also considered the additional efficiencies and
benefits for shareholders of the Acquired Funds that are expected to result from
the Reorganization. These benefits include potential asset growth with
resulting economies of scale. The Board of Trustees considered the investment
objectives and policies and restrictions of the Acquired and the Acquiring
Funds. In this regard, the Board of Trustees specifically considered the
potential additional risks that shareholders of the Acquired Funds would be
subject to as shareholders of the Acquiring Funds. The Board of Trustees also
considered those provisions of the Reorganization Agreement relating to the
price of shares to be exchanged.
29
<PAGE>
Finally, the Board of Trustees of The Fontaine Trust reviewed the terms of
the Reorganization Agreement. The Board of Trustees noted that the Acquired
Funds would be provided with an opinion of counsel with respect to the tax-free
treatment of the Reorganization.
Based on their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Acquired
Funds' Board of Trustees unanimously determined that the proposed Reorganization
would be in the best interests of each of the Acquired Funds and their
shareholders, and that the interests of the Acquired Funds' shareholders will
not be diluted as a result of the proposed Reorganization, and recommended the
approval of the Reorganization Agreement by shareholders of each of the Acquired
Funds at the Special Meeting.
Similarly, at meetings of the Board of Trustees of NA Funds and the
Master Trust, the Board of Trustees of the Acquiring Fund considered the
proposed Reorganization with respect to the Acquiring Funds. Based on their
evaluation of the relevant information provided to them, and in light of
their fiduciary duties under federal and state law, the Board of Trustees
unanimously determined that (a) the proposed Reorganization would be in the
best interests of the Acquiring Funds and their shareholders, and (b) the
interests of the existing Acquiring Fund shareholders will not be diluted as
a result of the proposed Reorganization.
CAPITALIZATION
Because each of the Acquired Funds will be combined in the Reorganization
with the corresponding Acquiring Funds, the total capitalization of each of the
Acquiring Funds after the Reorganization is expected to be greater than the
current capitalization of each of the Acquired Funds. The following table sets
forth as of February 28, 1998: (i) the capitalization of each of the Acquired
Funds; (ii) the capitalization of each of the Acquiring Funds; and (iii) the pro
forma capitalization of the Acquiring Funds as adjusted to give effect to the
Reorganization. If the Reorganization is consummated, the capitalization of the
Acquiring Funds is likely to be different at the Closing Date as a result of
daily share purchase and redemption activity in the Acquired Funds and the
Acquiring Funds.
<TABLE>
<CAPTION>
PRO FORMA
CAPITAL
APPRECIATION BALANCED GROWTH COMBINED
<S> <C> <C> <C>
Total Net Assets $2,500,000 $32,100,000 $34,600,000
Shares Outstanding
Net Asset Value Per $________ $________ $________
Share
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
GLOBAL GROWTH WORLDWIDE GROWTH COMBINED
<S> <C> <C> <C>
Total Net Assets $1,300,000 $135,000,000 $136,300,000
Shares Outstanding
Net Asset Value Per $________ $________ $________
Share
<CAPTION>
PRO FORMA
GLOBAL INCOME WORLDWIDE GROWTH COMBINED
<S> <C> <C> <C>
Total Net Assets $385,000 $135,000,000 $135,385,000
Shares Outstanding
Net Asset Value Per $________ $________ $________
Share
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Reorganization is subject to the condition that the
Funds receive an opinion from counsel, substantially to the effect that,
based upon certain facts, assumptions and representations, the transactions
contemplated by the Reorganization Agreement with respect to each Acquired
Fund and corresponding Acquiring Fund constitute a tax-free reorganization
for federal income tax purposes pursuant to Section 368(c)(1) of the Internal
Revenue Code of 1986, as amended. The delivery of such opinion is
conditioned upon receipt by counsel of representations it shall request of
The Fontaine Trust and the NA Funds.
The Funds have not sought a tax ruling from the Internal Revenue Service
("IRS"). The opinion of counsel is not binding on the IRS and does not preclude
the IRS from adopting a contrary position. Shareholders should consult their
own tax advisers concerning the potential tax consequences to them, including
state and local income tax consequences.
As of the Closing Date, the Capital Appreciation, Global Growth and Global
Income each has accumulated capital loss carryforwards in the amount of $______,
$_______, and $________, respectfully. After the Reorganization, these losses
will be available to each Acquiring Fund, as appropriate, to offset its capital
gains, although the amount of these losses which may offset the respective
Acquiring Fund's capital gains in any given year may be limited. As a result of
this limitation, it is possible that the respective Acquiring Fund may not be
able to use these losses as rapidly as the respective Acquired Fund might have,
and part or all of these losses may not be useable at all. The ability of the
respective Acquired Fund or the respective Acquiring Fund to absorb losses in
the future depends upon a variety of factors that cannot be known in advance,
including the existence of capital gains against which these losses may be
offset. Net capital losses of regulated investment companies generally expire
at the end of the eighth taxable year after they arise, if not previously
absorbed by that time; therefore, it is possible that some or all of the
respective Acquired Fund's losses will expire unused. In addition, the benefits
of any capital loss carryforwards currently are available only to the
shareholders of the respective Acquired Fund. After the Reorganization,
however, these benefits will inure to the benefit of all of the shareholders of
the respective Acquiring Fund. The Board of Trustees of the Acquired Funds
believes that the Reorganization is in the best interests of the shareholders of
the respective Acquired Fund, having considered the foregoing information in
connection with its recommendation that shareholders approve the
Reorganization.
- -------------------------------------------------------------------------------
THE BOARD OF TRUSTEES OF THE FONTAINE TRUST WITH RESPECT TO EACH OF ITS SERIES
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF PROPOSALS 1, 2
AND/OR 3, AS APPLICABLE
- -------------------------------------------------------------------------------
31
<PAGE>
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION
This Statement is being furnished in connection with the solicitation of
proxies by The Fontaine Trust's Board of Trustees in connection with the Special
Meeting. It is expected that the solicitation of proxies will be primarily by
mail. Officers and service contractors of The Fontaine Trust and NA Funds may
also solicit proxies by telephone, fax, or personal interview. Any shareholder
giving a proxy may revoke it at any time before it is exercised by submitting to
the appropriate Acquired Fund a written notice of revocation or a subsequently
executed proxy or by attending the Special Meeting and voting in person.
Only shareholders of record at the close of business on March 31, 1998,
will be entitled to vote at the Special Meeting. On that date there were
outstanding and entitled to be voted 344,758.570 shares of the Capital
Appreciation, 18,225.976 shares of Global Growth, and 48,491.510 shares of
Global Income. Each share or fraction thereof is entitled to one vote or
fraction thereof.
If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Special Meeting or any
adjournment of the Special Meeting. For information on adjournment of the
Special Meeting, see "Quorum" below.
SHAREHOLDER AND BOARD APPROVALS
The Reorganization Agreement (and the transactions contemplated thereby) is
being submitted at the Special Meeting for approval by the shareholders of each
of the Acquired Funds. The approval of the holders of a majority of the
outstanding Acquired Fund Shares of each Acquired Fund is required for the
approval of the Proposal with respect to each Acquired Fund, in accordance with
the provisions of the Declaration of Trust of The Fontaine Trust. Abstentions
will have the same effect as casting a vote against the relevant Proposal.
The vote of the shareholders of the Acquiring Funds is not being solicited
because their approval or consent is not required for the Reorganization to be
consummated.
On February 28, 1998, the name, address, and share ownership of the
persons who beneficially owned 5% or more of any of the Acquired Fund's
outstanding shares, and the percentage of shares that would be owned by such
persons upon consummation of the Reorganization based upon their holdings and
outstanding shares at February 28, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name/ Address Share Ownership Share Ownership Share Ownership Share Ownership Share Ownership Share Ownership
of Capital of Balanced Growth of Global Growth of Worldwide Growth of Global Income of Worldwide Growth
Appreciation After Reorganization After Reorganization After Reogranization
Chemical Bank C/F 17.4% 1.3%
the IRA R/O of
Richard H. Fontaine
3 Hollins Avenue
Baltimore, MD 21210
Chase Manhattan Bank
C/F the IRA of
Lawrence N. Boyd 5.1% .05%
152 Long Hill Road
Franklin, MA 02038
Harold Blank 14.1% .04%
6801 Tildenwood Lane
Rockville, MD 20852
Richard H. Fontaine 10.2% .03%
3 Hollins Avenue
Baltimore, MD 21210
Frank N. Milewski & Margaret 6.4% .02%
J. Milewski Jt Ten
50 Chestnut Ave.
Floral Park, NY 11001
Citicorp Sec. Serv Inc. Special 14.4% .04%
Custody Acct. For the
Exclusive Benefit of Customers
111 Wall Street 11th Flr.
New York, NY 10005
</TABLE>
32
<PAGE>
On February 28, 1998, the name, address, and share ownership of the
persons who beneficially owned 5% or more of the outstanding shares of any of
the Acquiring Funds and the percentage of shares what would be owned by such
persons upon consummation of the Reorganization based upon their holdings and
outstanding shares at February 28, 1998, are as follows:
<TABLE>
<CAPTION>
Share Ownership of Share Ownership of
Share Ownership of Balanced Growth After Share Ownership of Worldwide Growth After
Name/Address Balanced Growth Reorganization Worldwide Growth Reorganization
- -------------- ----------------- ---------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Merrill Lynch Price 63.73% 59.13%
Fenner & Smith, Mutual
Fund Operations, Attn:
Bank Reconciliations
4800 Dear Lake Drive
East
Jacksonville, Florida
32246
Merrill Lynch Price 59.38% 58.65%
Fenner & Smith, Mutual
Fund Operations, Attn:
Bank Reconciliations
4800 Dear Lake Drive
East
Jacksonville, Florida
32246
</TABLE>
On January 31, 1998, the trustees and officers of NA Funds, as a group,
owned less than 1% of the outstanding shares of any of the Acquiring Funds.
As of January 31, 1998, the trustees and officers of The Fontaine Trust, as
a group, beneficially owned 81,144.66 shares of the Capital Appreciation,
1,137.388 shares of Global Growth and 6,303.678 shares of Global Income which
were approximately 20.41%, 0.57% and 11.75% of each Fund's then outstanding
shares.
33
<PAGE>
Shareholders have the right to redeem their Acquired Fund Shares at net
asset value until the Closing Date, and thereafter former Acquired Fund
shareholders may redeem their Acquiring Fund Shares acquired in the
Reorganization at net asset value, subject to the forward pricing requirements
of Rule 22c-1 under the 1940 Act.
QUORUM
In the event that a quorum is not present at the Special Meeting, or in the
event that a quorum is present at the Special Meeting but sufficient votes to
approve the Reorganization Agreement and the transactions contemplated thereby
are not received, the persons named as proxies may propose one or more
adjournments of the Special Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares affected by the adjournment that are represented at the Special Meeting
in person or by proxy. If a quorum is present, the persons named as proxies
will vote those proxies that they are entitled to vote FOR the Reorganization
Agreement in favor of such adjournments, and will vote those proxies required to
be voted AGAINST such proposal against any adjournment. A quorum is constituted
by the presence in person or by proxy of the holders of more than 50% of the
outstanding shares of each Acquired Fund. Proxies properly executed and marked
with a negative vote or an abstention, or broker non-votes, will be considered
to be present at the Special Meeting for the purposes of determining the
existence of a quorum for the transaction of business. Broker non-votes exist
where a broker proxy indicates that the broker is not authorized to vote on a
particular proposal.
ADDITIONAL INFORMATION ABOUT EACH FUND
The Acquired Funds and the Acquiring Funds are each subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and the 1940 Act, as applicable, and, in accordance with such requirements,
files proxy materials, reports, and other information with the SEC. These
materials can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the offices of the Acquired Funds and the Acquiring Funds listed on the first
page of this Statement. Copies of such materials can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates, or at no charge from the EDGAR database on the SEC's website at
"www.sec.gov."
TRUSTEES AND OFFICERS
The current trustees and officers of NA Funds will continue as trustees and
officers of NA Funds following the Reorganization. The current trustees and
officers of The Fontaine Trust will not continue in such positions following the
Reorganization, except to the extent that any action may be required of them in
connection with the winding up and deregistration of the Acquired
34
<PAGE>
Funds and the filing of Form N-8F on behalf of The Fontaine Trust.
Information concerning such persons is contained in the Statement of
Additional Information for each Fund.
FINANCIAL INFORMATION FOR THE ACQUIRED FUNDS
Financial information about the Acquired Funds for the fiscal year ended
December 31, 1997 is contained in the Annual Report to Shareholders that was
recently distributed to shareholders of each of The Acquired Funds.
The Annual Report to Shareholders is incorporated by reference into the
Statement of Additional Information to the Statement dated April 9, 1998.
FINANCIAL INFORMATION FOR THE ACQUIRING FUNDS
Below is financial information about the Acquiring Funds for the fiscal years
ended March 31, 1997. It is based on a single share outstanding through such
period. This information is derived from financial statements for such
period audited by Ernst & Young, L.L.P. independent accountants to the NA
Funds. The data should be read in conjunction with the financial statements,
related notes, and Ernst & Young L.L.P.'s report on those items, which are
included in the Annual Report to Shareholders which is incorporated by
reference in the Statement of Additional Information to this Statement.
35
<PAGE>
BALANCED GROWTH
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PER SHARE DATA: (unaudited)
4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO 4/1/97 TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............................ $12.50 $13.52 $13.74 $16.16 $15.54
INCOME FROM INVESTMENT
- ----------------------
OPERATIONS:
- ------------
Net investment income
(deficit).......................... 0.15 0.21 0.34 0.32 0.23
Net realized and unrealized gains
(losses) on securities and
foreign currency................... 1.02 0.22 2.42 0.84 4.27
TOTAL FROM INVESTMENT
OPERATIONS.......................... 1.17 0.43 2.76 1.16 4.50
LESS DISTRIBUTIONS
- ------------------
Dividends from net
investment income................. (0.15) (0.21) (0.34) (0.32) (0.11)
Distributions from capital
gains............................. -- -- -- (1.46) --
NET ASSET VALUE, END OF
PERIOD.............................. $13.52 $13.74 $16.16 $15.54 $19.92
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN+:...................... 9.35% 3.22% 20.16% 6.74% 28.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period........... $6,446 $4,980 $5,902 $4,898 $6,220
Ratio of expenses to average
net assets, after expense
reimbursement++................... 1.59%* 1.60% 1.60% 1.60% 1.61%*
Ratio of expenses to average
net assets, before expense
reimbursement+.................... 3.28%* 2.78% 3.30% 3.00% 2.64%*
Ratio of net investment income
(deficit) to average net
assets, after expense
reimbursement++................... 1.30%* 1.44% 2.16% 1.87% 1.26%*
Ratio of net investment income
(deficit) to average net
assets, before expense
reimbursement++..................... (0.39%)* 0.26% 0.88% 0.73% 0.22%*
Portfolio turnover**.................. 85.43% 110.40% 197.19% 212.95% 136.75%
Average commission rate paid**........ N/A N/A $0.0594 $0.0586 $0.0600
</TABLE>
- ------------------------
* Annualized.
** For corresponding Series of the Master Trust.
+ Computations do not reflect the Portfolio's sales charges.
++ Includes expenses allocated from Master Trust.
36
<PAGE>
WORLDWIDE GROWTH
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PER SHARE DATA: (unaudited)
4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO 4/1/97 TO
3/31/94 3/31/95 3/31/96 3/31/97 9/30/97
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.............................. $12.50 $14.94 $14.29 $16.57 $16.88
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(deficit)............................ (0.07) (0.05) (0.07) (0.16) 0.01
Net realized and unrealized
gains (losses) on securities
and foreign currency................. 2.51 (0.09) 2.86 2.20 4.38
TOTAL FROM INVESTMENT
OPERATIONS............................. 2.44 (0.14) 2.79 2.04 4.39
LESS DISTRIBUTIONS:
Dividends from net investment
income............................... -- (0.02) (0.12) -- --
Distributions from capital
gains................................ -- (0.49) (0.39) (1.73) --
NET ASSET VALUE, END OF
PERIOD................................. $14.94 $14.29 $16.57 $16.88 $21.27
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN+.......................... 19.52% (0.90%) 19.79% 12.51% 26.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period.............. $20,194 $22,208 $23,481 $24,022 $33,337
Ratio of expenses to average net
assets, after expense
reimbursement++...................... 1.85%* 1.85% 1.85% 1.85% 1.86%*
Ratio of expenses to average net
assets, before expense
reimbursement+....................... 2.23%* 2.18% 2.17% 2.17% 2.11%*
Ratio of net investment income
(deficit) to average net
assets, after expense
reimbursement++...................... (0.69%)* (0.42%) (0.35%) (0.93%) (0.35%)*
Ratio of net investment income
(deficit) to average net
assets, before expense
reimbursement++...................... (1.07%)* (0.75%) (0.61%) (1.18%) (0.60%)*
Portfolio turnover**................... 95.09% 98.54% 132.20% 181.81% 90.09%
Average commission rate paid**.......... N/A N/A $0.0187 $0.0078 $0.0111
</TABLE>
- ----------------------
* Annualized.
** For corresponding Series of the Master Trust.
+ Computations do not reflect the Portfolio's sales charges.
++ Includes expenses allocated from Master Trust.
37
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the each of the Acquired Funds and the
Acquiring Funds for their most recent fiscal year ends, which are included in
their respective Prospectuses and Statements of Additional Information and in
the Statement of Additional Information related to this Statement have been
audited by Sanville & Company, independent accountants for the Acquired Funds
and Ernst & Young L.L.P. for the Acquiring Funds, to the extent indicated in
their respective reports thereon, incorporated by reference or included in such
Prospectuses and Statements of Additional Information. Such financial
statements included in such Prospectuses and Statements of Additional
Information have been included in reliance upon such reports given upon the
authority of each such firm as an expert in accounting and auditing.
OTHER BUSINESS
The Board of Trustees of The Fontaine Trust knows of no other business to
be brought before the Special Meeting. However, if any other matters come
before the Special Meeting, it is the intention that proxies that do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to any of the Acquired Funds in
writing at the address on page 1 of this Statement or by telephoning
1-800-24-1550.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES. IN ORDER TO AVOID THE EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN COMPLETING AND RETURNING YOUR PROXY PROMPTLY.
By Order of the Board of Directors
Kimberly A. Malkowski
SECRETARY
Towson, Maryland
April 9, 1998
38
<PAGE>
EXHIBIT A:
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 31st day of March, 1998, by and between The Fontaine Trust, a
Massachusetts business trust (the "Fontaine Trust"), on behalf of each of
its series (each an "Acquired Fund"), and the Nicholas-Applegate Mutual
Funds, a Delaware business trust (the "NA Funds"), on behalf of the
portfolios described below (the "Acquiring Funds"). (The Acquiring Funds and
the Acquired Funds are sometimes referred to collectively as the "Funds" and
individually as a "Fund".)
Each of the Acquired Funds will, as of the closing date for the
reorganization (the "Closing Date"), transfer substantially all of its property,
assets and goodwill to the specified Acquiring Fund, as described below.
The Fontaine Trust's Capital Appreciation Fund ("Capital Appreciation") will
transfer substantially all of its property, assets and goodwill to the NA
Fund's Balanced Growth Portfolio A ("Balanced Growth");
The Fontaine Trust's Global Growth Fund ("Global Growth") will transfer
substantially all of its property, assets and goodwill to the NA Fund's
Worldwide Growth Portfolio A ("Worldwide Growth"); and
The Fontaine Trust's Global Income Fund ("Global Income") will transfer
substantially all of its property, assets and goodwill to Worldwide Growth.
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). THE REORGANIZATION
("REORGANIZATION") will consist of the transfer of substantially all of the
property, assets, and goodwill of each of the Acquired Funds to each of the
Acquiring Funds in exchange solely for shares of beneficial interest of the
respective Acquiring Fund ("Acquiring Fund Shares"), followed by the
distribution by each Acquired Fund, on or promptly after the Closing Date, of
the Acquiring Fund Shares to the shareholders of the respective Acquired
Fund, the cancellation of all of the outstanding shares of each Acquired
Fund ("Acquired Fund Shares"), and the liquidation of each Acquired Fund, and
the termination of each Acquired Fund as a series of the Fontaine Trust, as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
A-1
<PAGE>
1. TRANSFER OF ASSETS OF EACH ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND LIQUIDATION OF EACH ACQUIRED FUND
1.1 No later than the time of the closing of the Reorganization as
provided in Section 3.1 of this Agreement (the "Closing Time") on the Closing
Date, each Acquired Fund shall transfer substantially all of its property and
assets (consisting, without limitation, of portfolio securities and
instruments, dividends and interest receivables, claims, cash, cash
equivalents, deferred or prepaid expenses shown as assets on each Acquired
Fund's books, goodwill and intangible property, books and records, and other
assets), as set forth in the statement of assets and liabilities referred to
in Section 8.2 hereof (the "Statement of Assets and Liabilities"), to the
respective Acquiring Fund free and clear of all liens, encumbrances, and
claims, except for cash or bank deposits in an amount necessary: (a) to
discharge all of the unpaid liabilities reflected on its books and records at
the Closing Date; and (b) to pay such contingent liabilities, if any, as the
Board of Trustees of the Acquired Funds shall reasonably deem to exist
against each Acquired Fund at the Closing Date, for which contingent and
other appropriate liability reserves shall be established on the Acquired
Funds' books. Any unspent portion of such cash or bank deposits retained
shall be delivered by the Fontaine Trust to the Acquiring Funds, as
appropriate, upon the satisfaction of all of the foregoing liabilities,
costs, and expenses of the Acquired Funds. (The property and assets to be
transferred to each Acquiring Fund under this Agreement are referred to
herein as the "Acquired Fund Net Assets".) In exchange for the transfer of
the Acquired Fund Net Assets, each Acquiring Fund shall deliver to the
respective Acquired Fund, for distribution PRO RATA by the Acquired Fund to
its shareholders as of the close of business on the Closing Date, a number of
the Acquiring Fund Shares having an aggregate net asset value equal to the
value of the Acquired Fund Net Assets, all determined as provided in Section
2 of this Agreement and as of the date and time specified in that section.
The Acquiring Funds are not assuming any liabilities of the Acquired Funds.
Following the closing, the Fontaine Trust shall not be responsible for the
liabilities, costs and expenses of the Acquired Funds, and recourse for such
liabilities shall be limited to the cash or bank deposits retained to satisfy
such liabilities, costs and expenses, as provided for above in this Section
1.1.
1.2 Each Acquired Fund reserves the right to purchase or sell any of
its portfolio securities prior to the Closing Date, except to the extent such
purchases or sales may be limited by the representations made in connection
with issuance of the tax opinion described in Section 8.9 hereof.
1.3 On or promptly after the Closing Date, each Acquired Fund shall
liquidate and distribute PRO RATA to its shareholders of record at the
Closing Time on the Closing Date (the "Acquired Fund Shareholders") the
Acquiring Fund Shares received by each Acquired Fund pursuant to Section 1.1
of this Agreement. (The date of such liquidation and distribution is
referred to as the "Liquidation Date.") In addition, each Acquired Fund
Shareholder shall have the right to receive any dividends or other
distributions that were declared prior to the Closing Date, but unpaid at
that time, with respect to the respective Acquired Fund Shares that are held
by such Acquired Fund Shareholders on the Closing Date. Such liquidation and
distribution shall be accomplished by State Street Bank and Trust Company, in
its capacity as transfer agent for the Acquiring Funds, by opening accounts
on the share records of each Acquiring Fund in the names of the
A-2
<PAGE>
Acquired Fund Shareholders and transferring to each such Acquired Fund
Shareholder account the PRO RATA number of the Acquiring Fund Shares due each
such Acquired Fund Shareholder from the Acquiring Fund Shares then credited
to the account of each Acquired Fund on the Acquiring Fund's books and
records. The Acquiring Funds shall not issue certificates representing
Acquiring Fund Shares in connection with such exchange.
1.4 The Acquired Fund Shareholders holding certificates representing
their ownership of Acquired Fund Shares may be requested to surrender such
certificates or deliver an affidavit with respect to lost certificates, in
such form and accompanied by such surety bonds as each Acquired Fund may
require (collectively, an "Affidavit"), to the respective Acquired Fund prior
to the Closing Date. On the Closing Date, any Acquired Fund Share
certificates that remain outstanding shall be deemed to be canceled. The
Fontaine Trust's transfer books with respect to each Acquired Fund's shares
shall be closed permanently as of the close of business on the day
immediately preceding the Closing Date. All unsurrendered Acquired Fund
Share certificates shall no longer evidence ownership of beneficial interest
of the Acquired Funds and shall be deemed for all purposes to evidence
ownership of the number of Acquiring Fund Shares into which the Acquired Fund
Shares were effectively converted. Unless and until any such certificate
shall be so surrendered or an Affidavit relating thereto shall be delivered
to the Acquiring Funds, dividends and other distributions payable by an
Acquiring Fund subsequent to the Liquidation Date with respect to such
Acquiring Fund Shares shall be paid to the holders of such certificate(s),
but such Shareholders may not redeem or transfer Acquiring Fund Shares
received in the Reorganization with respect to unsurrendered Acquired Fund
Share certificates.
1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares
in a name other than the registered holder of the Acquiring Fund Shares on
the books of an Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.6 As soon as practicable following the Liquidation Date, the Fontaine
Trust shall take all steps necessary to terminate the existence of each
Acquired Fund and the Fontaine Trust, including (a) the payment or other
satisfaction of the Acquired Funds' remaining outstanding liabilities, costs
and expenses, from the cash and bank deposits retained for that purpose
pursuant to Section 1.1 hereof, and (b) the deregistration of the Fontaine
Trust as a registered investment company, including the filing with the
Securities and Exchange Commission ("SEC") of an application pursuant to
Section 8(f) of the Investment Company Act of 1940, as amended ("1940 Act").
2. VALUATION
2.1 The net asset value of the Acquiring Fund Shares and the value of the
Acquired Fund Net Assets shall in each case be determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") and after the
declaration of any dividends on the Closing Date unless on such date (a) the
NYSE is not open for unrestricted trading or (b) the reporting of trading on the
NYSE or elsewhere is disrupted or (c) any other extraordinary financial event or
market condition occurs (all such events described in (a), (b) and (c) are each
referred to as a "Market
A-3
<PAGE>
Disruption"). The net asset value per share of Acquiring Fund Shares shall
be computed in accordance with the policies and procedures set forth in the
then current Prospectus and Statement of Additional Information of the
Acquiring Funds, and shall be computed to not fewer than two (2) decimal
places. The value of the Acquired Fund Net Assets shall be computed in
accordance with the policies and procedures set forth in the then current
Prospectus and Statement of Additional Information of the Acquired Funds.
2.2 In the event of a Market Disruption on the proposed Closing Date so
that accurate appraisal of the net asset value of an Acquiring Fund or the
value of the Acquired Fund Net Assets is impracticable, the Closing Date
shall be postponed until the first business day when regular trading on the
NYSE shall have been fully resumed and reporting shall have been restored and
other trading markets are otherwise stabilized.
2.3 The number of Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund Net Assets shall
be determined by dividing the value of the Acquired Fund Net Assets by the
respective Acquiring Fund's net asset value per share, both as determined in
accordance with Section 2.1 of this Agreement.
2.4 All computations of value regarding each Fund shall be made by
agreement between Nicholas-Applegate Capital Management, the investment
adviser to each Acquiring Fund ("NACM") or the administrator for each of the
NA Funds and Richard Fontaine Associates, Inc. ("Fontaine Associates") and
shall be certified by the Treasurer for each Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be March 30, 1998 or such earlier or later
date as the parties may agree. The Closing Time shall be at 4:30 p.m.,
Eastern time. The closing ("Closing") shall be held at the offices of Dechert
Price & Rhoads, located at 1775 Eye Street, N.W., Washington, D.C. 20006, or
at such other time and/or place as the parties may agree.
3.2 At least five (5) business days prior to the Closing Date, each
Acquired Fund will provide the respective Acquiring Fund with a list of its
assets, including all of its portfolio securities, and a list of its
outstanding liabilities, costs and expenses. No later than five (5) business
days prior to the Closing Date, PNC Bank, as the custodian of the Acquiring
Funds, shall be given access to any portfolio securities of the Acquired
Funds not held in book entry form for the purpose of examination. Such
portfolio securities (together with any cash or other assets) shall be
delivered by each Acquired Fund to such custodian for the account of the
respective Acquiring Fund on the Closing Date, in accordance with applicable
custody provisions under the 1940 Act, and duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof. Such
portfolio securities shall be accompanied by any necessary federal and state
stock transfer stamps or a check for the appropriate purchase price of such
stamps. The cash delivered shall be in any form as is reasonably directed by
the Acquiring Funds or their custodian. Portfolio securities held of record
by each Acquired Fund in book entry form shall be transferred to the
respective Acquiring Fund by an appropriate officer of the Acquired Funds
instructing their custodian to deliver such portfolio securities to the
custodian of the Acquiring Funds for the
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account of the respective Acquiring Fund and by the custodian of the Acquired
Funds executing such instructions through an appropriate clearing agency or
as the Funds may otherwise agree.
3.3 If any of the Acquired Fund Net Assets, for any reason, are not
transferred on the Closing Date, each Acquired Fund shall cause such Acquired
Fund Net Assets to be transferred to the respective Acquiring Fund in
accordance with this Agreement at the earliest practicable date thereafter.
3.4 Richard Fontaine and Company, Incorporated ("Fontaine and Company"),
in its capacity as transfer agent for the Acquired Funds, shall deliver to
each Acquiring Fund prior to the Closing Time a list of the names, addresses,
federal taxpayer identification numbers, and backup withholding and
nonresident alien withholding status of Acquired Fund Shareholders and the
number and aggregate net asset value of outstanding shares of each Acquired
Fund owned by each such Acquired Fund Shareholder (the "Shareholder List"),
all as of the close of regular trading on the NYSE on the Closing Date,
certified by an appropriate officer of Fontaine and Company. State Street
Bank and Trust Company, in its capacity as transfer agent for the Acquiring
Funds, shall issue and deliver to each Acquired Fund, a confirmation
evidencing the Acquiring Fund Shares to be credited to each Acquired Fund
Shareholder on the Liquidation Date, or provide evidence satisfactory to each
Acquired Fund that such Acquiring Fund Shares have been credited to each
Acquired Fund Shareholder's account on the books of the respective Acquiring
Fund. At the Closing, each Fund shall deliver to the other Fund such bills
of sale, checks, assignments, certificates, receipts, or other documents as
the other Fund or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE FONTAINE TRUST AND EACH ACQUIRED FUND
The Fontaine Trust, on behalf of each Acquired Fund, represents and
warrants to the NA Funds, on behalf of each Acquiring Fund, as follows:
4.1 The Fontaine Trust is a business trust duly organized, validly
existing, and in good standing under the laws of the State of Massachusetts
and has the power to own all of its properties and assets and, subject to
approval of the Acquired Fund Shareholders, to perform its obligations under
this Agreement and to consummate the transactions contemplated by this
Agreement. The Fontaine Trust is not required to qualify to do business in
any jurisdiction in which it is not so qualified or where failure to qualify
would subject it to any material liability or disability. The Fontaine Trust
has all necessary federal, state, and local authorizations, consents, and
approvals required to own all of its properties and assets and to carry on
its business as now being conducted and to consummate the transactions
contemplated by this Agreement.
4.2 The Fontaine Trust is a registered investment company classified as
a management company of the open-end type, and its registration with the SEC
as an investment company under the Investment Company Act of 1940, as
amended, (the "1940 Act") is in full force and effect. Each Acquired Fund is
a separate series of the Fontaine Trust for purposes of the 1940 Act.
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4.3 The execution, delivery, and performance of this Agreement have been
duly authorized by all necessary action on the part of the Fontaine Trust's
Board of Trustees on behalf of each Acquired Fund. Subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of the Fontaine Trust, enforceable according to the terms
of the Agreement, subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
4.4 The Fontaine Trust is not, and the execution, delivery, and
performance of this Agreement by the Fontaine Trust will not result, in
violation of any provision of the Declaration of Trust or By-Laws of the
Fontaine Trust or of any agreement, indenture, instrument, contract, lease,
or other arrangement or undertaking to which the Fontaine Trust or an
Acquired Fund is a party or by which it is bound.
4.5 Each Acquired Fund has elected to be treated as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of the Code, has qualified as a RIC and has been eligible to and
has computed its federal income tax under Section 852 of the Code for each
taxable year of its operations, will continue to so qualify as a RIC and be
eligible to and compute its income tax as of the Closing Date and with
respect to its final taxable year ending upon its liquidation, and will have
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date.
4.6 The financial statements of each Acquired Fund for the fiscal year
ended December 31, 1997, and each of the previous two fiscal years, which
were audited by the independent accountants for the Acquired Funds (copies of
which have been furnished to the Acquiring Funds), and any interim unaudited
Financial Statements that the Acquired Funds may furnish to the Acquiring
Funds prior to the Closing Date, present fairly the financial position of
each Acquired Fund as of the dates indicated and the results of operations
and changes in net assets for the respective stated periods (in accordance
with generally accepted accounting principles ("GAAP") consistently applied).
4.7 The Prospectus of the Acquired Funds, dated May 1, 1997, and the
corresponding Statement of Additional Information, dated May 1, 1997, and any
supplements thereto do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and any amended, revised, or new Prospectus or
Statement of Additional Information of each Acquired Fund or any supplement
thereto, that is hereafter filed with the SEC (copies of which documents
shall be provided to the NA Funds promptly after such filing), shall not
contain any untrue statement of a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.8 No material legal or administrative proceeding or investigation of
or before any court or governmental body is currently pending or, to its
knowledge, threatened as to the Fontaine Trust or an Acquired Fund or any of
their properties or assets. The Fontaine Trust and each Acquired
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Fund know of no facts that might form the basis for the institution of such
proceedings. Neither The Fontaine Trust nor any Acquired Fund is party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body which materially and adversely affects their business or
their ability to consummate the transactions herein contemplated.
4.9 The Fontaine Trust has furnished the NA Funds and NACM with copies
or descriptions of all agreements or other arrangements to which an Acquired
Fund is a party. Each Acquired Fund has no material contracts or other
commitments (other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and consistent
with its obligations under this Agreement) which will not be terminated by
the Acquired Funds in accordance with their terms at or prior to the Closing
Date.
4.10 Each Acquired Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other than those
reflected in the financial statements referred to in Section 4.6 hereof and
those incurred in the ordinary course of business as an investment company
since the dates of those financial statements. On the Closing Date, the
Fontaine Trust shall advise the NA Funds and NACM in writing of all of each
Acquired Fund's known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued at such time.
4.11 Since December 31, 1997, there has not been any material adverse
change in an Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
4.12 At the date hereof and by the Closing Date, all federal, state, and
other tax returns and reports, including information returns and payee
statements, of the Fontaine Trust and each Acquired Fund required by law to
have been filed or furnished by such dates shall have been filed or furnished
and shall be correct in all material respects, or extensions concerning such
tax returns and reports shall have been obtained, and all federal, state, and
other taxes, interest, and penalties shall have been paid so far as due, or
adequate provision shall have been made on the Fontaine Trust's and each
Acquired Fund's books for the payment thereof, and to the best of the
Fontaine Trust's and each Acquired Fund's knowledge no such tax return is
currently under audit and no tax deficiency or liability has been asserted
with respect to such tax returns or reports by the Internal Revenue Service
or any state or local tax authority.
4.13 At the Closing Date, each Acquired Fund will have good and
marketable title to the Acquired Fund Net Assets, and subject to approval by
the Acquired Fund Shareholders, full right, power and authority to sell,
assign, transfer, and deliver such assets hereunder, and upon delivery and in
payment for such assets, each Acquiring Fund will acquire good and marketable
title thereto subject to no liens or encumbrances of any nature whatsoever or
restrictions on the ownership or transfer thereof, except (a) such
imperfections of title or encumbrances as do not materially detract from the
value or use of the assets subject thereto, or materially affect title
thereto; or (b) such restrictions as might arise under federal or state
securities laws or the rules and regulations thereunder.
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4.14 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by an Acquired Fund
or the Fontaine Trust of the transactions contemplated by this Agreement,
except such as may be required under the federal or state securities laws or
the rules and regulations thereunder.
4.15 The Combined Proxy Statement/Prospectus of the Funds referred to in
Section 6.7 hereof ("Proxy Statement/Prospectus) and any Prospectus or
Statement of Additional Information of an Acquired Fund contained or
incorporated by reference into the Form N-14 Registration Statement, referred
to in Section 6.7 hereof, and any supplement or amendment to such documents,
on the effective and clearance dates of the Form N-14 Registration Statement,
on the date of the Special Meeting of Acquired Fund Shareholders, and on the
Closing Date, and only insofar as such Proxy Statement/Prospectus and the
Prospectus and Statement of Additional Information relate to the Fontaine
Trust, an Acquired Fund or to the transactions contemplated by this Agreement
and is based on information furnished by the Fontaine Trust or an Acquired
Fund for inclusion therein: (a) shall comply in all material respects with
the provisions of the Securities Exchange Act of 1934 (the "1934 Act"), the
1940 Act, the rules and regulations thereunder, and all other applicable
federal securities laws and rules and regulations thereunder; and (b) shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which such statements
were made, not misleading.
4.16 All of the issued and outstanding shares of beneficial interest of
each Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and nonassessable. All of the issued and
outstanding shares of each Acquired Fund will, at the time of Closing, be
held by the persons and in the amounts set forth in the Shareholder List.
4.17 All of the issued and outstanding shares of beneficial interest of
each Acquired Fund have been offered for sale and sold in conformity, in all
material respects, with all applicable federal and state securities laws,
including the registration or exemption from registration of such shares,
except as may have been previously disclosed in writing to the NA Funds and
NACM.
4.18 The Fontaine Trust and each Acquired Fund are not under the
jurisdiction of a Court in Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
4.19 The information to be furnished by the Fontaine Trust or each
Acquired Fund for use in preparing any application for orders, the Form N-14
Registration Statement referred to in Section 6.7 hereof, and the Combined
Proxy Statement/Prospectus to be included in the Form N-14 Registration
Statement, proxy materials, and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with federal securities
and other laws and regulations thereunder applicable thereto.
4.20 There is no intertrust indebtedness existing between an Acquired
Fund and the Acquiring Fund that was issued, acquired, or will be settled at
a discount.
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4.21 Each Acquired Fund does not have any unamortized or unpaid
organizational fees or expenses.
4.22 Each Acquired Fund has valued and will continue to value its
portfolio securities and other assets in accordance with material applicable
legal requirements.
5. REPRESENTATIONS AND WARRANTIES OF THE NA FUNDS AND EACH ACQUIRING FUND
The NA Funds, on behalf of each Acquiring Fund, represents and
warrants to the Fontaine Trust, on behalf of each Acquired Fund, as follows:
5.1 The NA Funds is a business trust duly organized, validly existing,
and in "good standing" under the laws of the State of Delaware and has the
power to own all of its properties and assets, to perform its obligations
under this Agreement and to consummate the transactions contemplated herein.
The NA Funds is not required to qualify to do business in any jurisdiction in
which it is not so qualified or where failure to qualify would subject it to
any material liability or disability. The NA Funds has all necessary
federal, state, and local authorizations, consents, and approvals required to
own all of its properties and assets and to carry on its business as now
being conducted and to consummate the transactions contemplated herein.
5.2 The NA Funds is a registered investment company classified as a
management company of the open-end type and its registration with the SEC as
an investment company under the 1940 Act is in full force and effect. Each
Acquiring Fund is a separate series of the NA Funds for purposes of the 1940
Act.
5.3 The execution, delivery, and performance of this Agreement have been
duly authorized by all necessary action on the part of the NA Fund's Board of
Trustees, on behalf of each Acquiring Fund, and this Agreement constitutes a
valid and binding obligation of the NA Funds, enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
5.4 The NA Funds is not, and the execution, delivery, and performance of
this Agreement by the NA Funds will not result, in violation of any
provisions of the Declaration of Trust or By-Laws of the NA Funds or of any
agreement, indenture, instrument, contract, lease, or other arrangement or
undertaking to which the NA Funds or an Acquiring Fund is a party or by which
it is bound.
5.5 Each Acquiring Fund has elected to be treated as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code, has qualified
as a RIC and has been eligible to and has computed its federal income tax
under Section 852 of the Code for each taxable year since its inception, and
will so qualify as a RIC and be eligible to and compute its income tax
for its taxable year including the Closing Date.
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5.6 The financial statements of Worldwide Growth and Balanced Growth,
the Acquiring Funds, for the period from each Acquiring Fund's inception on
April 19, 1993 to March 31, 1997 (which were audited by its independent
accountants) (copies of which have been furnished to the Acquired Funds), and
any interim unaudited financial statements that the Acquiring Funds may
furnish to the Acquired Funds prior to the Closing Date, present fairly the
financial position of each Acquiring Fund as of the dates indicated and the
results of its operations and changes in net assets for the respective stated
periods (in accordance with GAAP consistently applied).
5.7 The Prospectus of the Acquiring Funds, dated July 16, 1997, and the
corresponding Statement of Additional Information, dated July 16, 1997, do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and any amended, revised, or new Prospectus or Statement of
Additional Information of the Acquiring Funds or any supplement thereto, that
is hereafter filed with the SEC (copies of which documents shall be provided
to the Fontaine Trust promptly after such filing), shall not contain any
untrue statement of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.8 No material legal or administrative proceeding, or investigation of
or before any court or governmental body is currently pending or, to its
knowledge, threatened as to the NA Funds or an Acquiring Fund or any of their
properties or assets. The NA Funds and each Acquiring Fund know of no facts
which might form the basis for the institution of such proceedings. The NA
Funds and each Acquiring Fund are not a party to or subject to the provisions
of any order, decree, or judgment of any court or governmental body which
materially and adversely affects the Acquiring Funds' business or their
ability to consummate the transactions herein contemplated.
5.9 Each Acquiring Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other than those
reflected in the financial statements referred to in Section 5.6 hereof and
those incurred in the ordinary course of business as an investment company
since the date of those financial statements. On the Closing Date, the NA
Funds shall advise the Fontaine Trust and Richard Fontaine Associates, Inc.
in writing of all of each Acquiring Fund's known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business,
existing or accrued at such time.
5.10 Since September 30, 1997, there has not been any material adverse
change in an Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
5.11 At the date hereof and by the Closing Date, all federal, state, and
other tax returns and reports, including information returns and payee
statements, of the NA Funds and each Acquiring Fund required by law to have
been filed or furnished by such dates shall have been filed or furnished and
shall be correct in all material respects, or extensions concerning such tax
returns and reports shall have been obtained, and all federal, state, and
other taxes, interest, and penalties shall have been paid so far as due, or
adequate provision shall have been made on the
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NA Fund's and each Acquiring Fund's books for the payment thereof, and to the
best of the NA Fund's and each Acquiring Fund's knowledge no such tax return
is currently under audit and no tax deficiency or liability has been asserted
with respect to such tax returns or reports by the Internal Revenue Service
or any state or local tax authority.
5.12 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by an Acquiring Fund
or the NA Funds of the transactions contemplated by the Agreement, except for
the registration of the Acquiring Fund Shares under the Securities Act of
1933 (the "1933 Act"), the 1940 Act, or as may otherwise be required under
the federal or state securities laws or the rules and regulations thereunder.
5.13 The Form N-14 Registration Statement and the Proxy
Statement/Prospectus referred to in Section 6.7 hereof (other than the
portions of such documents based on information furnished by or on behalf of
the Fontaine Trust for inclusion or incorporation by reference therein as
covered by the Fontaine Trust's warranty in Sections 4.15 and 4.19 hereof)
and any Prospectus or Statement of Additional Information of an Acquiring
Fund contained or incorporated therein by reference, and any supplement or
amendment to the Form N-14 Registration Statement or any such Prospectus or
Statement of Additional Information, on the effective and clearance dates of
the Form N-14 Registration Statement, on the date of the Special Meeting of
Acquired Fund Shareholders, and on the Closing Date: (a) shall comply in all
material respects with the provisions of the 1934 Act, the 1940 Act, the
rules and regulations thereunder, and all other applicable federal securities
laws and the rules and regulations thereunder; and (b) shall not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which the statements were made, not
misleading.
5.14 All of the issued and outstanding shares of beneficial interest of
each Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and nonassessable.
5.15 All of the issued and outstanding shares of beneficial interest of
each Acquiring Fund have been offered for sale and sold in conformity, in all
material respects, with all applicable federal and state securities laws,
including the registration or exemption from registration of such shares,
except as may previously have been disclosed in writing to the Fontaine Trust
and Richard Fontaine Associates, Inc.
5.16 The Acquiring Fund Shares to be issued and delivered to the Fontaine
Trust pursuant to the terms of this Agreement, when so issued and delivered,
will be duly and validly issued shares of beneficial interest of each
Acquiring Fund, will be fully paid and nonassessable by the NA Funds, and
will be duly registered in conformity with all applicable federal and state
securities laws, and no shareholder of the Acquiring Funds shall have any
option, warrant, or preemptive right of subscription or purchase with respect
thereto.
5.17 The NA Funds and each Acquiring Fund are not under the jurisdiction
of a Court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
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5.18 All information to be furnished by the NA Funds to the Fontaine
Trust for use in preparing any prospectus, proxy materials, and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto.
5.19 There is no intertrust indebtedness existing between an Acquired
Fund and an Acquiring Fund that was issued, acquired, or will be settled at a
discount.
5.20 Each Acquiring Fund does not own, directly or indirectly, nor has it
owned during the past five (5) years, directly or indirectly, any shares of
the respective Acquired Fund.
5.21 Each Acquiring Fund has valued and will continue to value its
portfolio securities and other assets in accordance with material applicable
legal requirements.
6. COVENANTS OF THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS
6.1 Except as expressly contemplated herein to the contrary, each Fund
shall operate its business in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions and any other distribution
necessary or desirable to avoid federal income or excise taxes.
6.2 After the effective date of the Form N-14 Registration Statement
referred to in Section 6.7 hereof, and before the Closing Date and as a
condition thereto, the Board of Trustees of the Fontaine Trust shall call,
and the Fontaine Trust shall hold, a Special Meeting of the Acquired Fund
Shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby and the Fontaine Trust shall take all other actions
reasonably necessary to obtain approval of the transactions contemplated
herein.
6.3 The Fontaine Trust and each Acquired Fund covenant that they shall
not sell or otherwise dispose of any of the Acquiring Fund Shares to be
received in the transactions contemplated herein, except in distribution to
the Acquired Fund Shareholders as contemplated herein.
6.4 The Fontaine Trust shall provide such information within its
possession or reasonably obtainable as the NA Funds or NACM may reasonably
request concerning the beneficial ownership of the Acquired Fund Shares.
6.5 Subject to the provisions of this Agreement, the NA Funds and the
Fontaine Trust each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper, or advisable to
consummate the transactions contemplated by this Agreement.
6.6 The Fontaine Trust shall furnish to the NA Funds on the Closing Date
the Statement of the Assets and Liabilities of each Acquired Fund as of the
Closing Date, which statement shall be prepared in accordance with GAAP
consistently applied and shall be certified by the Fontaine Trust's Treasurer
or Assistant Treasurer. As promptly as practicable, but in any case within
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forty-five (45) days after the Closing Date, the Fontaine Trust shall furnish
to the NA Funds, in such form as is reasonably satisfactory to the NA Funds,
a statement of the earnings and profits of each Acquired Fund for federal
income tax purposes, and of any capital loss carryovers and other items that
will be carried over to each Acquiring Fund as a result of Section 381 of the
Code, which statement shall be certified by the Fontaine Trust's Treasurer or
Assistant Treasurer. The Fontaine Trust covenants that each Acquired Fund
has no earnings and profits that were accumulated by it or any acquired
entity during a taxable year when it or such entity did not qualify as a RIC
under the Code or, if it has such earnings and profits, shall distribute them
to its shareholders prior to the Closing Date.
6.7 The NA Funds, with the cooperation of the Fontaine Trust and its
counsel, shall prepare and file with the SEC a Registration Statement on Form
N-14 (the "Form N-14 Registration Statement") which shall include the Proxy
Statement/Prospectus, as promptly as practicable in connection with the
issuance of the Acquiring Fund Shares and the holding of the Special Meeting
of the Acquired Fund Shareholders to consider approval of this Agreement as
contemplated herein and transactions contemplated thereunder. The NA Funds
shall prepare any pro forma financial statement that may be required under
applicable law to be included in the Form N-14 Registration Statement. The
Fontaine Trust shall provide the NA Funds with all information about each
Acquired Fund that is necessary to prepare the pro forma financial
statements. The NA Funds and the Fontaine Trust shall cooperate with each
other and shall furnish each other with any information relating to itself or
its related series that is required by the 1933 Act, the 1934 Act, and the
1940 Act, the rules and regulations thereunder, and applicable state
securities laws, to be included in the Form N-14 Registration Statement and
the Proxy Statement/Prospectus.
6.8 The Fontaine Trust shall deliver to the NA Funds at the Closing Date
confirmation or other adequate evidence as to the tax costs and holding
periods of the assets and property of each Acquired Fund delivered to the
respective Acquiring Fund in accordance with the terms of this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE FONTAINE TRUST AND EACH ACQUIRED
FUND
The obligations of the Fontaine Trust and each Acquired Fund hereunder
shall be subject to the following conditions precedent; provided, however,
that the Fontaine Trust may, at its option, waive compliance with any such
conditions other than the conditions set forth in Sections 7.1, 7.8, 7.11 and
7.15:
7.1 This Agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Trustees of the NA Funds in the
manner required by the NA Funds' Declaration of Trust and applicable law, and
this Agreement and the transactions contemplated by this Agreement shall have
been approved by the Acquired Fund Shareholders in the manner required by the
Acquired Funds' Declaration of Trust and By-Laws and applicable law.
7.2 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of each Acquiring
Fund since the dates of the most recent financial statements furnished to the
Fontaine Trust in accordance with Section 5.6 hereof. For purposes of this
Section 7.2, a decline in the net asset value per share of each Acquiring
Fund due to the
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effect of normal market conditions on liquid securities shall not constitute
a material adverse change.
7.3 All representations and warranties of the NA Funds and each
Acquiring Fund made in this Agreement, except as they may be affected by the
transactions contemplated by this Agreement, shall be true and correct in all
material respects as if made at and as of the Closing Date.
7.4 The NA Funds and each Acquiring Fund shall have performed and
complied in all material respects with each of their obligations, agreements,
and covenants required by this Agreement to be performed or complied with by
each of them prior to or at the Closing Date.
7.5 The NA Funds shall have furnished the Fontaine Trust at the Closing
Date with a certificate or certificates of its President (or any Vice
President) and/or Treasurer or Assistant Treasurer as of the Closing Date to
the effect that the conditions precedent set forth in the Sections 7.2, 7.3,
7.4, 7.10, and 7.15 hereof have been fulfilled.
7.6 The Fontaine Trust shall have received an legal opinion or opinions
from Paul, Hastings, Janofsky & Walker in form reasonably satisfactory to the
Fontaine Trust or its counsel, and dated as of the Closing Date, to the
effect that: (a) the NA Funds is a business trust duly organized and validly
existing under the laws of the State of Delaware; (b) the shares of each
Acquiring Fund issued and outstanding at the Closing Date are duly
authorized, validly issued, fully paid, and nonassessable by the NA Funds,
and the Acquiring Fund Shares to be delivered to the Fontaine Trust, as
provided for by this Agreement, are duly authorized and upon delivery
pursuant to the terms of this Agreement will be validly issued, fully paid
and nonassessable by the NA Funds, and to such counsel's knowledge, no
shareholder of either Acquiring Fund has any option, warrant, or preemptive
right to subscription or purchase in respect thereof; (c) this Agreement has
been duly authorized, executed, and delivered by the NA Funds and represents
a valid and binding contract of the NA Funds, enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto and to
the exercise of judicial discretion in accordance with general principles of
equity, whether in a proceeding at law or in equity; provided, however, that
no opinion need be expressed with respect to provisions of this Agreement
relating to indemnification; (d) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Declaration of Trust or By-Laws of the NA
Funds or any material agreement known to such counsel to which the NA Funds
or an Acquiring Fund is a party or by which it is bound; (e) to the knowledge
of such counsel, no consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the NA Funds of
the transactions contemplated by this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations under those statutes, and such as may be required by state
securities laws, rules and regulations; and (f) the NA Funds is registered as
an investment company under the 1940 Act and each Acquiring Fund is a
separate series thereof and such registration with the SEC under the 1940 Act
is in full force and effect. Such opinion: (a) shall state that while such
counsel have
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not verified, and are not passing upon and do not assume responsibility for, the
accuracy, completeness, or fairness of any portion of the Form N-14 Registration
Statement or any amendment thereof or supplement thereto, they have generally
reviewed and discussed certain information included therein with respect to the
NA Funds and each Acquiring Fund with certain of its officers and that in the
course of such review and discussion no facts came to the attention of such
counsel which caused them to believe that, on the respective effective or
clearance dates of the Form N-14 Registration Statement and any amendment
thereof or supplement thereto and only insofar as they relate to information
with respect to the NA Funds and each Acquiring Fund, the Form N-14 Registration
Statement or any amendment thereof or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; (b)
shall state that such counsel does not express any opinion or belief as to the
financial statements, other financial data, statistical data, or information
relating to the NA Funds or the Acquiring Fund contained or incorporated by
reference in the Form N-14 Registration Statement or any exhibits or attachments
to the text thereof; (c) may rely on the opinion of other counsel to the extent
set forth in such opinion, provided such other counsel is reasonably acceptable
to the Fontaine Trust; and (d) shall state that such opinion is solely for the
benefit of the Fontaine Trust and its Board of Trustees and officers.
7.7 The Fontaine Trust shall have received a legal opinion from Dechert
Price & Rhoads addressed to the Funds in form reasonably satisfactory to them
and dated as of the Closing Date, with respect to the matters specified in
Section 8.9 hereof.
7.8 The Form N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending the effectiveness shall have
been instituted, or to the knowledge of the Funds, contemplated by the SEC.
7.9 The parties shall have received a memorandum, in form reasonably
satisfactory to each of them, prepared by counsel to the NA Funds or another
person approved by the parties, containing assurance reasonably satisfactory
to them that all authorizations necessary under state securities laws to
consummate the transactions contemplated herein have been obtained.
7.10 No action, suit, or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
7.11 The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceedings seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
7.12 The Fontaine Trust shall have received from the NA Funds all such
documents which the Fontaine Trust or its counsel may reasonably request.
7.13 The NA Funds shall have furnished the Fontaine Trust on the Closing
Date with a certificate or certificates of its President (or any Vice
President) and/or Treasurer or Assistant Treasurer dated as of said date to
the effect that: (a) each Acquiring Fund has no plan or
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intention to reacquire any of the Acquiring Fund Shares to be issued in the
Reorganization, except in the ordinary course of business; (b) each Acquiring
Fund has no plan or intention to sell or otherwise dispose of any of the
assets of the respective Acquired Fund acquired in the Reorganization, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code; and (c) following the Closing,
each Acquiring Fund will continue the historic business of the respective
Acquired Fund or use a significant portion of the respective Acquired Fund's
assets in a business.
7.14 State Street Bank and Trust Company, Inc., in its capacity as
transfer agent for the Acquiring Funds, shall issue and deliver to the
Fontaine Trust a confirmation statement evidencing the Acquiring Fund Shares
to be credited at the Closing Date or provide evidence satisfactory to the
Fontaine Trust that the Acquiring Fund Shares have been credited to the
accounts of each of the Acquired Fund Shareholders on the books of the
respective Acquiring Fund.
7.15 At the Closing Date, the registration of the NA Funds with the SEC
with respect to each Acquiring Fund will be in full force and effect.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE NA FUNDS AND EACH ACQUIRING FUND
The obligations of the NA Funds and each Acquiring Fund hereunder
shall be subject to the following conditions precedent provided, however,
that the NA Funds may, at its option, waive compliance with any such condition
other than the conditions set forth in Sections 8.1, 8.11, 8.14 and 8.19:
8.1 This Agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Trustees of the Fontaine Trust and
the Acquired Fund Shareholders, and the termination of each Acquired Fund as
a series of the Fontaine Trust and the deregistration of the Fontaine Trust
as a registered investment company shall have been approved by the Board of
Trustees of the Fontaine Trust, in the manner required by the Fontaine
Trust's Declaration of Trust and By-Laws and applicable law.
8.2 The Fontaine Trust shall have furnished the NA Funds with the
Statement of Assets and Liabilities of each Acquired Fund, with values
determined as provided in Section 2 hereof, with their respective dates of
acquisition and tax costs, all as of the Closing Date, certified on the
Fontaine Trust's behalf by its Treasurer or Assistant Treasurer. The
Statement of Assets and Liabilities shall list all of the securities owned by
each Acquired Fund as of the Closing Date and a final statement of assets and
liabilities of each Acquired Fund prepared in accordance with GAAP
consistently applied.
8.3 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of an Acquired Fund
since the dates of the financial statements referred to in Section 4.6
hereof. For purposes of this Section 8.3, a decline in the value of the
Acquired Fund Net Assets due to the effect of normal market conditions on
liquid securities shall not constitute a material adverse change.
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8.4 All representations and warranties of the Fontaine Trust and each
Acquired Fund made in this Agreement, except as they may be affected by the
transactions contemplated by this Agreement, shall be true and correct in all
material respects as if made at and as of the Closing Date.
8.5 The Fontaine Trust and each Acquired Fund shall have performed and
complied in all material respects with each of their obligations, agreements,
and covenants required by this Agreement to be performed or complied with by
each of them prior to or at the Closing Date.
8.6 The Fontaine Trust shall have furnished the NA Funds at the Closing
Date with a certificate or certificates of its President and/or Treasurer,
dated as of the Closing Date, to the effect that the conditions precedent set
forth in Sections 8.1, 8.3, 8.4, 8.5, 8.13, 8.15 and 8.19 hereof have been
fulfilled.
8.7 The Fontaine Trust shall have duly executed and delivered to the NA
Funds (a) bills of sale, assignments, certificates and other instruments of
transfer ("Transfer Documents") as the NA Funds may deem necessary or
desirable to transfer all of each Acquired Fund's right, title, and interest
in and to the Acquired Fund Net Assets; and (b) all such other documents,
including but not limited to, checks, share certificates, if any, and
receipts, which the NA Funds may reasonably request. Such assets of the
Acquired Funds shall be accompanied by all necessary state stock transfer
stamps or cash for the appropriate purchase price therefor.
8.8 The NA Funds shall have received an opinion or opinions from Dechert
Price & Rhoads, in form reasonably satisfactory to the NA Funds and its
counsel, and dated as of the Closing Date, to the effect that: (a) the
Fontaine Trust is a business trust duly organized and validly existing under
the laws of The Commonwealth of Massachusetts; (b) the shares of each
Acquired Fund issued and outstanding at the Closing Date are duly authorized,
validly issued, fully paid and non-assessable by the Fontaine Trust; (c) this
Agreement and the Transfer Documents have been duly authorized, executed, and
delivered by the Fontaine Trust and represent valid and binding contracts of
the Fontaine Trust, enforceable in accordance with their terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto and to the exercise of
judicial discretion in accordance with general principles of equity, whether
in a proceeding at law or in equity; provided, however, that no opinion need
be expressed with respect to provisions of this Agreement relating to
indemnification; (d) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated by this Agreement will
not, violate the Declaration of Trust or By-Laws of the Fontaine Trust or any
material agreement known to such counsel to which the Fontaine Trust or any
Acquired Fund is a party or by which it is bound; (e) to the knowledge of
such counsel, no consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Fontaine Trust
or an Acquired Fund of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act, the 1940
Act, the rules and regulations under those statutes, and such as may be
required under state securities laws, rules, and regulations; and (f) the
Fontaine Trust is registered as an investment company under the 1940 Act and
each Acquired Fund is a separate series thereof and such registration with
the SEC
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is in full force and effect. Such opinion: (a) shall state that while such
counsel have not verified, and are not passing upon and do not assume
responsibility for, the accuracy, completeness, or fairness of any portion of
the Form N-14 Registration Statement or any amendment thereof or supplement
thereto, they have generally reviewed and discussed certain information
included therein with respect to the Fontaine Trust and each Acquired Fund
with certain officers of the Fontaine Trust and that in the course of such
review and discussion no facts came to the attention of such counsel which
caused them to believe that, on the respective effective or clearance dates
of the Form N-14 Registration Statement, and any amendment thereof or
supplement thereto and only insofar as they relate to information with
respect to the Fontaine Trust and each Acquired Fund, the Form N-14
Registration Statement or any amendment thereof or supplement thereto
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; (b) shall state that such counsel does not
express any opinion or belief as to the financial statements, other financial
data, statistical data, or any information relating to the Fontaine Trust or
the Acquired Funds contained or incorporated by reference in the Form N-14
Registration Statement; (c) may rely upon the opinion of other counsel to the
extent set forth in the opinion, provided such other counsel is reasonably
acceptable to the NA Funds; and (d) shall state that such opinion is solely
for the benefit of the NA Funds and its Board of Trustees and officers.
8.9 The NA Funds shall have received an legal opinion or opinions from
Dechert Price & Rhoads, addressed to the Funds and in form reasonably
satisfactory to them, and dated as of the Closing Date, substantially to the
effect that, based upon certain facts, assumptions and representations, the
transactions contemplated by this Agreement with respect to each Acquired
Fund and corresponding Acquiring Fund constitute a tax-free reorganization
for federal income tax purposes. The delivery of such opinion or opinions is
conditioned upon receipt by Dechert Price & Rhoads of representations it
shall request of The Fontaine Trust and the NA Funds.
8.10 The property and assets to be transferred to each Acquiring Fund
under this Agreement shall include no assets that the respective Acquiring
Fund may not properly acquire.
8.11 The Form N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of the Funds, contemplated by the
SEC.
8.12 The parties shall have received a memorandum, in form reasonably
satisfactory to each of them, prepared by counsel to the NA Funds or another
person approved by the parties, containing assurance reasonably satisfactory to
them that all authorizations necessary under state securities laws to consummate
the transactions contemplated by this Agreement have been obtained.
8.13 No action, suit, or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.14 The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
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8.15 The NA Funds shall have received from The Fontaine Trust all such
documents which the NA Funds or its counsel may reasonably request.
8.16 Prior to the Closing Date, each Acquired Fund shall have declared a
dividend or dividends, which, together with all previous dividends, shall have
the effect of distributing to its shareholders all of its net investment company
income, if any, for each taxable period or year ending prior to the Closing Date
and for the periods from the end of each such taxable period or year to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in each
taxable period or year ending prior to the Closing Date and in the periods from
the end of each such taxable period or year to and including the Closing Date.
8.17 The Fontaine Trust shall have furnished the NA Funds at the Closing
Date with a certificate or certificates of its President and/or Treasurer
dated as of said date to the effect that: (a) each Acquired Fund will tender
for acquisition by the respective Acquiring Fund its assets consisting of at
least ninety percent (90%) of the fair market value of the Acquired Fund's
net assets and at least seventy percent (70%) of the fair market value of its
gross assets immediately prior to the Closing Date. For purposes of this
certification, all of the following shall be considered as assets of an
Acquired Fund held immediately prior to the Closing Date: (i) amounts used
by the Acquired Fund to pay its expenses in connection with the transactions
contemplated hereby or retained by an Acquired Fund to pay its liabilities;
and (ii) all amounts used to make redemptions of or distributions on the
Acquired Fund Shares (except for redemptions in the ordinary course of its
business as required by Section 22(e) of the 1940 Act pursuant to a demand
for redemption by an Acquired Fund Shareholder and not in connection with the
Reorganization, and distributions of net investment income and net capital
gains in the ordinary course to maintain its status and avoid Fund-level
taxes); (b) the Fontaine Trust will distribute to Acquired Fund Shareholders
in complete liquidation of each Acquired Fund the Acquiring Fund Shares that
it will receive in the transactions contemplated hereby on or as promptly as
practicable after the Closing Date and in pursuance of the plan contemplated
by this Agreement and having made such distributions will take all necessary
steps to liquidate and terminate each Acquired Fund as a series of the
Fontaine Trust; and (c) with respect to each Acquired Fund, there is no plan
or intention of any shareholders who own five percent (5%) or more of the
Acquired Fund Shares, and to the best of the Fontaine Trust's knowledge,
there is no current plan or intention on the part of the remaining
shareholders of the Acquired Funds to sell, exchange, or otherwise dispose of
a number of shares of the Acquiring Fund received in the Reorganization that
would reduce the Acquired Fund Shareholders ownership of the Acquiring Fund
Shares to a number of shares having a value, as of the Closing Date, of less
than fifty percent (50%) of the value of all of the formerly outstanding
Acquired Fund Shares as of the Closing Date. For purposes of this
certification: (i) Acquired Fund Shares surrendered by dissenters will be
treated as outstanding Acquired Fund Shares at the Closing Date; and (ii)
Acquired Fund Shares and the Acquiring Fund Shares held by Acquired Fund
Shareholders and otherwise sold, redeemed, or disposed of prior to or
subsequent to the Reorganization will be taken into account, except for
redemptions of Acquired Fund Shares or Acquiring Fund Shares occurring in the
ordinary course of the respective business of Acquired Fund and Acquiring Fund
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as series or portfolios of an open-end investment company, as required by
Section 22(e) of the 1940 Act, and not in connection with the Reorganization.
8.18 Richard Fontaine and Company, Incorporated, in its capacity as transfer
agent for each Acquired Fund, shall have furnished, to the NA Funds immediately
prior to the Closing Date a list of the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding Acquired
Fund Shares owned by each such shareholder as of the close of regular trading on
the NYSE on the Closing Date, certified on behalf of each Acquired Fund by the
Fontaine Trust's President.
8.19 At the Closing Date, the registration of the Fontaine Trust with the
SEC with respect to each Acquired Fund shall be in full force and effect.
9. FINDER'S FEES AND OTHER EXPENSES
9.1 Each Fund represents and warrants to the other that there is no
person or entity entitled to receive any finder's fees or other similar fees
or commission payments in connection with the transactions provided for
herein.
9.2 NACM or the Acquiring Funds shall be liable for all reasonable expenses
incurred by the Funds in connection with entering into and carrying out the
transactions contemplated by this Agreement, whether or not the transactions
contemplated hereby are consummated, unless the failure to consummate the
transactions results from a breach by Fontaine Associates or an Acquired Fund,
except that Richard Fontaine Associates, Inc. shall pay (i) the costs and
expenses of preparing all necessary supplements for each Acquired Fund's
prospectus or SAI to be filed after the date of this Agreement and prior to the
Closing Date, and (ii) the costs and expenses of preparing the Form N-8F
exemptive application and any amendments thereto. As between NACM and the
Acquiring Funds, the Acquiring Funds will pay normal expenses associated with
the transactions relating to the Agreement, and NACM will pay extraordinary or
unusual expenses. Any such expenses that are so borne by NACM or the Acquiring
Funds shall be solely and directly related to the Reorganization within the
meaning of Revenue Ruling 73-54, 1973-1 C.B. 187.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Fontaine Trust and the NA Funds each agree that no Fund has made
any representation, warranty, or covenant not set forth herein or referred to
in Sections 4, 5, and 6 hereof, and that this Agreement constitutes the
entire agreement between the parties and supersedes any and all prior
agreements, arrangements, and undertakings relating to the matters provided
for herein.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder for a period of three (3) years following the Closing Date. In the
event of a breach by the Fontaine Trust or an Acquired Fund of any such
representation, warranty, or covenant, each Acquired Fund, until the time of
its liquidation and
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termination as a series of the Fontaine Trust, and Richard Fontaine
Associates, Inc. jointly and severally shall be liable to the NA Funds and
the respective Acquiring Fund for any such breach.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Funds. In addition, either Fund may at its option terminate this Agreement
at or prior to the Closing Date because of:
11.1(a) a material breach by the other Fund of any representation,
warranty, or agreement contained herein to be performed at or prior to the
Closing Date; or
11.1(b) a condition precedent to the obligations of either Fund
which the Board of Trustees of the terminating Fund determines has not been
met and which reasonably appears will not or cannot be met.
11.1(c) a determination by the Board of Trustees of the Fontaine
Trust or the NA Funds that the Reorganization, either as a whole or with
respect to any Fund, will not be in the best interest of the Trust, any of
the Trust's funds, or its shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either any Fund, the Fontaine Trust, or the NA Funds, or
their respective Boards of Trustees or officers, but all expenses incidental to
the preparation and carrying out of this Agreement shall be paid as provided in
Section 9.2 hereof.
12. INDEMNIFICATION
12.1 The NA Funds and each Acquiring Fund shall indemnify, defend, and hold
harmless each the Acquired Fund, the Fontaine Trust, its Board of Trustees,
officers, employees, and agents (collectively "Acquired Fund Indemnified
Parties") against all losses, claims, demands, liabilities, and expenses,
including reasonable legal and other expenses incurred in defending third party
claims, actions, suits, or proceedings, whether or not resulting in any
liability to such Acquired Fund Indemnified Parties and including amounts paid
by any one or more of the Acquired Fund Indemnified Parties in a compromise or
settlement of any such claim, action, suit, or proceeding, or threatened third
party claim, suit, action, or proceeding, made with the consent of the NA Funds
and the respective Acquiring Fund, arising from any untrue statement or alleged
untrue statement of a material fact contained in the Form N-14 Registration
Statement, as filed and in effect with the SEC, or any exemptive application
("Application") prepared by the NA Funds and an Acquiring Fund with any
regulatory agency in connection with the transactions contemplated by this
Agreement under the securities laws thereof; or which arises out of or is based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the NA Funds and each Acquiring Fund shall only be
liable in such case to the extent that any such loss, claim, demand, liability,
or expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission about the NA Funds and/or an Acquiring
Fund or the transactions contemplated by this Agreement made in the Form N-14
Registration Statement or any Application.
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12.2 The Fontaine Trust and each Acquired Fund, until the time of its
liquidation, and Richard Fontaine Associates, Inc. on a joint and several basis
shall indemnify, defend, and hold harmless each Acquiring Fund, the NA Funds,
its Board of Trustees, officers, employees and agents ("Acquiring Fund
Indemnified Parties") against all losses, claims, demands, liabilities, and
expenses, including reasonable legal and other expenses incurred in defending
third party claims, actions, suits, or proceedings, whether or not resulting in
any liability to such Acquiring Fund Indemnified Parties and including amounts
paid by any one or more of the Acquiring Fund Indemnified Parties in a
compromise or settlement of any such claim, suit, action, or proceeding, made
with the consent of the Fontaine Trust and the respective Acquired Fund (if it
still exists) or Richard Fontaine Associates, Inc., arising from any untrue
statement or alleged untrue statement of a material fact contained in the Form
N-14 Registration Statement, as filed and in effect with the SEC or any
Application; or which arises out of or is based upon any omission or alleged
omission to state therein a material fact required to be stated therein and
necessary to make the statements therein not misleading; provided, however, that
the Fontaine Trust and any Acquired Fund and Richard Fontaine Associates, Inc.
shall only be liable in such case to the extent that any such loss, claim,
demand, liability, or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission about the Fontaine
Trust and/or an Acquired Fund or about the transactions contemplated by this
Agreement made in the Form N-14 Registration Statement or any Application.
12.13 A party seeking indemnification hereunder is hereinafter called the
"indemnified party" and the party from whom the indemnified party is seeking
indemnification hereunder is hereinafter called the "indemnifying party."
Each indemnified party shall notify the indemnifying party in writing within
ten (10) days of the receipt by such indemnified party of any notice of legal
process of any suit brought against or claim made against such indemnified
party as to any matters covered by this Section 12, but the failure to notify
the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
this Section 12. The indemnifying party shall be entitled to participate at
its own expense in the defense of any claim, action, suit, or proceeding
covered by this Section 12, or, if it so elects, to assume at its own expense
the defense thereof with counsel reasonably satisfactory to the indemnified
parties; provided, however, if the defendants in any such action include both
the indemnifying party and any indemnified party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it which are different from or additional to those available to the
indemnifying party, the indemnified party shall have the right to select
separate counsel to assume such legal defense and to otherwise participate in
the defense of such action on behalf of such indemnified party.
Upon receipt of notice from the indemnifying party to the indemnified
parties of the election by the indemnifying party to assume the defense of such
action, the indemnifying party shall not be liable to such indemnified parties
under this Section 12 for any legal or other expenses subsequently incurred by
such indemnified parties in connection with the defense thereof unless (i) the
indemnified parties shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the provision of the immediately
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel); (ii)
the indemnifying party does not employ counsel reasonably satisfactory
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to the indemnified parties to represent the indemnified parties within a
reasonable time after notice of commencement of the action; or (iii) the
indemnifying party has authorized the employment of counsel for the
indemnified parties at its expenses.
12.4 This Section 12 shall survive the termination of this Agreement and
for a period of three (3) years following the Closing Date.
13. LIABILITY OF THE NA FUNDS AND THE FONTAINE TRUST
13.1 Each party acknowledges and agrees that: (a) all obligations of the NA
Funds under this Agreement are binding only with respect to each Acquiring Fund;
(b) any liability of the NA Funds under this Agreement with respect to an
Acquiring Fund, or in connection with the transactions contemplated herein with
respect to the Acquiring Fund, shall be discharged only out of the assets of
the respective Acquiring Fund; and (c) no other series of the NA Funds shall be
liable with respect to this Agreement or in connection with the transactions
contemplated herein.
13.2 Each party acknowledges and agrees that all: (a) obligations of the
Fontaine Trust under this Agreement are binding only with respect to each
Acquired Fund; and (b) that any liability of the Fontaine Trust under this
Agreement with respect to an Acquired Fund, or in connection with the
transactions contemplated herein with respect to the Acquired Fund, shall be
discharged only out of the assets of the respective Acquired Fund.
14. AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the NA
Funds and the Fontaine Trust; provided, however, that following the Special
Meeting of Acquired Fund Shareholders called by the Board of Trustees of the
Fontaine Trust pursuant to Section 6.2 hereof, no such amendment may have the
effect of changing the provisions for determining the number of Acquiring Fund
Shares to be issued to Acquired Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval, provided that
nothing contained in this Section 14 shall be construed to prohibit the parties
from amending this Agreement to change the Closing Date or any other provision
of this Agreement (to the fullest extent permitted by law).
15. NOTICES
Any notice, report, statement, or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed to be
properly given when delivered personally or by telecopier to the party entitled
to receive the notice or when sent by certified or registered mail, postage
prepaid, or delivered to a recognized overnight courier service, in each case
properly addressed to the party entitled to receive such notice or communication
at the following address or such other address as may hereafter be furnished in
writing by notice similarly given by one party to the other.
If to an Acquired Fund:
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The Fontaine Trust
210 West Pennsylvania Avenue
Suite 240
Towson, Maryland 21204
Attention: Richard H. Fontaine
with copies to:
Dechert Pirice & Rhoads
1775 Eye Street N.W
Washington, D.C 20006
Attention: Jane Kanter
If to an Acquiring Fund:
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, CA 92101
Attention: Charles Field
with copies to:
Paul, Hastings, Janofsky & Walker
Twenty-Third Floor
555 South Flower Street
Los Angeles, CA 90071-2371
Attention: Michael Glazer
16. FAILURE TO ENFORCE
The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision, nor in any way to affect the validity of this Agreement or any
part hereof as the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
17. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
17.1 The article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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17.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
17.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to principles of conflicts
of law.
17.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm, or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason
of this Agreement.
17.5 It is expressly understood and agreed that the obligations of the
Fontaine Trust and the NA Funds under this Agreement, including but not
limited to any liability as a result of the breach of any of their respective
representations and warranties, are not binding on their respective Boards of
Trustees, shareholders, nominees, officers, agents, or employees
individually, but bind only the respective assets of each Acquiring Fund and
each Acquired Fund.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President and its seal to be affixed thereto and attested by
its Secretary.
Attest: NICHOLAS-APPLEGATE MUTUAL FUNDS
on behalf of the Nicholas-Applegate
Worldwide Growth Portfolio A,
and Nicholas-Applegate Balanced
Growth Portfolio A
_________________________ By:_________________________
Attest: THE FONTAINE TRUST, on behalf of Fontaine
Capital Appreciation Fund, Fontaine
Global Growth Fund and Fontaine Global
Income Fund
__________________________ By:_________________________
Richard Fontaine Associates, Inc. hereby joins in this Agreement with
respect to and agrees to the matters described in Sections 10.2 and 12.
Attest: FONTAINE ASSOCIATES, INC.
________________________ By:___________________________
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EXHIBIT B
BALANCED GROWTH PORTFOLIO A
- --------------------------------------------------------------------------------
MANAGEMENT TEAM
Catherine Somhegyi,
Partner, Chief Investment Officer,
Global Equity Management
Lawrence S. Speidell, CFA,
Partner, Director of Global/Systematic
Portfolio Management
John J. Kane,
Partner, Senior Portfolio Manager
Fred S. Robertson,
Partner, Chief Investment Officer,
Fixed Income Management
GOAL: The Nicholas-Applegate Balance Growth Portfolio A seeks to provide
capital appreciation and current income by investing approximately 60% of
total assets in equity and convertible securities primarily of U.S. companies
and 40% of total assets in debt securities, money market instruments and
other short-term investments.
REVIEW AND OUTLOOK: Early in the Portfolio's fiscal year, strong
performance by smaller-company growth stocks contributed to gains. However,
after a summer sell-off in the technology sector, cautious investors favored
larger-company stocks.
During the 12-month period ending March 31, 1997, the Nicholas-Applegate
Balanced Growth Portfolio A achieved more modest returns than a composite
index comprised of 60% of the S&P 500 Index and 40% of the Lehman
Government/Corporate Index.
The Portfolio's overweighting within the technology sector relative to the
benchmark contributed to gains. Disappointing returns in the consumer
services and consumer non-durables sectors negatively impacted returns.
One of the Portfolio's best performers during the period was Western
Digital Corp., a manufacturer of disk drives for personal computers. While
the company benefited from strong demand, competitive pressures threatened
the sustainability of earnings growth and prompted us to reduce our position.
Ross Stores, Inc., the nation's third largest off-price retailer, also
performed well.
The Federal Reserve Board raised short-term interest rates in March. The Fed
cited persisting economic strength as one reason for the action, which prompted
a quarter-end sell-off.
Our long-term outlook for bonds remains positive. However, with little slack
in the economy, short periods of accelerating economic activity may prompt the
Fed to raise rates again. Thus, we believe the risk of higher near-term rates
makes a neutral stance on interest rates appropriate.
We are optimistic that the combination of our disciplined approach to
selecting dynamic growth stocks and the diversification benefits of fixed
income securities will continue to deliver solid long-term returns.
REPRESENTATIVE HOLDINGS
United States Treasury Note 7.500 5-15-02
United States Treasury Note 7.000 7-15-06
Unites States Treasury Note 6.250 8-31-00
Advanced Micro Devices 11.000 8-1-03
Dell Computer
TJX
Intel
Miller Herman
Jabil Circuit
Burlington Coat Factory
B-1
<PAGE>
[graphic depicting annualized total return]
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------ ----------------------------------------------
ANNUALIZED TOTAL RETURNS Balanced Growth Portfolio A = $13,716
AS OF 03/31/97
1 Year 5 Years Since Inception Balanced 60/40 Index = $15,904
1.14% 7.84% 8.33%
------------------------------------------------- ---------------------------------------------
</TABLE>
The graph compares a $10,000 investment in the Balanced Growth Portfolio
A (front load) with a similar investment in a model index consisting
of 60% Standard & Poor's 500 Index ("S&P 500") and 40% Lehman Brothers
Government/Corporate Bond Index, on a cumulative and average total return
basis. Returns reflect the reinvestment of income dividends and capital gains
distributions, if any, as well as all fees and expenses. Performance figures
include the maximum applicable sales charge of 5.25% for Class A shares of
the Fund. Performance is affected by a 12b-1 Plan which commenced at
inception of the Class A shares of the Fund.
Total returns reflect the fact that fees and expenses in excess of certain
expense limitations specified in the investment management agreement have been
deferred by the Adviser. Total returns results would have been lower had there
been no deferral.
The S&P 500 Index is an unmanaged index containing 500 industrial, utility and
financial companies regarded as generally representative of the U.S. stock
market.
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 corporation 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.
Index returns reflect the reinvestment of income dividends and capital gains
distributions, if any, but do not reflect fees, brokerage commissions, or other
expenses of investing.
Past performance is no indication of future performance. Investment returns and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
B-2
<PAGE>
WORLDWIDE GROWTH PORTFOLIO A
- -------------------------------------------------------------------------------
Management Team
----------------
Catherine Somhegyi,
Partner, Chief Investment Officer,
Global Equity Management
Lawrence S. Speidell, CFA,
Partner, Director of Global/Systematic
Portfolio Management
John J. Kane,
Partner, Senior Portfolio Manager
Loretta J. Morris,
Senior Portfolio Manager
Alex Muromcew,
Portfolio Manager
Melisa Grigolite,
Portfolio Manager
Ernesto Ramos, Ph.D,
Senior Portfolio Manager
GOAL: The Nicholas-Applegate Worldwide Growth Portfolio A seeks to
maximize long-term capital appreciation through investment in a portfolio of
growth stocks of U.S. and international companies.
REVIEW AND OUTLOOK: The Worldwide Growth Portfolio A delivered solid
performance on the strength of superior stock selection this year,
outperforming its respective benchmark, the MSCI World Index.
With approximately 25% of holdings in the United States, the Portfolio
benefitted form such holdings as Merck & Co. The pharmaceuticals company
continues to add breakthrough drugs, such as Aggrastat, which treats coronary
syndromes, and Propecia, which treats male baldness, leading it to hold one
of the strongest product lines in the industry.
Superior stock selection, including our underweighting of Japanese stocks,
and investment in stocks of emerging markets countries, contributed to the
Portfolio's performance relative to the MSCI World Index for the period.
Throughout the world, we found excellent opportunities in the stocks of
manufacturers and exporters, which benefitted from increased sales as a result
of a stronger U.S. dollar. A stronger dollar makes foreign-produced goods more
affordable to U.S. consumers.
In Europe, the Portfolio benefitted from pent up demand for new cars,
which translated into rising shares for such holdings as Porsche. The
company's cost-cutting program has resulted in a ten-fold increase in
profits. The new Boxster model is expected to contribute to a doubling of
the firm's orders.
The Portfolio has extensive holdings in the technology sector, which is
fueling productivity and efficiency gains abroad.
Cap Gemini, a French computer services firm, continues to show solid
prospects for growth based on their potential to provide advisory services in a
changing marketplace.
Improving economic conditions and political stability make us optimistic
about the prospects of investing in stocks worldwide.
REPRESENTATIVE HOLDINGS
-------------------------
Volkswagen, Germany
ASE Test, Taiwan
Intel, United States
Merck & Co., United States
Ares-Serono, Switzerland
Novo-Nordisk, Denmark
TDK, Japan
Petroleum Geo-Services, Norway
Travelers Group, United States
Telecomunicacoes Brasileires, Brazil
B-3
<PAGE>
[graphs depicting Annualized Total Returns As of 03/31/97]
<TABLE>
<CAPTION>
<S> <C>
----------------------------------- -------------------------------------------------
ANNUALIZED TOTAL RETURNS Worldwide Growth Portfolio A = $15,126
AS OF 03/31/97
1 Year 3 Years Since Inception MSCI World Index = $15,751
6.61% 8.17% 11.05%
------------------------------------ --------------------------------------------------
</TABLE>
The graph compares a $10,000 investment in the Worldwide Growth Portfolio A
(front load) with a similar investment in the Morgan Stanley Capital
International ("MSCI") World Index, on a cumulative and average annual total
return basis. Performance returns within are calculated on a total return basis
and reflect all fees and expenses of the Class A shares of the Fund with
reinvestment of dividends and capital gains, if any. Performance figures
include the maximum applicable sales charge of 5.25% for Class A shares of the
Fund. Performance is affected by a 12b-1 Plan which commenced at inception of
the Class A shares of the Fund.
Total returns reflect the fact that fees and expenses in excess of certain
expense limitations specified in the investment management agreement have been
deferred by the Adviser. Total return results would have been lower had there
been no deferral.
The MSCI 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.
Index returns reflect the reinvestment of income dividends and capital gains
distributions, if any, but do not reflect fees, brokerage commissions, or other
expenses of investing.
Past performance is no indication of future performance. Investment returns and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
B-4
<PAGE>
THE FONTAINE TRUST: NICHOLAS-APPLEGATE MUTUAL FUNDS:
CAPITAL APPRECIATION FUND BALANCED GROWTH PORFOLIO A
GLOBAL GROWTH FUND
GLOBAL INCOME FUND WORLDWIDE GROWTH PORTFOLIO A
210 West Pennsylvania Avenue, Suite 240 600 West Broadway, 30th Floor
Towson, Maryland 21204 San Diego, California 92101
Telephone: (410) 825-7890 Telephone: (818) 852-1000
Toll Free: (800) 247-1550 Toll Free: (800) 551-8043
STATEMENT OF ADDITIONAL INFORMATION
(Relating to the 1998 Special Meeting of Shareholders of The Fontaine Trust)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus, dated
April 9, 1998, for the Special Meeting of Shareholders of series of The
Fontaine Trust to be held on April 20, 1998. Copies of the Combined Proxy
Statement and Prospectus may be obtained at no charge by writing or calling the
Nicholas-Applegate Mutual Funds ("NA Funds") at the address or telephone numbers
shown above.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement and Prospectus.
Further information about the Acquiring Funds and the Acquired Funds is
contained in their respective Statements of Additional Information dated July
16, 1997 and May 1, 1997, the Acquiring Funds' Semi-Annual Report to
Shareholders dated September 30, 1997 and Annual Report to Shareholders dated
March 31, 1997, and the Acquired Funds' Annual Report to Shareholders dated
December 31, 1997, all of which are incorporated by reference into this
Statement of Additional Information. Any of the documents referenced may be
obtained without charge by writing to the addresses or calling the telephone
numbers shown above.
The date of this Statement of Additional Information is April 9, 1998.
<PAGE>
GENERAL INFORMATION
The shareholders of the Acquired Funds are being asked to approve or
disapprove the Reorganization Agreement dated March 31, 1998 by and between
The Fontaine Trust on behalf of the Acquired Funds and NA Funds on behalf of the
Acquiring Funds, and the transactions contemplated thereby. The Reorganization
Agreement contemplates the transfer of substantially all of the property, assets
and good will of each Acquired Fund in exchange for corresponding Acquiring Fund
Shares. Following the exchange, each Acquired Fund will make a liquidating
distribution of the Acquiring Shares to the Acquired Fund's shareholders, such
that an Acquired Fund shareholder at the Closing Date will receive full and
fractional Acquiring Fund Shares having an aggregate net asset value equal to
the aggregate net asset value of the shareholder's Acquired Fund Shares. In
connection with the Reorganization, following the Closing Date The Fontaine
Trust will file an application on Form N-8F in order to deregister as an
investment company under the 1940 Act.
A Special Meeting of Shareholders of the Acquired Fund to consider the
Reorganization Agreement and the transactions contemplated thereby will be held
at 210 West Pennsylvania Avenue, Suite 240, Towson, Maryland 21204 on
April 30, 1998, at 10:00 a.m. Eastern time, or at such other location, date, or
time as may be selected by the Chairman of the Board or the President of the
Acquired Fund, or at any adjournment of the Special Meeting. For further
information about the transaction, see the Combined Proxy Statement and
Prospectus.
<PAGE>
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
Registrant's trustees, officers, employees and agents are indemnified
against liabilities incurred by them in connection with the defense or
disposition of any action or proceeding in which they may be involved or with
which they may be threatened, while in office or thereafter, by reason of being
or having been in such office, except with respect to matters as to which it has
been determined that they acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office ("Disabling Conduct").
Section 8 of Registrant's Administration Agreement, filed as Exhibit 9.1 to
Amendment No. 52 to Registrant's Form N-1A Registration Statement on February
19, 1998 and incorporated herein by reference, 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 as Exhibit 6 to Amendment No. 52 to Registrant's Form N-1A
Registration Statement on February 19, 1998 and incorporated herein by
reference, 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 as Exhibit 9.3 to
Amendment No. 52 to Registrant's Form N-1A Registration Statement on February
19, 1998 and incorporated herein by reference, 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, as amended, may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
Article V. of NA Fund's Amended and Restated Declaration of Trust provides
as
C-1
<PAGE>
follows:
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES, AGENTS. The
Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest, as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by him or her
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he or she may be involved
or with which he or she may be threatened, while in office or thereafter,
by reason of his or her being or having been such a Trustee, officer,
employee or agent, except with respect to any matter as to which he or she
shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties;
provided; however, that as to any matter disposed of by a compromise
payment by such Person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless there has been a determination that such Person did not
engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office by the
court or other body approving the settlement or other disposition or by a
reasonable determination, based upon review of readily available facts (as
opposed to a full trial-type inquiry), that he or she did not engage in
such conduct by written opinion from independent legal counsel approved by
the Trustees. The rights accruing to any Person under these provisions
shall not exclude any other right to which he or she may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he or she may be
otherwise entitled except out of the Trust Property. The Trustees may make
advance payments in connection with indemnification under this Section 5.2,
provided that the indemnified Person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he
or she is not entitled to such indemnification.
Item 16. EXHIBITS.
(1) Amended and Restated Declaration of Trust of Registrant. (1)
(2) Amended Bylaws of Registrant. (1)
(3) None.
(4) Agreement and Plan of Reorganization. (See Exhibit A to the Combined
Proxy Statement and Prospectus.)
C-2
<PAGE>
(5) None.
(6)(A) Form of Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management. (5)
(6)(B) Amended Form of Letter Agreement between Registrant and Nicholas-
Applegate Capital Management adding the Class A, B, C, Q and I shares
of Registrant's additional Funds to the Investment Advisory Agreement.
(6)
(7)(A) Distribution Agreement between Registrant and Nicholas-Applegate
Securities. (1)
(7)(B) Amended Form of Letter Agreement between Registrant and
Nicholas-Applegate Securities adding the Class A, B, C, Q and I shares
of Registrant's additional Funds to the Distribution Agreement. (6)
(7)(C) Amended Distribution Plan of Registrant. (1)
(7)(D) Form of further Amendment to Distribution Plan of Registrant. (7)
(8) None.
(9)(A) Custodian Services Agreement between Registrant and PNC Bank. (1)
(9)(B) Form of Letter Agreement between Registrant and PNC Bank, adding the
Class A, B, C, Q and I shares of Registrant's additional Funds to
Custodian Services Agreement. (7)
(10) None.
(11) Opinion of counsel that shares of Registrant are validly issued, fully
paid, and non-assessable (including consent of such firm).
(12) Opinion of counsel as to tax matters and consequences to shareholders
(including consent of such firm).
(13)(A) Administration Agreement, as amended, between Registrant and
Investment Company Administration Corporation. (1)
(13)(B) Form of amended Administration Agreement between Registrant and
Investment Company Administration Corporation. (8)
C-3
<PAGE>
(13)(C) Administrative Services Agreement between Registrant and
Nicholas-Applegate Capital Management. (2)
(13)(D) Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company. (1)
(13)(E) Amended Form of Letter Agreement between Registrant and State Street
Bank and Trust Company, adding the Class A, B, C, Q and I shares of
Registrant's additional Funds to Transfer Agency and Service
Agreement. (6)
(13)(F) Form of amended Shareholder Service Plan between Registrant and
Nicholas-Applegate Securities. (7)
(13)(G) License Agreement between Registrant and Nicholas-Applegate Capital
Management. (1)
(13)(H) Accounting Services Agreement between Registrant and PFPC Inc. (1)
(13)(I) Amended Form of Letter Agreement between Registrant and PFPC Inc.,
adding the Class A, B, C, Q and I shares of Registrant's additional
Funds to the Accounting Services Agreement. (6)
(13)(J) Letter Agreement between Registrant and Nicholas-Applegate Capital
Management regarding expense reimbursements. (1)
(13)(K) Amended Form of Letter Agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class A, B, C, Q and
I shares of Registrant's additional Funds to agreement regarding
expense reimbursement. (6)
(13)(L) Credit Agreement among Registrant, Chemical Bank and certain other
banks. (1)
(13)(M) First Amendment Agreement to Credit Agreement among Registrant, The
Chase Manhattan Bank, and certain other banks. (4)
(13)(N) Form of Second Amendment Agreement to Credit Agreement among
Registrant, The Chase Manhattan Bank, and certain other banks. (5)
(14)(A) Consent of Ernst & Young L.L.P.
(14)(B) Consent of Sanville & Company.
(15) None.
C-4
<PAGE>
(16) Powers of Attorney. (11)
(17) (a) Form of Proxy. (11)
(b) Prospectus and Statement of Additional Information of Registrant,
included in Post-Effective Amendment No. 52, dated February 19,
1998. (9)
(c) Prospectus and Statement of Additional Information of The Fontaine
Trust, filed on or about May 1, 1997, incorporated herein by
reference. (10)
- --------------------------------------------------
Key to Exhibit Reference Numbers
(1) Incorporated herein by reference to Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A of Registrant, dated as of June 3,
1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 40 to the
Registration Statement on Form N-1A of Registrant, dated as of January 3,
1997.
(3) Incorporated herein by reference to Post-Effective Amendment No. 42 to the
Registration Statement on Form N-1A of Registrant, dated May 1, 1997
(4) Incorporated herein by reference to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A of Registrant, dated July 14, 1997
(5) Incorporated herein by reference to Post-Effective Amendment No. 49 to the
Registration Statement on Form N-1A of Registrant, dated September 2, 1997.
(6) Incorporated herein by reference to Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A of Registrant, dated December 29, 1997.
(7) Incorporated herein by reference to an exhibit to Registrant's Form N-14
Registration Statement on December 5, 1997.
(8) Filed as an Exhibit to Registrant's Form N-14 Registration Statement on
December 5, 1997 and incorporated herein by reference.
(9) Incorporated herein by reference to Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A of Registrant, dated February 19,
1998.
(10) Incorporated herein by reference to Post-Effective Amendment No. 10 to the
Registration Statement for the Fontaine Trust as filed with the Securities
and Exchange Commission on May 2, 1997.
(11) Incorporated herein by reference to the Registrant's Form N-14 Registration
Statement as filed with the Securties and Exchange Commission on March 3,
1998.
C-5
<PAGE>
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
C-6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Pre-Effective Amendment No. 2 to the Registration Statement on Form N-14 to
be signed on behalf of the Registrant in the City of San Diego, State of
California, on the 6th day of April, 1998.
NICHOLAS-APPLEGATE MUTUAL FUNDS
(Registrant)
By: /s/ John D. Wylie*
-----------------------------------
John D. Wylie, President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-14 has
been signed below by the following persons in the capacities and on the date
indicated:
Name Title Date
---- ----- ----
/s/ John D. Wylie* Principal Executive April 6, 1998
- ------------------------- Officer
John D. Wylie
/s/ Thomas Pindelski* Principal Financial and April 6, 1998
- ------------------------- Accounting Officer)
Thomas Pindelski
/s/ Fred C. Applegate* Trustee April 6, 1998
- -------------------------
Fred C. Applegate
/s/ Arthur B. Laffer* Trustee April 6, 1998
- -------------------------
Arthur B. Laffer
/s/ Charles E. Young* Trustee April 6, 1998
- -------------------------
Charles E. Young
/*s/ Charles Field
- -------------------------
By: Charles Field
Attorney in Fact
*Charles Field signs this document on behalf of each trustee and officer
marked with an asterisk pursuant to powers of attorney filed as Exhibits
to this Registration Statement.
By: /s/ Charles Field
----------------------------------------
Charles Field
<PAGE>
SIGNATURES
Nicholas-Applegate Investment Trust has duly caused this Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-14 to be signed on behalf of the
Registrant in the City of San Diego, State of California, on 6th day of April,
1998.
NICHOLAS-APPLEGATE INVESTMENT TRUST
By: John D. Wylie*
---------------------
John D. Wylie
President
This Pre-Effective Amendment No. 2 to the Registration Statement on Form N-14
has been signed below by the following persons in the capacities and on the
dates indicated.
John D. Wylie* Principal Executive Officer April 6, 1998
- ---------------------
John D. Wylie
Thomas Pindelski* Principal Financial and April 6, 1998
- --------------------- Accounting Officer
Thomas Pindelski
George F. Keane* Trustee April 6, 1998
- ---------------------
George F. Keane
Dann V. Angeloff* Trustee April 6, 1998
- ---------------------
Dann V. Angeloff
Walter E. Auch* Trustee April 6, 1998
- ---------------------
Walter E. Auch
Theodore J. Coburn* Trustee April 6, 1998
- ---------------------
Theodore J. Coburn
Darlene DeRemer* Trustee April 6, 1998
- ---------------------
Darlene DeRemer
Arthur E. Nicholas* Trustee April 6, 1998
- ---------------------
Arthur E. Nicholas
*s/E. Blake Moore, Jr.
- ---------------------
By: E. Blake Moore, Jr.
Attorney in Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
(11) Opinion of counsel that shares of
Registrant are validly issued, fully
paid, and non-assessable (including
consent of such firm).
(12) Opinion of counsel as to tax matters
and consequences to shareholders
(including consent of such firm).
(14)(A) Consent of Ernst & Young L.L.P
(14(B) Consent of Sanville & Company.
<PAGE>
EXHIBIT (11)
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 West Flower Street
Los Angeles, California 90071
(213) 683-6000
April 6, 1998
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
We have acted as counsel to Nicholas-Applegate Mutual Funds, a
Delaware business trust (the "Trust"), in connection with the issuance of shares
of beneficial interest ("Shares") in the Nicholas-Applegate Balanced Growth
Portfolio A and Nicholas-Applegate Worldwide Growth Portfolio A series of the
Trust (the "Funds") in a public offering pursuant to a Registration Statement on
Form N-14 (Registration No. 33-56094), as amended, filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Registration Statement").
In our capacity as counsel for the Trust, we have examined the
Registration Statement, including the form of Agreement and Plan of
Reorganization between the Trust and The Fontaine Trust set forth therein, the
Amended and Restated Declaration of Trust of the Trust, as amended, the bylaws
of the Trust, as amended, originals or copies of actions of the Board of
Trustees of the Trust as furnished to us by the Trust, certificates of public
officials, statutes and such other documents, records and certificates as we
have deemed necessary for the purposes of this opinion.
Based upon our examination as aforesaid, we are of the opinion that
the Shares are duly authorized and, when sold as described in the Registration
Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion of counsel as an exhibit
to the Registration Statement.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT (12)
[Closing Date], 1998
The Fontaine Trust
210 West Pennsylvania Avenue
Suite 240
Towson, Maryland 21204
Nicholas-Applegate Mutual Funds
P.O. Box 82169
San Diego, California 92138-2169
Re: The Fontaine Trust in respect of the Capital Appreciation Fund; The
Nicholas-Applegate Mutual Funds in respect of the Balanced Growth Fund
Portfolio A
----------------------------------------------------------------------
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences to the Capital Appreciation Fund ("Target"), a separate series of
The Fontaine Trust (the "Fontaine Trust"), to the holders of the shares of
beneficial interest (the "shares") of Target (the "Target shareholders"), and to
the Balanced Growth Fund Portfolio A ("Acquiring Fund"), a separate series of
Nicholas-Applegate Mutual Funds (the "NA Funds"), in connection with the
proposed transfer of substantially all of the assets of Target to Acquiring Fund
in exchange solely for voting shares of beneficial interest of Acquiring Fund
("Acquiring Fund shares"), followed by the distribution of such Acquiring Fund
shares received by Target in complete liquidation, all pursuant to the Agreement
and Plan of Reorganization (the "Plan") dated as of March 31, 1998 (the
"Reorganization").
For purposes of this opinion, we have examined and rely upon (1) the Plan,
(2) the Form N-14, filed by NA Funds on March 3, 1998, with the Securities and
Exchange Commission ("SEC"), (3) Pre-Effective Amendment No. 1 to the Form N-14
filed on April 1, 1998; (4) Pre-Effective Amendment No. 2 to the Form N-14 filed
on April ___, 1998 (5) the facts and representations contained in the letter
dated [Closing Date], 1998, addressed to us from the Fontaine Trust, (6) the
facts and representations contained in the letter dated [Closing Date], 1998,
addressed to us from NA Funds, and (7) such other documents and instruments as
we have deemed necessary or appropriate for purposes of rendering this opinion.
This opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), United States Treasury regulations, judicial decisions and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof. This opinion is conditioned upon the
Reorganization taking place in the manner described in the Plan and the Form
N-14 referred to above.
Based upon the foregoing, it is our opinion that:
(1) The acquisition by Acquiring Fund of substantially all of the assets
of Target in exchange solely for Acquiring Fund shares, followed by the
distribution of such Acquiring Fund shares to the Target shareholders in
exchange for their Target shares in complete liquidation of Target, will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Acquiring Fund and Target will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
<PAGE>
Capital Appreciation Fund
Galanced Growth Fund
[Closing Date], 1998
Page 2
(2) No gain or loss will be recognized to Target upon the transfer of
substantially all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund shares, or upon the distribution to the Target shareholders of
the Acquiring Fund shares.
(3) No gain or loss will be recognized by Acquiring Fund upon the receipt
of Target's assets in exchange for Acquiring Fund shares.
(4) The basis of the assets of Target in the hands of Acquiring Fund will
be, in each instance, the same as the basis of those assets in the hands of
Target immediately prior to the Reorganization exchange.
(5) The holding period of Target's assets in the hands of Acquiring Fund
will include the period during which the assets were held by Target.
(6) No gain or loss will be recognized to the Target shareholders upon the
receipt of Acquiring Fund shares solely in exchange for Target shares.
(7) The basis of the Acquiring Fund shares received by the Target
shareholders will be the same as the basis of the Target shares surrendered in
exchange therefor.
(8) The holding period of the Acquiring Fund shares received by the Target
shareholders will include the holding period of the Target shares surrendered in
exchange therefor, provided that such Target shares were held as capital assets
in the hands of the Target shareholders upon the date of the exchange.
We express no opinion as to the federal income tax consequences of the
Reorganization except as expressly set forth above, or as to any transaction
except those consummated in accordance with the Plan.
We hereby consent to the filing of this opinion as an exhibit to
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-14 filed
by NA Funds with the Securities and Exchange Commission.
Very truly yours,
Dechert Price & Rhoads
<PAGE>
EXHIBIT (12)
[Closing Date], 1998
The Fontaine Trust
210 West Pennsylvania Avenue
Suite 240
Towson, Maryland 21204
Nicholas-Applegate Mutual Funds
P.O. Box 82169
San Diego, California 92138-2169
Re: The Fontaine Trust in respect of the Global Growth Fund and Global
Income Fund; The Nicholas-Applegate Mutual Funds in respect of the
Worldwide Growth Fund Portfolio A
------------------------------------------------------------------
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences to the Global Growth Fund and the Global Income Fund (each a
"Target"), each a separate series of The Fontaine Trust (the "Fontaine Trust"),
to the holders of the shares of beneficial interest (the "shares") of each
Target (the "Target shareholders"), and to Worldwide Growth Fund Portfolio A
("Acquiring Fund"), a separate series of Nicholas-Applegate Mutual Funds (the
"NA Funds"), in connection with the proposed transfer of substantially all of
the assets of each Target to Acquiring Fund in exchange solely for voting shares
of beneficial interest of Acquiring Fund ("Acquiring Fund shares"), followed by
the distribution of such Acquiring Fund shares received by each Target in
complete liquidation, all pursuant to the Agreement and Plan of Reorganization
(the "Plan") dated as of March 31, 1998, (the "Reorganization").
For purposes of this opinion, we have examined and rely upon (1) the Plan,
(2) the Form N-14, filed by NA Funds on March 3, 1998, with the Securities and
Exchange Commission ("SEC"), (3) Pre-Effective Amendment No. 1 to the Form N-14
filed on April 1, 1998; (4) Pre-Effective Amendment No. 2 to the Form N-14 filed
on April ___, 1998, (5) the facts and representations contained in the letter
dated [Closing Date], 1998, addressed to us from the Fontaine Trust, (6) the
facts and representations contained in the letter dated [Closing Date], 1998,
addressed to us from NA Funds, and (7) such other documents and instruments as
we have deemed necessary or appropriate for purposes of rendering this opinion.
This opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), United States Treasury regulations, judicial decisions and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof. This opinion is conditioned upon the
Reorganization taking place in the manner described in the Plan and the Form
N-14 referred to above.
Based upon the foregoing, it is our opinion that:
(1) The acquisition by Acquiring Fund of substantially all of the assets
of a Target in exchange solely for Acquiring Fund shares, followed by the
distribution of such Acquiring Fund shares to the Target shareholders in
exchange for their Target shares in complete liquidation of that Target, will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Acquiring Fund and each Target will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
<PAGE>
Global Growth Fund
Global Income Fund
Worldwide Growth Fund
[Closing Date], 1998
Page 2
(2) No gain or loss will be recognized to a Target upon the transfer of
substantially all of its assets to Acquiring Fund in exchange solely for
Acquiring Fund shares, or upon the distribution to the Target shareholders of
the Acquiring Fund shares.
(3) No gain or loss will be recognized by Acquiring Fund upon the receipt
of a Target's assets in exchange for Acquiring Fund shares.
(4) The basis of the assets of a Target in the hands of Acquiring Fund
will be, in each instance, the same as the basis of those assets in the hands of
that Target immediately prior to the Reorganization exchange.
(5) The holding period of a Target's assets in the hands of Acquiring Fund
will include the period during which the assets were held by that Target.
(6) No gain or loss will be recognized to the Target shareholders upon the
receipt of Acquiring Fund shares solely in exchange for Target shares.
(7) The basis of the Acquiring Fund shares received by the Target
shareholders will be the same as the basis of the Target shares surrendered in
exchange therefor.
(8) The holding period of the Acquiring Fund shares received by the Target
shareholders will include the holding period of the Target shares surrendered in
exchange therefor, provided that such Target shares were held as capital assets
in the hands of the Target shareholders upon the date of the exchange.
We express no opinion as to the federal income tax consequences of the
Reorganization except as expressly set forth above, or as to any transaction
except those consummated in accordance with the Plan.
We hereby consent to the filing of this opinion as an exhibit to
Pre-Effective Amendment No. 2 of the Registration Statement on Form N-14 filed
by NA Funds with the Securities and Exchange Commission.
Very truly yours,
Dechert Price & Rhoads
<PAGE>
EXHIBIT (14)(A)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Information for the Acquiring Funds" and "Financial Statements" in Pre-Effective
Amendment No. 2 under the Securities Act of 1933 to the Registration Statement
(Form N-14, No. 33-56094) and related Prospectus and Statement of Additional
Information of Nicholas-Applegate Mutual Funds and to the incorporation by
reference therein of our report dated May 13, 1997, with respect to the
financial statements and financial highlights of Nicholas-Applegate Mutual Funds
included in its Annual Report for the year ended March 31, 1997 filed with the
Securities and Exchange Commission.
Los Angeles, California
April 6, 1998
<PAGE>
EXHIBIT (14)(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report, dated February 5, 1998, on the annual
financial statements and financial highlights of the Fontaine Capital
Appreciation Fund, Fontaine Global Growth Fund and Fontaine Global Income Fund
which is included in Part A and to the incorporation by reference of the annual
financial statements contained in the Funds' Annual Report for the period ending
December 31, 1997 in Part B of the Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-14 under the Securities Act of 1933 and
included in the Prospectus and Statement of Additional Information, as
specified, and to the reference made to us under the caption "Independent
Auditors" in the Statement of Additional Information.
Abington, Pennsylvania Certified Public Accountants
April 6, 1998
