<PAGE>
NICHOLAS-APPLEGATE-REGISTERED TRADEMARK-
MUTUAL FUNDS PROSPECTUS
[PHOTO]
PORTFOLIOS A, B AND C
<PAGE>
[PHOTO]
Art Nicholas
Managing Partner
We live in an era of constant, dramatic change. The world's marketplaces are
transforming into a single interconnected community with the integration of the
European Union, economic deregulation and privatization in Latin America, the
technological coming of age in the Pacific Rim and the new entrepreneurial boom
in the United States.
At Nicholas-Applegate, we see these changes creating a wealth of investment
opportunities, which we seek out company by company. By expanding our global
reach, we believe we can help you find promising investments throughout the
world.
I hope you will join Nicholas-Applegate in our quest for opportunities
worldwide.
/s/ Art Nicholas
Art Nicholas
Managing Partner
<PAGE>
1
NICHOLAS APPLEGATE-Registered Trademark-
MUTUAL FUNDS
PROSPECTUS
The prospectus contains vital information about the Class A, B and
C Shares of these Funds. For your own benefit and protection,
please read it before you invest, and keep it on hand for future
reference.
Please note that these Shares
/ / are not bank deposits
/ / are not federally insured
/ / are not endorsed by any bank or government agency
/ / are not guaranteed to achieve their investment objectives
THE HIGH YIELD BOND FUND MAY INVEST WITHOUT LIMITATION IN DEBT
SECURITIES RATED BELOW INVESTMENT GRADE, SOMETIMES REFERRED TO AS
"JUNK BONDS." THESE LOWER RATED SECURITIES ARE SPECULATIVE AND
INVOLVE GREATER RISKS, INCLUDING RISK OF DEFAULT, THAN HIGHER
RATED SECURITIES. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS."
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
GLOBAL FUNDS
INTERNATIONAL CORE GROWTH
WORLDWIDE GROWTH
INTERNATIONAL SMALL CAP GROWTH
EMERGING COUNTRIES
US FUNDS
LARGE CAP GROWTH
MID CAP GROWTH
VALUE
SMALL CAP GROWTH
CONVERTIBLE
BALANCED GROWTH
FIXED INCOME FUNDS
HIGH QUALITY BOND
HIGH YIELD BOND
MONEY MARKET
SEPTEMBER 18, 1998
<PAGE>
2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
OVERVIEW 3
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS, AND
FINANCIAL HISTORY. GLOBAL FUNDS
International Core Growth 4
Worldwide Growth 6
International Small Cap Growth 8
Emerging Countries 10
US FUNDS
Large Cap Growth 12
Mid Cap Growth 14
Value 16
Small Cap Growth 18
Convertible 20
Balanced Growth 22
FIXED INCOME FUNDS
High Quality Bond 24
High Yield Bond 26
Money Market 28
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
DISTRIBUTION OF SHARES
Choosing a Share Class 30
How Sales Charges are Calculated 30
Contingent Deferred Sales Charge 30
Sales Charge Reductions and Waivers 31
Distribution Plan
and Shareholder Services 31
The Distributor of the Trust's Shares 32
SIMPLIFIED ACCOUNT
INFORMATION
Opening an Account 33
Buying Shares 33
Selling and Redeeming Shares 34
Signature Guarantees 35
Exchanging Shares 35
YOUR ACCOUNT
Transaction Policies 36
Features and Account Policies 36
DETAILS THAT APPLY TO THE
FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser Compensation 38
Administrator Compensation 38
Portfolio Trades 38
Investment Objective 38
Diversification 38
Prior Master-Feeder Structure 38
Portfolio Teams 39
RISK FACTORS AND
SPECIAL CONSIDERATIONS 42
PRIOR PERFORMANCE
OF CERTAIN FUNDS 49
</TABLE>
<PAGE>
3
OVERVIEW
FUND INFORMATION
CONCISE FUND DESCRIPTIONS BEGIN ON THE NEXT PAGE. EACH DESCRIPTION PROVIDES THE
FOLLOWING INFORMATION:
INVESTMENT OBJECTIVE
The Fund's particular investment goal.
INVESTMENT STRATEGY
The strategy the Fund intends to use in pursuing the investment objective.
PRINCIPAL INVESTMENTS
The primary types of securities in which the Fund invests. Secondary investments
are described in "Risk Factors and Special Considerations" at the end of the
prospectus.
PORTFOLIO MANAGEMENT
The individuals who manage the Fund.
RISK FACTORS
The major risk factors associated with the Fund. Other risk factors are also
described in "Risk Factors and Special Considerations."
INVESTOR EXPENSES
The overall costs borne by an investor in the Class A, B, and C Shares,
including sales charges and annual expenses.
FINANCIAL HIGHLIGHTS
A table showing the financial performance for each predecessor Portfolio since
inception.
GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS
The Nicholas-Applegate Mutual Funds (the "Trust") are designed to provide
investors with a well-rounded investment program by offering investors various
portfolios each with different investment objectives and policies (each a
"Fund"). The Class A, B and C Shares of each Fund represent interests in a
diversified, open-end management investment company (a mutual fund).
Each Fund employs its own strategy and has its own risk/reward profile. Because
you could lose money by investing in these Funds, be sure to read all risk
disclosures carefully before investing.
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS
/ / those who are investing for long-term goals
/ / those who want higher potential for gain and are willing to accept higher
risks associated with investing in stocks of U.S. and foreign companies
/ / those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS
/ / those who are investing with a shorter time frame
/ / those who are uncomfortable with an investment that will go up and down in
value
/ / those who are unable to accept the special risks associated with foreign
investing
WHO MAY WANT TO INVEST IN THE FIXED INCOME FUNDS
/ / those who are investing for retirement or other long-term goals
/ / those who desire current income
/ / those who want a high level of liquidity
/ / those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS
/ / those who are investing with a shorter time frame
/ / those who are uncomfortable with an investment that will go up and down in
value
/ / those who are unable to accept the special risks associated with foreign
investing
THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
investment adviser to the Funds. Arthur E. Nicholas and 22 other partners with a
staff of approximately 480 employees currently manage over $30 billion of
discretionary assets for numerous clients, including employee benefit plans of
corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals.
<PAGE>
4
INTERNATIONAL CORE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout the world, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
The Fund invests in the larger capitalized companies in each country. Generally,
this means issuers in each country whose stock market capitalizations are in the
top 75% of publicly traded companies as measured by capitalizations in that
country.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three countries outside the U.S. The
Fund may invest up to 35% of its total assets in U.S. issuers.
Under normal conditions, the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests the
remainder primarily in debt securities of any maturity of foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. The Fund may also use options and futures
contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
As with any international fund, performance also depends upon changing values in
foreign currencies, different political and regulatory environments, and other
overall economic factors in the countries where the Fund invests. To the extent
the Fund invests in countries with emerging markets, the risks are magnified
since these countries may have unstable governments and less established
markets. For further explanation, see "Risk Factors and Special Considerations"
starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.70% 0.85% 0.85%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.95% 2.60% 2.60%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 1.00%, 1.00% and 1.00%, respectively, Total
operating expenses would have been 3.02%, 3.04% and 5.10%, respectively,
and Other expenses would have been 1.77%, 1.29% and 3.35%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
5
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $71 $111 $152 $268
- -----------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $78 $113 $161 $293
Assuming no redemption $26 $81 $138 $293
- -----------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $37 $81 $138 $293
Assuming no redemption $26 $81 $138 $293
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. Please read in conjunction with the
Trust's 1998 Annual Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B Portfolio C
<S> <C> <C> <C> <C> <C> <C>
2/28/97 4/1/97 2/28/97 4/1/97 2/28/97 4/1/97
TO 3/31/97 TO 3/31/98 TO 3/31/97 TO 3/31/98 TO 3/31/97 TO 3/31/98
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.73 $12.50 $12.68 $12.50 $12.68
Income from investment operations:
Net investment income (deficit) -- (0.02) -- (0.11) -- (0.07)
Net realized and unrealized gains (losses)
on securities and foreign currency 0.23 4.56 0.18 4.66 0.18 4.55
---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.23 4.54 0.18 4.55 0.18 4.48
Less distributions:
Dividends from net investment income -- -- -- -- -- --
Distributions from capital gains -- (0.26) -- (0.13) -- --
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.73 $17.01 $12.68 $17.10 $12.68 $17.16
---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 1.76% 36.10% 1.44% 35.31% 1.44% 35.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $2 $12,664 $1 $7,942 $43 $3,517
Ratio of expenses to average net assets,
after expense reimbursement++ 1.95%* 1.96% 2.59%* 2.61% 2.41%* 2.61%
Ratio of expenses to average net assets,
before expense reimbursement+ 4,580%* 3.02% 16,000%* 3.04% 25.55%* 5.10%
Ratio of net investment income (deficit) to
average net assets, after expense
reimbursement++ -- (0.45%) -- (1.32%) (0.07%)* (1.27%)
Ratio of net investment income (deficit) to
average net assets, before expense
reimbursement++ (4,577%)* (1.51%) (15,998%)* (1.76%) (291.20%)* (3.76%)
Portfolio turnover** 75.53% 274.21% 75.53% 274.21% 75.53% 274.21%
Average commission rate paid** $0.0106 $0.0128 $0.0106 $0.0128 $0.0106 $0.0128
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
6
WORLDWIDE GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout the world, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries, one of
which may be the U.S. The Fund may invest up to 50% of its total assets in U.S.
issuers.
Under normal conditions the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests the
remainder in debt securities of any maturity issued by foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. The Fund may also use options and futures
contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
As with any global fund, performance also depends upon changing currency values,
different political and regulatory environments, and other overall economic
factors in the countries where the Fund invests. To the extent the Fund invests
in countries with emerging markets the risks are magnified, since these
countries may have unstable governments and less established markets. The
securities of small, less well-known companies may be more volatile than those
of larger companies. For a further explanation, see "Risk Factors and Special
Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.85% 2.50% 2.50%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 1.00%, 1.00% and 1.00%, respectively, Total
operating expenses would have been 2.21%, 2.70% and 2.77%, respectively,
and Other expenses would have been 0.96%, 0.95% and 1.02%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
7
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $70 $108 $147 $258
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $77 $110 $156 $284
Assuming no redemption $25 $78 $133 $284
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $36 $78 $133 $284
Assuming no redemption $25 $78 $133 $284
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998 and the prior two fiscal years, and, with respect to Portfolios A
and C, by another independent auditor with respect to commencement of operation
through March 31, 1995. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $14.94 $14.29 $16.57 $16.88 $12.50 $14.34 $16.02
Income from investment
operations:
Net investment income
(deficit) (0.07) (0.05) (0.07) (0.16) 0.04 (0.05) (0.14) (0.17)
Net realized and unrealized
gains (losses) on securities
and foreign currency 2.51 (0.09) 2.86 2.20 5.33 1.89 1.82 5.44
- --------------------------------------------------------------------------------------------------------
Total from investment operations 2.44 (0.14) 2.79 2.04 5.37 1.84 1.68 5.27
Less distributions:
Dividends from net investment
income -- (0.02) (0.12) -- -- -- -- --
Distributions from capital
gains -- (0.49) (0.39) (1.73) (2.92) -- -- (1.19)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.94 $14.29 $16.57 $16.88 $19.33 $14.34 $16.02 $20.10
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 19.52% (0.90%) 19.79% 12.51% 34.55% 14.72% 11.72% 34.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $20,194 $22,208 $23,481 $24,022 $38,647 $1,972 $5,942 $10,083
Ratio of expenses to average net
assets, after expense
reimbursement++ 1.85%* 1.85% 1.85% 1.85% 1.86% 2.50%* 2.50% 2.51%
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.23%* 2.18% 2.17% 2.17% 2.21% 9.50%* 4.81% 2.70%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (0.69%)* (0.42%) (0.35%) (0.93%) (0.69%) (1.28%)* (1.62%) (1.37%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (1.07%)* (0.75%) (0.61%) (1.18%) (1.04%) (8.12%)* (3.87%) (1.57%)
Portfolio turnover** 95.09% 98.54% 132.20% 181.81% 201.70% 132.20% 181.81% 201.70%
Average commission rate paid** N/A N/A $0.0187 $0.0078 $0.0221 $0.0187 $0.0078 $0.0221
<CAPTION>
Portfolio C
<S> <C> <C> <C> <C> <C>
4/19/93 4/19/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $14.86 $14.44 $16.76 $16.92
Income from investment
operations:
Net investment income
(deficit) (0.09) (0.15) (0.21) (0.28) (0.19)
Net realized and unrealized
gains (losses) on securities
and foreign currency 2.45 (0.08) 2.92 2.23 5.41
- --------------------------------
Total from investment operations 2.36 (0.23) 2.71 1.95 5.22
Less distributions:
Dividends from net investment
income -- -- (0.01) -- --
Distributions from capital
gains -- (0.19) (0.38) (1.79) (3.09)
- --------------------------------
Net asset value, end of period $14.86 $14.44 $16.76 $16.92 $19.05
- --------------------------------
TOTAL RETURN+: 18.88% (1.49%) 18.95% 11.81% 33.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $66,577 $71,201 $71,155 $70,345 $84,292
Ratio of expenses to average net
assets, after expense
reimbursement++ 2.44%* 2.50% 2.50% 2.50% 2.51%
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.44%* 2.57% 2.57% 2.61% 2.77%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (1.24%)* (1.06%) (0.99%) (1.57%) (1.34%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (1.24%)* (1.13%) (1.00%) (1.62%) (1.60%)
Portfolio turnover** 95.09% 98.54% 132.20% 181.81% 201.70%
Average commission rate paid** N/A N/A $0.0187 $0.0078 $0.0221
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
8
INTERNATIONAL SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in countries throughout the world, and computer
intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes companies in the bottom 75% of publicly traded companies as
measured by stock market capitalizations in each country ("small cap
securities").
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
small cap securities of issuers located in at least three countries outside the
U.S. The Fund may invest up to 35% of its total assets in U.S. issuers.
Under normal conditions, the Fund invests at least 75% of its total assets in
common and preferred stock, warrants and convertible securities. It invests the
remainder primarily in debt securities of any maturity issued by foreign
companies and foreign governments and their agencies and instrumentalities which
are rated investment grade by a nationally recognized statistical rating agency,
or of comparable quality if unrated. The Fund may also use options and futures
contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
As with any international fund, the Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. In
addition to the risks posed by foreign investing, information regarding smaller
companies may be less available, incomplete or inaccurate, and their securities
may trade less frequently than those of larger companies. Accordingly, the
securities of the companies in which the Fund invests may be more volatile and
speculative than those of larger companies. The risks are magnified in countries
with emerging markets since these countries may have unstable governments and
less established markets. For further explanation, see "Risk Factors and Special
Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.70% 0.85% 0.85%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.95% 2.60% 2.60%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 1.00%, 1.00% and 1.00%, respectively, Total
operating expenses would have been 2.75%, 2.98% and 3.38%, respectively,
and Other expenses would have been 1.50%, 1.23% and 1.63%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
9
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $71 $111 $152 $268
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $78 $113 $161 $293
Assuming no redemption $26 $81 $138 $293
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $37 $81 $138 $293
Assuming no redemption $26 $81 $138 $293
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998 and the prior two fiscal years, and, with respect to Portfolios A
and C, by another independent auditor with respect to commencement of operation
through March 31, 1995. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
PORTFOLIO A PORTFOLIO B PORTFOLIO C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97 8/31/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 3/31/98 3/31/96 3/31/97 3/31/98 3/31/95 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $11.51 $13.15 $14.92 $12.50 $13.96 $15.89 $12.50 $11.32 $13.05 $14.87
Income from investment
operations:
Net investment income
(deficit) -- (0.02) 0.04 (0.15) (0.02) (0.15) (0.15) (0.04) 0.01 (0.16) (0.11)
Net realized and unrealized
gains (losses) on securities
and foreign currency (0.98) 1.79 1.88 5.36 1.48 2.09 5.56 (1.12) 1.72 1.98 5.09
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.98) 1.77 1.92 5.21 1.46 1.94 5.41 (1.16) 1.73 1.82 4.98
Less distributions:
Dividends from net investment
income (0.01) (0.13) (0.01) -- -- (0.01) -- (0.02) -- -- --
Distributions from capital
gains -- -- (0.14) (0.84) -- -- (1.14) -- -- -- (1.32)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.51 $13.15 $14.92 $19.29 $13.96 $15.89 $20.16 $11.32 $13.05 $14.87 $18.53
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (7.85%) 15.46% 14.67% 36.31% 11.68% 13.96% 35.73% (9.25%) 15.30% 13.98% 35.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $610 $1,056 $5,569 $11,183 $1,487 $5,080 $12,033 $24 $933 $3,592 $8,014
Ratio of expenses to average net
assets,
after expense reimbursement++ 1.95%* 1.95% 1.95% 1.96% 2.60%* 2.60% 2.61% 2.61%* 2.60% 2.60% 2.61%
Ratio of expenses to average net
assets,
before expense reimbursement+ 9.77%* 10.06% 3.76% 2.75% 16.15%* 4.89% 2.98% 75.37%* 16.15% 3.95% 3.38%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (0.07%)* (0.27%) (1.05%) (1.56%) (0.64%) (1.66%) (2.20%) (0.76%)* (1.02%) (1.67%) (2.18%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (7.89%)* (7.75%) (2.82%) (2.35%) (13.26%)* (3.91%) (2.57%) (73.52%)* (13.95%) (2.99%) (2.95%)
Portfolio turnover** 74.88% 141.02% 206.07% 198.37% 141.02% 206.07% 198.37% 74.88% 141.02% 206.07% 198.37%
Average commission rate paid** N/A $0.0128 $0.0098 $0.0086 $0.0128 $0.0098 $0.0086 N/A $0.0128 $0.0098 $0.0086
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
10
EMERGING COUNTRIES FUND
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests primarily in equity securities of issuers located in countries
with emerging securities market--that is, countries with securities markets
which are, in the opinion of the Investment Adviser, emerging as investment
markets but have yet to reach a level of maturity associated with developed
foreign stock markets, especially in terms of participation by foreign
investors. The Investment Adviser seeks issuers in the early stages of
development, growth companies, cyclical companies, or companies believed to be
undergoing a basic change in operations. The Investment Adviser currently
selects portfolio securities from an investment universe of approximately 6,000
foreign issuers in over 35 emerging markets.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries. These
countries include but are not limited to: Argentina, Brazil, Chile, China,
Colombia, the Czech Republic, Greece, Hungary, India, Indonesia, Israel, Jordan,
Malaysia, South Africa, South Korea, Taiwan, Thailand and Venezuela.
Under normal market conditions, the Fund invests at least 75% of its total
assets in common and preferred stock, warrants and convertible securities. It
invests the remainder primarily in debt securities of foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. The Fund may also use options and futures
contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
As with any fund investing in foreign securities, the Fund's performance also
depends upon changing currency values, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. Emerging countries markets may present greater opportunity for gain,
but also involve greater risk than more developed markets. These countries tend
to have less stable governments and less established markets. The markets tend
to be less liquid and more volatile, and offer less regulatory protection for
investors. The economies of emerging countries may be predominantly based on
only a few industries or dependent on revenue from particular commodities,
international aid or other assistance. The securities of small, less well known
companies may be more volatile than those of larger companies. For further
explanation, see "Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 1.25% 1.25% 1.25%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.75% 0.90% 0.90%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 2.25% 2.90% 2.90%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 1.25%, 1.25% and 1.25%, respectively, Total
operating expenses would have been 2.48%, 3.06% and 3.09%, respectively,
and Other expenses would have been 0.98%, 1.06% and 1.09%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
11
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $74 $119 $167 $297
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $52 $122 $175 $322
Assuming no redemption $29 $90 $153 $322
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $40 $90 $153 $322
Assuming no redemption $29 $90 $153 $322
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998, and the prior two fiscal years, and, with respect to Portfolios
A and C, by another independent auditor with respect to commencement of
operation through March 31, 1995. Please read in conjunction with the Trust's
1998 Annual Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B Portfolio C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/28/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97 11/28/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 3/31/98 3/31/96 3/31/97 3/31/98 3/31/95 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $11.00 $14.03 $17.20 $12.50 $14.02 $17.29 $12.50 $10.79 $13.71 $16.81
Income from investment
operations:
Net investment income
(deficit) 0.04 (0.04) (0.06) 0.03 (0.04) (0.11) (0.07) -- (0.05) (0.10) (0.12)
Net realized and unrealized
gains (losses)
on securities and foreign
currency (1.54) 3.15 3.51 1.22 1.56 3.47 1.26 (1.70) 2.97 3.37 1.26
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.50) 3.11 3.45 1.25 1.52 3.36 1.19 (1.70) 2.92 3.27 1.14
Less distributions:
Dividends from net investment
income -- (0.02) -- -- -- -- -- (0.01) -- -- --
Distributions from capital
gains -- (0.06) (0.28) (1.06) -- (0.09) (0.84) -- -- (0.17) (0.97)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.00 $14.03 $17.20 $17.39 $14.02 $17.29 $17.64 $10.79 $13.71 $16.81 $16.98
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (11.98%) 28.43% 24.79% 8.06% 12.16% 24.00% 7.47% (13.64%) 27.30% 23.94% 7.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $1,197 $4,718 $38,688 $71,014 $3,557 $24,558 $38,796 $59 $4,345 $29,376 $36,986
Ratio of expenses to average net
assets,
after expense reimbursement++ 2.25%* 2.25% 2.25% 2.26% 2.90%* 2.90% 2.91% 2.90%* 2.90% 2.90% 2.91%
Ratio of expenses to average net
assets,
before expense reimbursement+ 6.15%* 6.72% 3.08% 2.48% 7.58%* 3.66% 3.06% 242.59% 6.23% 3.12% 3.09%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 1.09%* (0.35%) (1.14%) 0.55% (1.05%)* (1.77%) (0.20%) (0.04%)* (1.06%) (1.75%) (0.26%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (4.99%)* (3.61%) (2.00%) 0.33% (5.44%)* (2.55%) (0.35%) (239.73%)* (4.15%) (1.99%) (0.45%)
Portfolio turnover** 60.79% 118.21% 176.20% 243.47% 118.21% 176.20% 243.47% 60.79% 118.21% 176.20% 243.47%
Average commission rate paid** N/A $0.0022 $0.0021 $0.0014 $0.0022 $0.0021 $0.0014 N/A $0.0022 $0.0021 $0.0014
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
12
LARGE CAP GROWTH FUND
INVESTMENT OBJECTIVE
Long-term capital appreciation.
INVESTMENT STRATEGY
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of both traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin"--positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund invests primarily in stocks from a universe of U.S. companies with
market capitalizations corresponding to the upper 90% of the Russell 1000 Growth
Index at time of purchase. As of June 30, 1998, the bottom 10% of the Index
included companies with capitalizations less than $3.9 billion. Capitalization
of companies in the Index will change with market conditions.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of large capitalization U.S. companies, including common and
preferred stocks, warrants, and convertible securities. It invests the remainder
primarily in corporate debt securities of any maturity which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated, U.S. Government securities, and equity securities
of foreign issuers. The Fund may also use options and futures contracts as
hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any growth fund, the value of the Fund's investments varies from day to
day in response to the activities of individual companies and general market and
economic conditions. To the extent the Fund is overweighted in certain market
sectors compared to the Standard & Poor's 500 Stock Index (the "S&P 500"), the
Fund may be more volatile than the S&P 500. Additionally, to the extent the Fund
invests in foreign issuers, the risks and volatility are magnified since the
performance of foreign stocks also depends on changes in foreign currency
values, different regulatory and political environments, and overall political
and economic conditions in countries where the Fund invests. For further
explanation, see "Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 0.75%, 0.75% and 0.75%, respectively, Total
operating expenses would have been 4.70%, 4.78% and 7.79%, respectively,
and Other expenses would have been 3.70%, 3.28% and 6.29%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
13
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $74 $103 $143 $258
Assuming no redemption $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $33 $70 $120 $258
Assuming no redemption $23 $70 $120 $258
</TABLE>
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. Please read in conjunction with the
Trust's 1998 Annual Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B Portfolio C
<S> <C> <C> <C>
7/15/97 7/15/97 7/15/97
TO 3/31/98 TO 3/31/98 TO 3/31/98
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.50 $12.50
Income from investment operations:
Net investment income (deficit) (0.03) (0.07) (0.05)
Net realized and unrealized gains (losses) on
securities and foreign currency 3.29 3.24 3.24
- -------------------------------------------------------------------------------------------------
Total from investment operations $3.26 $3.17 $3.19
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains (0.03) (0.03) (0.06)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $15.73 $15.64 $15.63
- -------------------------------------------------------------------------------------------------
TOTAL RETURN+: 62.35% 61.08% 61.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $4,742 $3,187 $960
Ratio of expenses to average net assets, after expense
reimbursement++ 1.60%* 2.25%* 2.25%*
Ratio of expenses to average net assets, before expense
reimbursement+ 4.70%* 4.78%* 7.79%*
Ratio of net investment income (deficit) to average net
assets, after expense reimbursement++ (0.87%)* (1.36%)* (1.49%)*
Ratio of net investment income (deficit) to average net
assets, before expense reimbursement++ (3.96%)* (3.88%)* (7.03%)*
Portfolio turnover** 305.78% 305.78% 305.78%
Average commission rate paid** $0.0584 $0.0584 $0.0584
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
14
MID CAP GROWTH FUND
(FORMERLY CORE GROWTH FUND)
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin"--positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund invests at least 65% of its total assets in stocks from a universe of
U.S. companies with market capitalizations corresponding to the middle 90% of
the Russell Midcap Growth Index at time of purchase. As of June 30, 1998, the
middle 90% included companies with capitalizations between $1.6 billion and
$10.7 billion. Capitalization of companies in the Index will change with market
conditions.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder of its assets primarily in preferred and
convertible securities, debt securities of any maturity which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated, and securities issued by the U.S. Government and
its agencies and instrumentalities. The Fund may invest up to 20% of its total
assets in foreign securities. The Fund may also use options and futures
contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any growth fund, the value of the Fund's investments varies from day to
day in response to the activities of individual companies and general market and
economic conditions. The companies in which the Fund invests may be more subject
to volatile market movements than securities of larger, more established
companies. To the extent the Fund invests in foreign securities, the risks and
volatility are magnified since the performance of foreign stocks also depends
upon changes in foreign currency values, different political and regulatory
environments, and the overall political and economic conditions in countries
where the Fund invests. For further explanation, see "Risk Factors and Special
Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.64%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.14%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 0.75%, 0.75% and 0.75%, respectively, Total
operating expenses would have been 1.66%, 2.21% and 2.33%, respectively,
and Other expenses would have been 0.66%, 0.71% and 0.83%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
15
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $74 $103 $143 $258
Assuming no redemption $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $32 $67 $115 $247
Assuming no redemption $22 $67 $115 $247
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolio outstanding throughout each period indicated. The figures have
been audited by Ernst & Young L.L.P. with respect to the fiscal year ended March
31, 1998 and the prior two fiscal years, and, with respect to Portfolios A and
C, by another independent auditor with respect to commencement of operation
through March 31, 1995. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $13.25 $13.61 $18.37 $16.80 $12.50 $16.25 $16.33
Income from investment
operations:
Net investment income
(deficit) (0.07) (0.10) (0.18) (0.17) (0.14) (0.09) (0.17) (0.25)
Net realized and unrealized
gains (losses) on securities
and foreign currency 0.86 0.46 4.94 0.57 6.50 3.84 0.25 6.74
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.79 0.36 4.76 0.40 6.36 3.75 0.08 6.49
Less distributions:
Dividends from net investment
income -- -- -- -- -- -- -- --
Distributions from capital
gains (0.04) -- -- (1.97) (4.53) -- -- (1.27)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.25 $13.61 $18.37 $16.80 $18.63 $16.25 $16.33 $21.55
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 6.27% 2.72% 35.07% 1.09% 41.81% 30.00% (0.49%) 40.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $70,512 $65,292 $77,275 $76,108 $90,619 $11,186 $29,002 $46,806
Ratio of expenses to average net
assets, after expense
reimbursement++ 1.57%* 1.59% 1.58% 1.60% 1.57% 2.22%* 2.25% 2.22%
Ratio of expenses to average net
assets, before expense
reimbursement+ 1.71%* 1.63% 1.56% 1.56% 1.66% 3.39%* 2.66% 2.21%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (0.68%)* (0.66%) (0.91%) (1.05%) (1.33%) (1.61%)* (1.69%) (1.99%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (0.82%)* (0.70%) (0.89%) (1.01%) (1.41%) (2.77%)* (2.10%) (1.98%)
Portfolio turnover** 84.84% 98.09% 114.48% 153.20% 199.54% 114.48% 153.20% 199.54%
Average commission rate paid** N/A N/A $0.0593 $0.0582 $0.0552 $0.0593 $0.0582 $0.0552
<CAPTION>
Portfolio C
<S> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $13.18 $13.45 $18.06 $16.48
Income from investment
operations:
Net investment income
(deficit) (0.11) (0.17) (0.27) (0.32) (0.28)
Net realized and unrealized
gains (losses) on securities
and foreign currency 0.80 0.44 4.88 0.62 6.26
- --------------------------------
Total from investment operations 0.69 0.27 4.61 0.30 5.98
Less distributions:
Dividends from net investment
income -- -- -- -- --
Distributions from capital
gains (0.01) -- -- (1.88) (5.31)
- --------------------------------
Net asset value, end of period $13.18 $13.45 $18.06 $16.48 $17.15
- --------------------------------
TOTAL RETURN+: 5.54% 2.05% 34.28% 0.56% 40.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $141,489 $143,390 $177,461 $157,501 $166,849
Ratio of expenses to average net
assets, after expense
reimbursement++ 2.17%* 2.24% 2.14% 2.14% 2.27%
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.17%* 2.24% 2.14% 2.17% 2.33%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (1.30%)* (1.30%) (1.47) (1.59%) (2.01%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (1.30%)* (1.30%) (1.47%) (1.62%) (2.07%)
Portfolio turnover** 84.84% 98.09% 114.48% 153.20% 199.54%
Average commission rate paid** N/A N/A $0.0593 $0.0582 $0.0552
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
16
VALUE FUND
INVESTMENT OBJECTIVE
Long-term capital appreciation.
INVESTMENT STRATEGY
The Fund's Investment Adviser employs a disciplined, "bottom-up" approach that
evaluates stocks on an individual basis and focuses on company fundamentals. It
uses a blend of computer-intensive systematic disciplines and traditional
fundamental research to uncover stocks that meet three investment criteria:
attractive valuations, underlying financial strength, and prospects for business
improvement.
The Fund emphasizes equity securities of undervalued, large U.S. companies with
market capitalizations generally above $5 billion.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities. It invests the remainder primarily in preferred and
convertible securities, debt securities of any maturity which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated, and securities issued by the U.S. Government and
its agencies and instrumentalities. The Fund may also use options and futures
contracts as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any equity fund, the value of the Fund's investments varies from day to
day in response to the activities of individual companies and general market and
economic conditions. To the extent the Fund invests in foreign securities, the
risks and volatility are magnified since the performance of foreign stocks
depends upon changes in foreign currency values, different political and
regulatory environments, and the overall political and economic conditions in
countries where the Fund invests. For further explanation, see "Risk Factors and
Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees are expected to be 0.75%, 0.75% and 0.75%, respectively,
Total operating expenses are expected to be 4.70%, 4.78% and 7.79%,
respectively, and Other expenses are expected to be 3.70%, 3.28% and 6.29%,
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
17
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $74 $103 $143 $258
Assuming no redemption $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $33 $70 $120 $258
Assuming no redemption $23 $70 $120 $258
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge.
FINANCIAL HIGHLIGHTS
The Class A, B and C Shares of the Value Fund are new classes of shares of the
Fund for which financial highlights are not available.
<PAGE>
18
SMALL CAP GROWTH FUND
(FORMERLY EMERGING GROWTH FUND)
INVESTMENT OBJECTIVE
Maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin"--positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund invests at least 65% of its total assets in stocks from a universe of
U.S. companies with market capitalizations corresponding to the middle 90% of
the Russell 2000 Growth Index at time of purchase. As of June 30, 1998, the
middle 90% included companies with capitalizations between $255 million and $1.4
billion. Capitalization of companies in the Index will change with market
conditions.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 75% of its total assets in
common stocks. It invests the remainder primarily in preferred and convertible
securities, debt securities of any maturity which are rated investment grade by
a nationally recognized statistical rating agency, or of comparable quality if
unrated, and securities issued by the U.S. Government and its agencies and
instrumentalities. The Fund may invest up to 20% of its total assets in foreign
securities. The Fund may also use options and futures contracts as hedging
techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any growth fund, the value of the Fund's investments varies from day to
day in response to the activities of individual companies and general market and
economic conditions. Although small-cap stocks have a history of long-term
growth, they tend to be more volatile and speculative than stocks of larger,
more established companies. To the extent the Fund invests in foreign issuers,
the investment risks and volatility are magnified since the performance of
foreign stocks depends on changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in the foreign countries where the Fund invests. For further
explanation, see "Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.47% 0.85% 0.60%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.72% 2.60% 2.35%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 1.00%, 1.00% and 1.00%, respectively, Total
operating expenses would have been 1.90%, 2.63% and 2.59%, respectively,
and Other expenses would have been 0.65%, 0.88% and 0.84%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
19
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $69 $104 $141 $245
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $78 $113 $161 $293
Assuming no redemption $26 $81 $138 $293
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $34 $73 $126 $269
Assuming no redemption $24 $73 $126 $269
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998 and the prior two fiscal years, and, with respect to Portfolios A
and C, by another independent auditor with respect to commencement of operation
through March 31, 1995. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/27/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $12.10 $13.06 $17.93 $15.15 $12.50 $16.69 $15.51
Income from investment operations:
Net investment income (deficit) (0.04) (0.16) (0.20) (0.22) (0.08) (0.14) (0.21) (0.27)
Net realized and unrealized gains
(losses) on securities and
foreign currency (0.36) 1.12 5.09 (0.66) 6.91 4.33 (0.97) 7.29
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.40) 0.96 4.89 (0.88) 6.83 4.19 (1.18) 7.02
Less distributions:
Dividends from net investment
income -- -- -- -- -- -- -- --
Distributions from capital gains -- -- (0.02) (1.90) (2.23) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.10 $13.06 $17.93 $15.15 $19.75 $16.69 $15.51 $22.53
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (3.20%) 7.93% 37.48% (6.26%) 46.32% 33.52% (7.07%) 45.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $104,838 $106,725 $138,155 $121,742 $201,943 $13,626 $28,030 $55,215
Ratio of expenses to average net
assets, after expense
reimbursement++ 1.73%* 1.86% 1.74% 1.72% 1.89% 2.58%* 2.61% 2.62%
Ratio of expenses to average net
assets, before expense
reimbursement+ 1.80%* 1.84% 1.74% 1.72% 1.90% 3.26%* 2.73% 2.63%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (1.44%)* (1.27%) (1.20%) (1.26%) (1.85%) (2.09%)* (2.13%) (2.59%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (1.51%)* (1.25%) (1.20%) (1.26%) (1.86%) (2.76%)* (2.25%) (2.60%)
Portfolio turnover** 50.51% 100.46% 129.59% 112.90% 91.66% 129.59% 112.90% 91.66%
Average commission rate paid** N/A N/A $0.0523 $0.0520 $0.0528 $0.0523 $0.0520 $0.0528
<CAPTION>
Portfolio C
<S> <C> <C> <C> <C> <C>
12/27/93 4/1/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $12.07 $12.96 $17.62 $14.69
Income from investment operations:
Net investment income (deficit) (0.06) (0.22) (0.29) (0.31) (0.38)
Net realized and unrealized gains
(losses) on securities and
foreign currency (0.37) 1.11 5.03 (0.63) 6.84
- -----------------------------------
Total from investment operations (0.43) 0.89 4.74 (0.94) 6.46
Less distributions:
Dividends from net investment
income -- -- -- -- --
Distributions from capital gains -- -- (0.08) (1.99) (2.53)
- -----------------------------------
Net asset value, end of period $12.07 $12.96 $17.62 $14.69 $18.62
- -----------------------------------
TOTAL RETURN+: (3.44%) 7.37% 37.18% (6.81%) 45.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $142,874 $157,292 $207,332 $182,907 $225,025
Ratio of expenses to average net
assets, after expense
reimbursement++ 2.34%* 2.44% 2.35% 2.35% 2.57%
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.34%* 2.44% 2.35% 2.35% 2.59%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (2.04%)* (1.85%) (1.81%) (1.89%) (2.53%)
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (2.04%)* (1.85%) (1.81%) (1.89%) (2.55%)
Portfolio turnover** 50.51% 100.46% 129.59% 112.90% 91.66%
Average commission rate paid** N/A N/A $0.0523 $0.0520 $0.0528
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
20
CONVERTIBLE FUND
(FORMERLY INCOME & GROWTH FUND)
INVESTMENT OBJECTIVE
Maximum total return, consisting of capital appreciation and current income.
INVESTMENT STRATEGY
The Fund invests primarily in convertible securities. The Investment Adviser
evaluates each security's investment characteristics as a fixed income
instrument as well as its potential for capital appreciation. In evaluating
convertibles, the Investment Adviser searches for what it calls "change at the
margin"--positive business developments which are not yet fully reflected in the
company's stock price. It searches for successful growing companies that are
managing change advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations above $500 million.
The Fund seeks to capture approximately 70-80% of the upside performance of the
underlying equities with 50% or less of the downside exposure.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
convertible securities. It invests the remainder primarily in common and
preferred stocks, debt securities of any maturity, and securities issued by the
U.S. Government and its agencies and instrumentalities. The Fund may also use
options and futures contracts as hedging techniques.
At all times, the Fund invests a minimum of 25% of its total assets in common
and preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its net assets in debt
securities rated below investment grade by a nationally recognized statistical
rating agency, or of comparable quality if unrated. For a description of these
ratings, see "Corporate Bond Ratings" beginning on page 45.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
Convertible securities have the investment characteristics of both equity and
debt securities. Accordingly, the value of the Fund's investments varies in
response to movements in the stock and bond markets. Stock prices fluctuate in
response to the activities of individual companies and general market and
economic conditions. The companies in which the Fund invests may be subject to
more volatile market movements than securities of larger, more established
companies. The value of the Fund's debt securities changes as interest rates
fluctuate: if rates rise, the value of debt securities fall; if rates fall, the
value of debt securities rise. In addition, the lower rated debt securities in
which the Fund may invest are considered predominately speculative and are
subject to greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods. For further explanation, see
"Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -----------------------------------------------------------------------------
Sales charge on reinvested
dividends None None None
- -----------------------------------------------------------------------------
Deferred sales charge (as a
percentage of original
purchase price or redemption
proceeds, whichever is lower) None(1) 5.00% 1.00%
- -----------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------
Other expenses (after expense
deferral)(2) 0.60% 0.75% 0.75%
- -----------------------------------------------------------------------------
Total operating expenses (after
expense deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 0.75%, 0.75% and 0.75%, respectively, Total
operating expenses would have been 1.74%, 2.33% and 2.31%, respectively,
and Other expenses would have been 0.74%, 0.83% and 0.81%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
21
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- -------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time
period(1) $74 $103 $143 $258
Assuming no redemption $23 $70 $120 $258
- -------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time
period(1) $33 $70 $120 $258
Assuming no redemption $23 $70 $120 $258
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998 and the prior two fiscal years, and, with respect to Portfolios A
and C, by another independent auditor with respect to commencement of operation
through March 31, 1995. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO 3/31/94 TO 3/31/95 TO 3/31/96 TO 3/31/97 TO 3/31/98 TO 3/31/96 TO 3/31/97 TO 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $14.16 $12.86 $15.68 $16.59 $12.50 $14.96 $16.60
Income from investment operations:
Net investment income (deficit) 0.32 0.49 0.48 0.47 0.44 0.24 0.31 0.32
Net realized and unrealized gains
(losses) on securities and
foreign currency 2.15 (0.89) 2.82 1.64 4.49 2.46 1.64 4.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.47 (0.40) 3.30 2.11 4.93 2.70 1.95 4.97
Less distributions:
Dividends from net investment
income (0.32) (0.49) (0.48) (0.48) (0.44) (0.24) (0.31) (0.32)
Distributions from capital gains (0.49) (0.41) -- (0.72) (1.96) -- -- (0.69)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.16 $12.86 $15.68 $16.59 $19.12 $14.96 $16.60 $20.56
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 19.65% (2.64%) 26.00% 13.73% 31.04% 21.72% 13.01% 30.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $30,447 $31,150 $31,712 $32,082 $47,290 $2,125 $12,740 $36,725
Ratio of expenses to average net
assets, after expense
reimbursement++ 1.59%* 1.60% 1.60% 1.60% 1.57% 2.25% 2.25% 2.22%
Ratio of expenses to average net
assets, before expense
reimbursement+ 1.83%* 1.76% 1.76% 1.75% 1.74% 7.08%* 3.19% 2.33%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 2.83%* 3.71% 3.29% 2.83% 5.64% 2.59%* 2.29% 5.04%
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ 2.59%* 3.55% 3.12% 2.66% 5.48% (2.22%)* 1.32% 4.93%
Portfolio turnover** 177.52% 125.51% 144.97% 166.84% 159.59% 144.97% 166.84% 159.59%
Average commission rate paid** N/A N/A $0.0597 $0.0154 $0.0595 $0.0597 $0.0154 $0.0595
<CAPTION>
Portfolio C
<S> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO 3/31/94 TO 3/31/95 TO 3/31/96 TO 3/31/97 TO 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $14.28 $13.03 $15.89 $17.05
Income from investment operations:
Net investment income (deficit) 0.24 0.41 0.40 0.37 0.34
Net realized and unrealized gains
(losses) on securities and
foreign currency 2.11 (0.89) 2.86 1.66 4.60
- -----------------------------------
Total from investment operations 2.35 (0.48) 3.26 2.03 4.94
Less distributions:
Dividends from net investment
income (0.24) (0.41) (0.40) (0.37) (0.34)
Distributions from capital gains (0.33) (0.36) -- (0.50) (2.10)
- -----------------------------------
Net asset value, end of period $14.28 $13.03 $15.89 $17.05 $19.55
- -----------------------------------
TOTAL RETURN+: 18.76% (3.26%) 25.24% 12.91% 30.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $69,265 $61,792 $58,997 $62,143 $81,561
Ratio of expenses to average net
assets, after expense
reimbursement++ 2.22%* 2.25% 2.25% 2.25% 2.22%
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.23%* 2.29% 2.28% 2.29% 2.31%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 2.28%* 3.05% 2.64% 2.18% 4.99%
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ 2.27%* 3.01% 2.61% 2.11% 4.91%
Portfolio turnover** 177.52% 125.51% 144.97% 166.84% 159.59%
Average commission rate paid** N/A N/A $0.0597 $0.0154 $0.0595
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
22
BALANCED GROWTH FUND
INVESTMENT OBJECTIVE
A balance of long-term capital appreciation and current income.
INVESTMENT STRATEGY
The Fund's Investment Adviser actively manages a blended portfolio of equity and
fixed income securities with an emphasis on the overall total return.
For the equity portion, the Investment Adviser focuses on a "bottom-up" analysis
that evaluates the financial condition and competitiveness of individual
companies. It primarily uses computer intensive systematic disciplines to
uncover "change at the margin"--positive business developments that are not yet
fully reflected in a company's stock price.
The fixed income portion is actively managed to take advantage of current
interest rates and bond market trends by varying the structure, duration and
allocation of fixed income investments from various business sectors.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund allocates about 60% of its total assets (but
no more than 70% and no less than 50%) to equity securities, with an emphasis on
companies with market capitalizations in excess of $500 million, and about 40%
of its total assets to debt securities of any maturity issued by corporations
and the U.S. Government and its agencies and instrumentalities. A portion of the
Fund's net assets (less than 35%) may be invested in debt securities rated below
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. For a description of these ratings, see
"Corporate Bond Ratings" beginning on page 45. The Fund may invest up to 20% of
its total assets in securities of foreign issuers. The Fund may also use options
as a hedging technique.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any fund that invests in common stocks and debt obligations, the value
of the Fund's investments varies in response to movements in the stock and bond
markets. Stock prices fluctuate in response to the activities of individual
companies and general market and economic conditions. Equity securities in which
the Fund invests may be more volatile than securities of larger, more
established companies. The value of the Fund's debt securities changes as
interest rates fluctuate: if rates rise, the value of debt securities fall; if
rates fall, the value of debt securities rise. In addition, lower rated
securities in which the Fund invests are considered speculative and are subject
to greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods. For further explanation, see
"Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.25%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees would have been 0.75%, 0.75% and 0.75%, respectively, Total
operating expenses would have been 2.56%, 2.71% and 2.68%, respectively,
and Other expenses would have been 1.56%, 1.21% and 1.18%, respectively,
absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
23
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $74 $103 $143 $258
Assuming no redemption $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $33 $70 $120 $258
Assuming no redemption $23 $70 $120 $258
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor A,
B and C Portfolios outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998 and the prior two fiscal years, and, with respect to Portfolios A
and C, by another independent auditor with respect to commencement of operation
through March 31, 1995. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
Portfolio A Portfolio B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97 5/31/95 4/1/96 4/1/97
TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $13.52 $13.74 $16.16 $15.54 $12.50 $14.18 $14.88
Income from investment operations:
Net investment income (deficit) 0.15 0.21 0.34 0.32 0.26 0.12 0.17 0.15
Net realized and unrealized gains
(losses) on securities and
foreign currency 1.02 0.22 2.42 0.84 5.70 1.68 0.70 5.58
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.17 0.43 2.76 1.16 5.96 1.80 0.87 5.73
Less distributions:
Dividends from net investment
income (0.15) (0.21) (0.34) (0.32) (0.27) (0.12) (0.17) (0.15)
Distributions from capital gains -- -- -- (1.46) (1.70) -- -- (0.39)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.52 $13.74 $16.16 $15.54 $19.53 $14.18 $14.88 $20.07
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 9.35% 3.22% 20.16% 6.74% 39.34% 14.45% 6.10% 38.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $6,446 $4,980 $5,902 $4,898 $6,675 $673 $2,133 $4,254
Ratio of expenses to average net
assets, after expense
reimbursement++ 1.59%* 1.60% 1.60% 1.60% 1.61% 2.25%* 2.25% 2.26%
Ratio of expenses to average net
assets, before expense
reimbursement+ 3.28%* 2.78% 3.30% 3.00% 2.56% 13.05%* 6.44% 2.71%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 1.30%* 1.44% 2.16% 1.87% 3.58% 1.38%* 1.25% 2.99%
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (0.39%)* 0.26% 0.88% 0.73% 2.63% (8.86%)* (2.67%) 2.54%
Portfolio turnover** 85.43% 110.40% 197.19% 212.95% 260.03% 197.19% 212.95% 260.03%
Average commission rate paid** N/A N/A $0.0594 $0.0586 $0.0595 $0.0594 $0.0586 $0.0595
<CAPTION>
Portfolio C
<S> <C> <C> <C> <C> <C>
4/19/93 4/19/94 4/1/95 4/1/96 4/1/97
TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
PER SHARE DATA:
Net asset value, beginning of
period $12.50 $13.54 $13.76 $16.20 $15.59
Income from investment operations:
Net investment income (deficit) 0.08 0.11 0.24 0.21 0.15
Net realized and unrealized gains
(losses) on securities and
foreign currency 1.04 0.22 2.44 0.85 5.71
- -----------------------------------
Total from investment operations 1.12 0.33 2.68 1.06 5.86
Less distributions:
Dividends from net investment
income (0.08) (0.11) (0.24) (0.21) (0.15)
Distributions from capital gains -- -- -- (1.46) (1.40)
- -----------------------------------
Net asset value, end of period $13.54 $13.76 $16.20 $15.59 $19.90
- -----------------------------------
TOTAL RETURN+: 8.91% 2.47% 19.58% 6.05% 38.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $16,248 $16,470 $16,586 $16,990 $20,784
Ratio of expenses to average net
assets, after expense
reimbursement++ 2.24%* 2.25% 2.25% 2.25% 2.26%
Ratio of expenses to average net
assets, before expense
reimbursement+ 2.73% 2.60% 3.01% 2.83% 2.68%
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ 0.61%* 0.83% 1.53% 1.23% 2.93%
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ 0.12%* 0.48% 1.19% 0.91% 2.51%
Portfolio turnover** 85.43% 110.40% 197.19% 212.95% 260.03%
Average commission rate paid** N/A N/A $0.0594 $0.0586 $0.0595
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
24
HIGH QUALITY BOND FUND
(FORMERLY FULLY DISCRETIONARY FIXED INCOME FUND)
INVESTMENT OBJECTIVE
Seeks maximum total return.
INVESTMENT STRATEGY
The Fund's Investment Adviser seeks to outperform the total return of an index
of either government/corporate investment grade debt or
government/corporate/mortgage investment grade debt through an actively managed
diversified portfolio of debt securities. When evaluating any bond, the
Investment Adviser selects bonds based upon a "top down" analysis of economic
trends. Investment philosophy emphasizes interest rate decisions and shifts
among sectors of the bond market. It also analyzes credit quality, the yield to
maturity of the security, and the effect the security will have on the Fund.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
debt securities issued by U.S. and foreign corporations, U.S. and foreign
governments, and their agencies and instrumentalities which are rated in the top
two investment grades by a nationally recognized statistical rating agency, or
of comparable quality if unrated. These securities include bonds, notes,
mortgage backed and asset backed securities with rates that are fixed, variable
or floating. The average portfolio duration of the Fund will range from two to
eight years. The Fund may invest up to 30% of its total assets in securities
payable in foreign currencies.
The Fund may invest up to 20% of its assets in debt securities rated below
investment grade. For a description of these ratings, see "Corporate Bond
Ratings" beginning on page 47. The Fund may also use options, futures contracts
and interest rate and currency swaps as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any fund that invests in bonds, the value of the Fund's investments
fluctuates in response to movements in interest rates. If interest rates rise,
the prices of debt securities fall; if rates fall, the prices of debt securities
rise. However, the Investment Adviser expects the Fund's fluctuations to be more
moderate than those of a fund with a longer average duration. In addition, the
lower rated debt securities in which the Fund invests are considered speculative
and are subject to greater volatility and risk of loss than investment grade
securities, particularly in deteriorating economic periods. To the extent the
Fund invests in foreign securities, performance also depends upon changing
currency values, different political and economic environments, and other
overall economic conditions in countries where the Fund invests. For further
explanation, see "Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases
(as a percentage of offering price) 4.75% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.45% 0.45% 0.45%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.50% 0.50%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.25% 0.40% 0.40%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 0.95% 1.35% 1.35%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees are expected to be 0.45%, 0.45% and 0.45%, respectively,
Total operating expenses are expected to be 5.93%, 4.82% and 3.82%,
respectively, and Other expenses are expected to be 5.23%, 3.87% and 2.87%,
respectively, absent the deferral. See "Investment Adviser Compensation."
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
<PAGE>
25
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $57 $76 $98 $159
- ---------------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $66 $76 $98 $162
Assuming no redemption $14 $43 $74 $162
- ---------------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $24 $43 $74 $162
Assuming no redemption $14 $43 $74 $162
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge and automatic
exchange of Class B shares for Class A shares seven years after
purchase.
FINANCIAL HIGHLIGHTS
The Class A, B and C Shares of the High Quality Bond Fund are new classes of
shares of the Fund for which financial highlights are not available.
<PAGE>
26
HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE
High level of current income and capital growth.
INVESTMENT STRATEGY
The Fund invests primarily in lower rated debt securities commonly referred to
as "junk bonds." When evaluating any bond, the Investment Adviser selects bonds
based upon a combination of both "top down" analysis of economic trends and
"bottom-up" analysis that evaluates the financial condition and competitiveness
of individual companies. It also analyzes credit quality, the yield to maturity
of the security, and the effect the security will have on the average yield to
maturity of the Fund. The Investment Adviser believes it can lower the risks of
investing in lower rated debt through these professional management techniques
and through diversification.
PRINCIPAL INVESTMENTS
Under normal conditions, the Fund invests at least 65% of its total assets in
lower rated debt securities and convertible securities rated below investment
grade by a nationally recognized statistical rating agency, or of comparable
quality if unrated. There is no limit on either the portfolio maturity or the
acceptable rating of securities bought by the Fund. For a description of these
ratings, see "Corporate Bond Ratings" beginning on page 47. Securities may bear
rates that are fixed, variable or floating. The Fund may invest up to 35% of its
total assets in equity securities of U.S. and foreign companies. The Fund is not
restricted to investments in companies of any particular size, but currently
intends to invest principally in companies with market capitalization above $100
million at the time of purchase. The Fund may also use options, futures
contracts and interest rate and currency swaps as hedging techniques.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
As with any fund that invests primarily in bonds, the value of the Fund's
investments fluctuates in response to movements in interest rates. When rates
rise, debt security prices fall; when rates fall, debt security prices rise.
Lower rated securities, while usually offering higher yields, generally have
more risk and volatility than higher rated securities because of reduced
creditworthiness and greater chance of default. Periods of high interest rates
and recession may adversely affect the issuer's ability to pay interest and
principal. To the extent the Fund invests in stocks, the value of those
investments will fluctuate day to day with movements in the stock market as well
as in response to the activities of individual companies. The companies in which
the Fund invests may be more subject to volatile market movements than
securities of larger, more established companies. To the extent the Fund invests
in foreign securities, performance also depends on changes in foreign currency
values, different political and regulatory environments, and overall economic
factors in the countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations" starting on page 42.
INVESTOR EXPENSES - CLASS A, B AND C SHARES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price) 4.75% None None
- -------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees(2) 0.60% 0.60% 0.60%
- -------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.25% 0.40% 0.40%
- -------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.10% 1.75% 1.75%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. For Class A, B & C,
Management fees are expected to be 0.60%, 0.60% and 0.60%, respectively,
Total operating expenses are expected to be 1.06%, 1.69% and 1.66%,
respectively, and Other expenses are expected to be 0.21%, 0.34% and 0.31%,
respectively, absent the deferral. See "Investment Adviser Compensation."
<PAGE>
27
<TABLE>
<S> <C>
Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
</TABLE>
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
CLASS A $58 $81 $105 $175
- -----------------------------------------------------------------------------------------------------------
CLASS B
Assuming redemption at end of time period(1) $69 $88 $118 $206
Assuming no redemption $18 $55 $95 $206
- -----------------------------------------------------------------------------------------------------------
CLASS C
Assuming redemption at end of time period(1) $28 $55 $95 $206
Assuming no redemption $18 $55 $95 $206
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
1. Assumes deduction of a contingent deferred sales charge.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the Fund
outstanding throughout the period indicated. The figures have been audited by
Ernst & Young L.L.P. Please read in conjunction with the Trust's 1998 Annual
Report.
<TABLE>
<CAPTION>
A B C
<S> <C> <C> <C>
3/27/98 TO 3/27/98 TO 3/27/98 TO
PER SHARE DATA: 3/31/98 3/31/98 3/31/98
Net asset value, beginning of period $12.70 $12.69 $12.69
Income from investment operations:
Net investment income (deficit) 0.01 0.01 0.01
Net realized and unrealized gains (losses)
on securities and foreign currency 0.01 0.01 0.01
- -------------------------------------------------------------------------------------------------
Total from investment operations 0.02 0.02 0.02
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- -- --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $12.72 $12.71 $12.71
- -------------------------------------------------------------------------------------------------
TOTAL RETURN: 0.16% 0.16% 0.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $4,690 $8,892 $4,815
Ratio of expenses to average net assets, after expense
reimbursement 1.06%* 1.69%* 1.66%*
Ratio of expenses to average net assets, before expense
reimbursement 1.06%* 1.69%* 1.66%*
Ratio of net investment income (deficit) to average net
assets, after expense reimbursement 7.22%* 6.61%* 6.91%*
Ratio of net investment income (deficit) to average net
assets, before expense reimbursement 7.22%* 6.61%* 6.91%*
Portfolio turnover 484.39% 484.39% 484.39%
Average commission rate paid -- -- --
</TABLE>
* Annualized
<PAGE>
28
MONEY MARKET FUND
INVESTMENT OBJECTIVE
High current income consistent with preservation of capital and maintenance of
liquidity.
INVESTMENT STRATEGY
The Fund's Investment Adviser invests only in securities that mature in 397 days
or less, and are rated in one of the two highest short term rating categories by
one or more nationally recognized statistical rating organization, or in
comparable unrated securities. The Fund maintains a dollar weighted portfolio
average maturity of 90 days or less.
PRINCIPAL INVESTMENTS
The Fund invests in high-quality, short-term U.S. dollar denominated money
market instruments that comply with the credit quality and diversification
requirements of Rule 2a7 under the Investment Company Act, which regulates money
market funds. These include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances of certain domestic and foreign banks and
domestic savings and loan associations; commercial paper and other short term
corporate obligations; and repurchase agreements. Certain of the acceptable debt
instruments may be credit enhanced by a guaranty, letter of credit, or
insurance.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 39.
RISK FACTORS
Although the Fund seeks to preserve the value of a shareholder's investment at
$1.00 per share, it is possible to lose money by investing in the Fund. As with
any money market fund, there is the risk that the issuers or guarantors of
securities owned by the Fund will default on the payment of principal or
interest or the obligation to repurchase securities from the Fund. Neither the
Fund nor the portfolio is insured or guaranteed by the U.S. Government. For
further explanation, see "Risk Factors and Special Considerations" starting on
page 42.
INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price) None
- ------------------------------------------------------------------------
Sales charge on reinvested dividends None
- ------------------------------------------------------------------------
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None(1)
- ------------------------------------------------------------------------
Redemption fee None
- ------------------------------------------------------------------------
Exchange fee None
- ------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
Management fees 0.25%
- ------------------------------------------------------------------------
12b-1 expenses 0.15%
- ------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.30%
- ------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 0.70%
</TABLE>
1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in this
prospectus.
2. The Investment Adviser has agreed to waive or defer its management fees and
to pay other operating expenses (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures
and extraordinary expenses) otherwise payable by the Fund, subject to
possible later reimbursement during a five year period. Total operating
expenses would have been 1.10%, and Other expenses would have been 0.70%,
absent the deferral. See "Investment Adviser Compensation."
<PAGE>
29
EXAMPLE:
THE TABLE SHOWS WHAT YOU WOULD PAY IF YOU INVESTED $1,000 OVER THE VARIOUS TIME
FRAMES INDICATED.
THE EXAMPLE ASSUMES YOU REINVEST ALL DIVIDENDS AND THE AVERAGE ANNUAL RETURN IS
5%.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$5 $14 $25 $57
</TABLE>
This example is for comparison purposes only and is not a representation of
the Fund's actual expenses and returns, either past or future.
FINANCIAL HIGHLIGHTS
The following schedule provides selected data for a share of the predecessor
Money Market Portfolio outstanding throughout each period indicated. The figures
have been audited by Ernst & Young L.L.P. with respect to the fiscal year ended
March 31, 1998 and the prior two fiscal years, and by another independent
auditor with respect to commencement of operation through March 31, 1995. Please
read in conjunction with the Trust's 1998 Annual Report.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96 4/1/97
TO 3/31/94 TO 3/31/95 TO 3/31/96 TO 3/31/97 TO 3/31/98
PER SHARE DATA:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income (deficit) 0.01 0.05 0.05 0.05 0.03
Net realized and unrealized gains (losses)
On securities and foreign currency -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.01 0.05 0.05 0.05 0.03
Less distributions:
Dividends from net investment income (0.01) (0.05) (0.05) (0.05) (0.03)
Distributions from capital gains -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 1.72% 4.58% 5.47% 5.09% 5.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $48 $2,996 $3,129 $36,259 $124,864
Ratio of expenses to average net assets, after expense
reimbursement++ 0.54%* 0.31% 0.45% 0.45% 0.45%
Ratio of expenses to average net assets, before expense
reimbursement+ 323.24%* 2.49% 5.78% 1.73% 1.10%
Ratio of net investment income (deficit) to average net
assets, after expense reimbursement++ 1.85%* 4.60% 5.35% 4.97% 10.34%
Ratio of net investment income (deficit) to average net
assets, before expense reimbursement++ (320.85%)* 2.42% 2.77% 4.12% 9.69%
Portfolio turnover** N/A N/A N/A N/A N/A
Average commission rate paid** N/A N/A N/A N/A N/A
</TABLE>
* Annualized
** For corresponding Series of the predecessor Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated from the predecessor Master Trust
<PAGE>
30
DISTRIBUTION OF SHARES
CHOOSING A SHARE CLASS
This prospectus offers A, B & C Classes. Each Class has its own cost structure,
allowing you to choose the one that best meets your requirements. Your financial
representative can help you decide. For actual past expenses of A, B & C
Classes, see the Fund Information earlier in this prospectus.
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES. Sales charges are as follows:
<TABLE>
<CAPTION>
CLASS A SHARES OF EQUITY FUNDS
<S> <C> <C> <C>
Dealer
As a % of commission
As a % of your as % of
Your investment offering price investment offering price
Up to $49,999 5.25% 5.54% 4.50%
$50,000 - $99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1,000,000 and over (see below) (see below) (see below)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES OF FIXED INCOME FUNDS
<S> <C> <C> <C>
Dealer
As a % of commission
As a % of your as % of
Your investment offering price investment offering price
Up to $49,999 4.75% 4.99% 4.00%
$50,000 - $99,999 4.00% 4.17% 3.25%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1,000,000 and over (see below) (see below) (see below)
</TABLE>
Investments of $1 million or more of Class A Shares have no front-end sales
charge. The Distributor pays a commission of 1% to financial institutions that
initiate purchases of $1 million and more.
CLASS B SHARES
Class B Shares are offered at their net asset value per share,
without any initial sales charge. The Distributor pays a
commission of 4% for the High Yield Bond Fund and Equity Funds
(3% for the Fixed Income Funds) to financial institutions that
initiate purchases. There is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them.
CLASS C SHARES
Class C Shares are offered at their net asset value per share
without any initial sales charge. The Distributor pays a
commission of 1% for the High Yield Bond Fund and Equity Funds
(.75% on Fixed Income Funds)to financial institutions that
initiate purchases.
MONEY MARKET FUND SHARES
Shares of the Money Market Fund are offered at their net asset
value per share without any initial sales charge.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a CDSC upon redemption of their shares under the
following conditions:
CLASS A SHARES
Shareholders who buy $1 million in shares without a sales charge
and redeem within one full year of purchase may be charged a
CDSC of 1% on shares redeemed.
<TABLE>
<CAPTION>
CLASS B SHARES
<S> <C>
CDSC On shares
Years after purchase being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th years 3.00%
5th year 2.00%
6th year 1.00%
After 6 years none
</TABLE>
CLASS C SHARES
Shareholders who redeem Class C Shares within one full year of
the purchase date may be charged a CDSC of 1%.
MONEY MARKET FUND SHARES
A CDSC may be charged on redemptions of shares purchased through
an exchange of Class B or C Shares of an investor who did not
own the Class B Shares for six full years or the Class C Shares
for one full year, whichever is applicable.
There is no CDSC imposed on shares acquired through reinvestment of dividends or
capital gains.
The CDSC will be imposed on the lesser of the original purchase price or the net
asset value of the redeemed shares at the time of redemption. CDSC calculations
are based on the numbers of shares involved, not the value of your account. To
keep your CDSC as low as possible, each time you place a request to sell shares
we will first sell any shares in your account that represent reinvested
dividends/ capital gains and then shares that satisfy the holding period. If
there are not enough of these to meet your request, we will sell your shares on
a first in, first out basis. Your financial institution may elect to waive some
or all of the payment thereby reducing the otherwise applicable CDSC.
<PAGE>
31
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES.
There are several ways you can combine multiple purchases of shares of Class A
Shares to take advantage of the breakpoints in the sales charge schedule. These
can be combined in any manner:
/ / ACCUMULATION PRIVILEGE--lets you add the value of Class A Shares you and
your immediate family already own to the amount of your next investment for
purposes of calculating the sales charge.
/ / LETTER OF INTENT--lets you purchase Class A Shares over a 13 month period
and receive the same sales charge as if all shares had been purchased at
once.
/ / COMBINATION PRIVILEGE--lets you combine Class A Shares for purposes of
reducing the sales charge.
TO UTILIZE: COMPLETE THE APPROPRIATE SECTION ON YOUR APPLICATION, OR CONTACT
YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL FUNDS TO ADD THESE
OPTIONS TO AN EXISTING ACCOUNT.
CDSC WAIVERS. The CDSC may be waived on shares you sell for the following
reasons:
/ / make payments through certain systematic withdrawal plans
/ / qualifying distributions from qualified retirement plans and other employee
benefit plans
/ / distributions from custodial accounts under section 403(b)(7) of the
Internal Revenue Code as well as IRAs due to death, disability or attainment
of age 59 1/2
TO UTILIZE: CONTACT YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL
FUNDS, OR CONSULT THE SAI (SEE THE BACK COVER OF THIS PROSPECTUS).
REINSTATEMENT PRIVILEGE. If you sell Class A Shares, you may invest some or all
of the proceeds in the same class within 90 days without a sales charge. If you
paid a CDSC when you sold your shares, you will be credited with the amount of
the CDSC. All accounts involved must have the same registration.
TO UTILIZE: CONTACT YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL
FUNDS.
NET ASSET VALUE PURCHASES. Class A Shares may be sold at net asset value to:
(1) current or retired directors, trustees, partners, officers and employees of
the Trust, the Distributor, the Investment Adviser and its general partner,
certain family members of the above persons, and trusts or plans primarily for
such persons;
(2) current or retired registered representatives or full time employees and
their spouses and minor children and plans of such persons;
(3) former limited partners and participants of certain investment partnerships
and pooled trusts previously managed by the Investment Adviser;
(4) investors who exchange their shares from an unaffiliated investment company
which has a sales charge, so long as shares are purchased within 60 days of the
redemption;
(5) trustees or other fiduciaries purchasing shares for certain retirement plans
of organizations with 50 or more eligible employees;
(6) Investment Advisers and financial planners who place trades for their own
accounts or the accounts of their clients either individually or through a
master account and who charge a management, consulting or other fee for their
services;
(7) employee sponsored benefit plans in connection with purchases of Class A
Shares made as a result of participant directed exchanges between options in
such a plan;
(8) "wrap accounts" for the benefit of clients of broker dealers, financial
institutions or financial planners having sales or service agreements with the
distributor or another broker-dealer or financial institution with respect to
sales of Class A Shares; and
(9) such other persons as are determined by the Board of Trustees (or by the
distributor pursuant to guidelines established by the board) to have acquired
shares under circumstances not involving any sales expense to the trust or the
distributor.
DISTRIBUTION PLAN
AND SHAREHOLDER SERVICES
Each Fund has adopted a distribution plan in accordance with Rule 12b-1 under
the Investment Company Act. Class B and C Shares may pay a fee to the
Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets to finance any activity which is principally intended to result
in the sale of shares. Class A Shares may pay the Distributor a fee equal to
0.25% of the average daily net assets, and the Money Market Fund may pay up to
0.15% of the average daily net assets. The schedule of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
Each of the Funds has entered into a Shareholder Services Agreement with the
Distributor under which each Fund will reimburse the Distributor up to 0.25%
<PAGE>
32
DISTRIBUTION OF SHARES
of the average daily assets of each of the Funds to pay financial institutions
for certain personal services for shareholders and for the maintenance of
shareholder accounts.
In addition to the payments described above, the distributor may also pay
additional compensation to financial institutions in connection with selling
shares of the Funds. Compensation may include financial assistance for
conferences, shareholder services, computer software, training programs or
promotional activities. The distributor offers additional compensation to
financial institutions that the distributor expects will sell a significant
amount of shares. Financial institutions may obtain more information by calling
(800) 551-8045.
THE DISTRIBUTOR
OF THE TRUST'S SHARES
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
<PAGE>
33
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
OPENING AN ACCOUNT
REGULAR INVESTMENT RETIREMENT
<S> <C> <C> <C> <C>
For A Minor Automatic IRA, Rollover,
FOR THIS TYPE OF ACCOUNT Regular (UGMA/UTMA) Investment SEP, Etc.
- ----------------------------------------------------------------------------------------------------------------------
This is the minimum
initial investment $2,000 $250 $50 $250
- ----------------------------------------------------------------------------------------------------------------------
Use this type of New Account Form (Non-Retirement)
application IRA Application
- ----------------------------------------------------------------------------------------------------------------------
Each Fund offers a variety of features, which are described in the "Your Account"
section
Before completing of this prospectus. Please read this section before completing the application.
the application
- ----------------------------------------------------------------------------------------------------------------------
Completing the If you need assistance, contact your financial representative, or call us at (800)
application 551-8043.
- ----------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and check, payable to: NICHOLAS-APPLEGATE MUTUAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust WILL NOT accept third-party checks.
- ----------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below.
You will need an account number with the Trust by sending a completed application to:
If you are sending money NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
by BANK WIRE or ACH To receive your account number, contact your financial representative or call us at
(800) 551-8043.
</TABLE>
<TABLE>
<CAPTION>
BUYING SHARES
REGULAR INVESTMENT RETIREMENT
<S> <C> <C> <C> <C>
For A Minor Automatic IRA, Rollover,
FOR THIS TYPE OF ACCOUNT Regular (UGMA/UTMA) Investment SEP, Etc.
- ----------------------------------------------------------------------------------------------------------------------
This is the minimum
subsequent investment $100 $100 $50 $100
- ----------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will receive All transactions received in good order before the market closes receive that day's
price.
- ----------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and check, payable to: NICHOLAS-APPLEGATE MUTUAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust WILL NOT accept third-party checks.
- ----------------------------------------------------------------------------------------------------------------------
Instruct your bank to wire the amount you wish to invest to:
STATE STREET BANK & TRUST CO.--ABA #011000028
If you are sending money DDA #9904-645-0
by BANK WIRE STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME], [SHARE CLASS], [YOUR NAME], [ACCOUNT NAME OR
NUMBER]
- ----------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is
active on your bank account. To establish this option, either complete the appropriate
sections when opening an account, or contact your financial representative, or call us
If you are sending money at (800) 551-8043 for further information.
by ACH To initiate an ACH purchase, call the Trust at (800) 551-8043.
</TABLE>
<PAGE>
34
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
<S> <C> <C>
----------------------------------------------------------------------------------------------
Selling shares by phone is a service option
which must be established on your account
prior
Certain requests may require a SIGNATURE to making a request. See the "Your Account"
GUARANTEE. section, or contact your financial
See that section below for further representative,
information. or call us at (800) 551-8043 for further
You may sell up to the full account value, information.
Things you should know less any applicable sales charge. The Trust The maximum amount which may be requested by
may have additional requirements for redeeming phone, regardless of account size, is $50,000.
shares. Please call us for more information. Amounts greater than that must be requested in
writing. If you wish to receive your monies by
bank wire, the minimum request is $5,000.
----------------------------------------------------------------------------------------------
If you purchased shares through a financialrepresentative or plan administrator/sponsor,
you should call them regarding the most efficient way to sell shares. If you bought shares
recently by check, payment may be delayed until the check clears, which may take up to 15
calendar days from the date of purchase. Sales by a corporation, trust or fiduciary may have
special requirements. Please contact your financial representative, a plan
administrator/sponsor or us for further information.
- ------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will receive All transactions received in good order before the market closes receive that day's price.
- ------------------------------------------------------------------------------------------------------------------------------
Please put your request in writing, including:
the name of the account owners, account
number and the Fund and share Class you are
redeeming from, and the share or dollar amount Contact your financial representative,
you wish to sell, signed by all account or call us at (800) 551-8043.
If you want to receive owners. The proceeds will be sent to the existing
your monies by CHECK Mail this request to: check
NICHOLAS-APPLEGATE MUTUAL FUNDS, address listed on the account.
PO BOX 8326, BOSTON, MA 02266-8326.
The check will be sent to the existing check
address listed on the account.
- ------------------------------------------------------------------------------------------------------------------------------
Please put your request in writing, including:
the name of the account owners, account number
and the Fund and share Class you are
redeeming from, and the share or dollar amount Contact your financial representative,
you wish to sell, signed by all account or call us at (800) 551-8043.
If you want to receive owners. The proceeds will be sent to the existing bank
your monies by BANK WIRE Mail this request to: wire
NICHOLAS-APPLEGATE MUTUAL FUNDS, address listed on the account.
PO BOX 8326, BOSTON, MA 02266-8326.
The proceeds will be sent to the existing
bank wire address listed on the account.
- ------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative,
or call us at (800) 551-8043.
The proceeds will be sent in accordance with
If you want to receive the existing
your monies by ACH Please call us at (800) 551-8043. ACH instructions on the account and will
generally be
received at your bank two business days
after your request is received.
</TABLE>
<PAGE>
35
<TABLE>
<CAPTION>
SIGNATURE GUARANTEES
<S> <C>
A signature guarantee from a financial institution is required to verify the authenticity of an
A definition individual's
signature. It can usually be obtained from a broker, commercial or savings bank, or credit union.
- ----------------------------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making a written request for the following reasons:
1. When selling more than $50,000 worth of shares;
2. When you want a check or bank wire sent to a name or address that is not
When you need one currently listed on the account;
3. To sell shares from an account controlled by a corporation, partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
</TABLE>
<TABLE>
<CAPTION>
EXCHANGING SHARES
REGULAR INVESTMENT RETIREMENT
<S> <C> <C> <C> <C>
For A Minor Automatic IRA, Rollover,
FOR THIS TYPE OF ACCOUNT Regular (UGMA/UTMA) Investment SEP, Etc.
- ----------------------------------------------------------------------------------------------------------------------
This is the minimum exchange
amount to open a new account $2,000 $250 $50 $250
- ----------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will receive All transactions received in good order before the market closes receive that day's
price.
- ----------------------------------------------------------------------------------------------------------------------
The exchange must be to the Class A, B or C Shares of another Fund (depending upon
whether the shares being exchanged are Class A, B or C Shares) or the Money Market
Fund and to an account with the same registration.
If you intend to keep money in the Fund you are exchanging from, make sure that you
Things you should know leave an amount equal to or greater than the Fund's minimum account size (see the
"Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- ----------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us at (800) 551-8043.
The Trust will accept a request by phone if this feature was previously established on
How to request an your account.
exchange by PHONE See the "Your Account" section for further information.
- ----------------------------------------------------------------------------------------------------------------------
Please put your exchange request in writing, including: the name on the account, the
name of the Fund
and the account number you are exchanging from, the shares or dollar amount you wish
How to request an to exchange,
exchange by MAIL and the Fund you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA
02266-8326.
</TABLE>
<PAGE>
36
YOUR ACCOUNT
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share ("NAV") for the Fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern Time) by dividing the value of the Class'
net assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York Stock Exchange
is open, usually Monday-Friday. Buy and sell requests are executed at the NAV
next calculated after your request is received in good order by the transfer
agent or another agent designated by the trust.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund reserves
the right to reject any purchase or to suspend or modify the continuous offering
of its shares. Your financial representative is responsible for forwarding
payment promptly to the transfer agent. The Trust reserves the right to cancel
any buy request if payment is not received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
EXCHANGES. You may exchange shares of any Class for shares of the same Class (A,
B, or C) of any other Fund, generally without paying any additional sales
charges. You may also exchange shares of any Fund for shares of the Money Market
Portfolio. Class C shares purchased through an exchange from a like Class will
continue to age from the original date and will retain the same CDSC rate as
they had before the exchange. The holding period of Money Market Fund shares
purchased through an exchange from Class B or C shares is excluded from the
calculation of the holding period on Class B and C shares.
To protect the interests of other investors in a Fund, the trust may cancel the
exchange privileges of any parties that, in the opinion of the Investment
Adviser, are using market timing strategies that adversely affect the Fund.
Guidelines for exchanges are available from the distributor upon request. A Fund
may also refuse any exchange order.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
OTHER SHARE CLASSES. Certain Funds also offer Class I and Q shares. The Class I
and Q shares have no sales charges and have other expenses which may result in
performance for those Classes which is different from that of Class A, B and C
shares. You can obtain more information about Class I and Q shares from
Nicholas-Applegate Securities at (800) 551-8643.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to the Trust,
c/o the Trust's transfer agent,
State Street Bank and Trust Company
Attention: Nicholas-Applegate Mutual Funds
P.O. Box 8326
Boston, Ma 02266-8326
Telephone inquiries can be made by calling 1-800-551-8043 or, from outside the
U.S., 1-617-774-5000 (collect).
FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent at the address or telephone number provided above.
RETIREMENT PLANS. You may invest in each Fund through various retirement plans,
including IRAs, Simplified Employee Plan (SEP) IRAs, Roth IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information about any
of the plans,
<PAGE>
37
agreements, applications and annual fees, contact the Distributor, your
financial representative or plan sponsor. To determine which retirement plan is
appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. In general, you will receive account statements as follows:
/ / After every transaction that affects your account balance.
/ / After any changes of name or address of the registered owner(s).
/ / In all other circumstances, every month.
Every year you will also receive an applicable tax information statement, mailed
by January 31.
DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends as follows:
<TABLE>
<CAPTION>
ANNUALLY QUARTERLY MONTHLY
<S> <C> <C>
International Core Growth Balanced Growth High Quality Bond
Worldwide Growth Convertible High Yield Bond
International Small Cap Money Market
Emerging Countries
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
</TABLE>
Any net capital gains are distributed annually.
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.
SHAREHOLDER SERVICES. The Investment Adviser may make payments from its own
resources to brokers, consultants and financial institutions for performing
certain services for shareholders and for the maintenance of shareholder
accounts.
TAXABILITY OF DIVIDENDS. As long as a Fund meets the requirements for being a
tax-qualified regulated investment company, which each Fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Dividends you receive from a Fund, whether reinvested or taken as cash, are
generally taxable. Dividends from a Fund's long-term capital gains are taxable
as capital gains; dividends from other sources are generally taxable as ordinary
income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than the Fund minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Fund may
close out your account and mail you the proceeds. Your account will not be
closed if its drop in value is due to Fund performance.
AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of $50 or
more on a monthly or quarterly basis if you have an account of $5,000 or more in
the Fund. Withdrawal proceeds will normally be received prior to the end of the
month or quarter. See the account application for further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in Class A, B and C Shares of each Fund through automatic withdrawals of
specified amounts from your bank account once an automatic investment plan is
established. See the account application for further details about this service
or call the Transfer Agent at 1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into Class A, B and C Shares of another
Fund, subject to conditions outlined in the Statement of Additional Information
and the applicable provisions of the qualified retirement plan.
CONVERSION OF CLASS B FUND SHARES. Class B shares in a Fund will automatically
be exchanged for Class A shares of such Fund seven years after purchase.
Exchanges will be made at relative net asset value free of any charges and will
not constitute a taxable event for income tax purposes. The amount of time
shares are held in the Money Market Fund will be excluded from the calculation
of the holding period.
<PAGE>
38
ORGANIZATION AND MANAGEMENT
INVESTMENT ADVISER COMPENSATION
Each Fund pays the Investment Adviser a fee pursuant to an investment advisory
agreement. The Emerging Countries Fund pays an advisory fee at the annual rate
of 1.25% of the Fund's average net assets. The Value Fund pays at the annual
rate of 0.75% of the Fund's average net assets. The Worldwide Growth,
International Core Growth and International Small Cap Growth Funds each pay an
advisory fee at the annual rate of 1.00% on the first $500 million of each
Fund's average net assets, 0.90% on the next 500 million of each Fund's average
net assets, and 0.85% on the average net assets of each Fund in excess of $1
billion. The High Quality Bond Fund pays at the annual rate of 0.45% of the
first $500 million of the Fund's average net assets, 0.40% of the next $250
million of average net assets, and 0.35% of average net assets in excess of $750
million. The High Yield Bond Fund pays at the annual rate of 0.60% of the Fund's
average net assets. The Small Cap Growth Fund pays at the annual rate of 1.00%
of the Fund's average net assets. The Large Cap Growth, Mid Cap Growth,
Convertible and Balanced Growth Funds each pay at the annual rate of 0.75% of
the first $500 million of the Fund's average net assets, 0.675% of the next $500
million of average net assets, and 0.65% of average net assets in excess of $1
billion.
The Investment Adviser has agreed to defer certain fees payable by the Funds,
and to absorb other operating expenses of the Funds (excluding interest, taxes,
brokerage commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses), subject to later reimbursement, so
that the expenses for the Class A, B and C Shares of the Funds will not exceed
the following expense ratios on an annual basis through March 31, 1999:
Worldwide Growth Class A, B & C--1.85%, 2.50%, and 2.50%; International Small
Cap Growth Class A, B & C--1.95%, 2.60% and 2.60%; Emerging Countries-- Class A,
B & C--2.25%, 2.90% and 2.90%; International Core Growth Class A, B & C--1.95%,
2.60% and 2.60%; Convertible, Balanced Growth, Large Cap Growth, Value and Mid
Cap Growth Class A, B & C--1.60%, 2.25% and 2.25%; Small Cap Growth Class A, B &
C-- 1.72%, 2.60% and 2.35%; High Quality Bond Class A, B & C--0.95%, 1.35% and
1.35%; High Yield Bond Class A, B & C--1.10%, 1.75% and 1.75%; and Money Market
Fund--0.70%*. Each Fund will reimburse the Investment Adviser for fees deferred
or other expenses paid pursuant to this Agreement in later years in which
operating expenses for the Fund are less than the percentage limitation set
forth above for any such year. The Investment Adviser will not recover any fee
waivers or expense reimbursements from a Fund more than five years after the
expenses were incurred (March 31, 2003 in the case of expenses incurred prior to
March 31, 1998).
ADMINISTRATOR COMPENSATION
The Funds pay administrative fees for administrative personnel and services
(including certain legal and financial reporting services). Each Fund pays
Nicholas-Applegate Capital Management a monthly fee at the annual rate of 0.10%
of average net assets. Each Fund pays Investment Company Administration
Corporation a monthly fee at an annual rate ranging from 0.05% to 0.01% of
average net assets, with a minimum of $40,000 per Fund.
DISTRIBUTOR:
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8045
PORTFOLIO TRADES
The Investment Adviser is responsible for the Funds' portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
sell shares of the Fund or that provide research services to the Fund, but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (i.e. timeliness and completeness) and favorable price. The
Investment Adviser expects high annual portfolio turnover up to 200%. This is
generally higher than other Funds and will result in the Funds incurring higher
brokerage costs.
INVESTMENT OBJECTIVE
Each Fund's investment objective is fundamental and may only be changed with
shareholder approval.
The other fundamental limitations are described in the Statement of Additional
Information. All other changes may be made by the Board of Trustees without
shareholder approval.
DIVERSIFICATION
All the Funds are diversified.
PRIOR MASTER-FEEDER STRUCTURE
Prior to July 24, 1998, the various classes of most of the Funds were separate
Portfolios of the Trust, and invested all of their assets in corresponding
portfolios of Nicholas-Applegate Investment Trust (the "Master Trust"). In this
"master-feeder" structure, the Investment Adviser served as the adviser to the
Master Trust, and the Trust had no separate adviser. The "master-feeder"
structure was terminated, with the approval of the shareholders of the Trust, in
order to achieve certain economies for the Trust.
<PAGE>
39
PORTFOLIO TEAMS
EQUITY MANAGEMENT--INTERNATIONAL/GLOBAL
ARTHUR E. NICHOLAS, MANAGING PARTNER
Chief Investment Officer
Founded firm in 1984; prior investment management experience with Pacific
Century Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer--Global Equity Management
Joined firm in 1987; prior investment management experience with Professional
Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH AND
EMERGING COUNTRIES
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH, AND
EMERGING COUNTRIES
ANDREW B. GALLAGHER, PARTNER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with Pacific
Century Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
WORLDWIDE GROWTH
PEDRO V. MARCAL, PARTNER
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with A.B.
Laffer, V.A. Canto & Associates, and A-Mark Precious Metals
B.A.--University of California, San Diego
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH, AND
EMERGING COUNTRIES
LORETTA J. MORRIS, PARTNER
Portfolio Manager
Joined firm in 1990; 10 years prior investment management experience with
Collins Associates
Attended California State University, Long Beach; CFA Level II candidate
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP GROWTH
ESWAR MENON
Portfolio Manager
Joined firm in 1995; 5 years prior investment management experience with
Koeneman Capital Management and Integrated Device Technology
M.B.A., summa cum laude--University of Chicago; M.S.--University of California,
Santa Barbara; B.S.--Indian Institute of Technology, Madras
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH, AND
EMERGING COUNTRIES
ALEX MUROMCEW
Portfolio Manager
Joined firm in 1996; 6 years prior investment management experience with Jardine
Fleming Securities (Japan); Emerging Markets Investors Corporation; Teton
Partners LP
M.B.A.--Stanford University; B.A.--Dartmouth College
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP GROWTH
ERNESTO RAMOS, PH.D.
Portfolio Manager
Joined firm in 1994; 14 years prior investment management and quantitative
research experience with Batterymarch Financial Management; Bolt Beranek &
Newman Inc.; and Harvard University
Ph.D.--Harvard University; B.S.--Massachusetts Institute of Technology
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH, AND
EMERGING COUNTRIES
JON BORCHARDT
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with Union
Bank
B.S. University of San Francisco
EMERGING COUNTRIES
MELISA A. GRIGOLITE
Portfolio Manager
Joined firm in 1991; prior experience with SGPA Architecture and Planning
M.S.--San Diego State University; B.S. Southwest Missouri State University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP GROWTH
JESSICA HILINSKI
Portfolio Manager
Joined firm in 1996; 3 years prior experience in Eaton Vance Management and
Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
<PAGE>
40
ORGANIZATION AND MANAGEMENT
JOHN TRIBOLET
Portfolio Manager
Joined firm in 1997; 5 years prior experience with Kemper Securities, Inc. and
PaineWebber
M.B.A.--University of Chicago; B.A.--Columbia University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, AND INTERNATIONAL SMALL CAP GROWTH
AYLIN UCKUNKAYA
Portfolio Manager
Joined firm in 1997; 4 years investment management experience with Global
Securities
B.A. Istanbul University
EMERGING COUNTRIES
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS, MANAGING PARTNER
Chief Investment Officer
Founded firm in 1984; prior investment management experience with Pacific
Century Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer--Global Equity Management
Joined firm in 1987; prior investment management experience with Professional
Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
LARGE CAP GROWTH, VALUE, SMALL CAP GROWTH, MID CAP GROWTH, BALANCED GROWTH, AND
CONVERTIBLE
THOMAS BLEAKLEY, PARTNER
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Twentieth Century Investors and Dell Computer Corporation
M.B.A.--University of Texas--Boston University
SMALL CAP GROWTH
WILLIAM H. CHENOWETH, CFA
Portfolio Manager
Joined firm in 1998; 12 years prior investment experience with Turner Investment
Partners, Inc., and Jefferson-Pilot Corporation
M.B.A. and B.B.A.--Emory University
SMALL CAP GROWTH AND MID CAP GROWTH
ANDREW B. GALLAGHER, PARTNER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with Pacific
Century Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE, PARTNER
Portfolio Manager--U.S. Systematic
Joined firm in 1994; 25 years prior investment management/economics experience
with ARCO Investment Management Company and General Electric Company
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
BALANCED GROWTH AND VALUE
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
VALUE AND BALANCED GROWTH
SANDRA DURN
Portfolio Manager
Joined firm in 1994; prior experience at Science Solutions, Inc. and San Diego
State University Economics Department (instructor)
M.A.--San Diego State University; B.A.--University of Maryland
CONVERTIBLE AND HIGH YIELD BOND
JOHN C. MCCRAW
Portfolio Manager
Joined firm in 1992; prior investment management experience with Nations Bank
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH
MICHAEL P. CARROLL
Portfolio Manager
Joined firm in 1998; 3 years prior investment experience with Morgan Stanley
Dean Witter & Co. and The University of Notre Dame Investment Office.
B.B.A--University of Notre Dame
CONVERTIBLE FUND
PAUL E. CLUSKEY
Portfolio Manager
Joined firm in 1998; 4 years prior investment experience at SEI Investments and
Piper Jaffray, Inc.
B.S.--New York University
MINI CAP GROWTH AND SMALL CAP GROWTH
<PAGE>
41
AARON HARRIS
Portfolio Manager
Joined firm in 1995; 1 year prior investment management experience at Chemical
Bank
B.A.--Princeton University
SMALL CAP GROWTH
TRISHA C. SCHUSTER, CFA
Portfolio Manager
Joined firm in 1998; 5 years prior investment experience with Farmers Insurance
Group and Personal Financial Management
M.B.A.--University of Southern California; B.A. University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
EMMY SOBIESKI, CFA
Portfolio Manager
Joined firm in 1998; 4 years prior investment experience with Farmers Insurance
Investment Division and EEN Business Network
M.B.A.--University of Southern California; B.A.--University of San Diego
MID CAP GROWTH AND LARGE CAP GROWTH
MARK STUCKELMAN
Portfolio Manager, U.S. Systematic
Joined firm in 1995; 5 years experience with Wells Fargo Bank Investment
Management Group; Fidelity Management Trust Co.; and BARRA
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkley
VALUE
THOMAS J. SULLIVAN
Portfolio Manager
Joined firm in 1994; 2 years prior investment experience with Donaldson, Lufkin
& Jenrette Securities Corp.
B.S.--Rochester Institute of Technology
MID CAP GROWTH AND LARGE CAP GROWTH
FIXED INCOME
FRED S. ROBERTSON, III, PARTNER
Chief Investment Officer--Fixed Income
Joined firm in 1995; 22 years prior investment management experience with
Criterion Investment Management Company and DuPont Chemical Pension Fund
M.B.A.--College of William and Mary; B.S.--Cornell University
BALANCED GROWTH, MONEY MARKET, HIGH QUALITY BOND, AND HIGH YIELD BOND
JAMES E. KELLERMAN, PARTNER
Portfolio Manager
Joined firm in 1995; 20 years prior investment management experience with
Criterion Investment Management Company and Brown Brothers Harriman and
Equitable Life Insurance
M.B.A.--St. John's University; B.B.A.--Susquehanna University
BALANCED GROWTH, MONEY MARKET AND HIGH QUALITY BOND
CLAUDIA BENGSTON
Portfolio Manager
Joined firm in 1995; 18 years prior investment experience with Criterion
Investment Management Company and Gibralter Savings
B.S.--University of Oklahoma
MONEY MARKET
MALCOM S. DAY, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with Payden
& Rygel
M.B.A.--University of California, Los Angeles; B.S.-- Northern University
BALANCED GROWTH, MONEY MARKET AND HIGH QUALITY BOND
DOUGLAS FORSYTH, CFA
Portfolio Manager
Joined firm in 1994; 3 years prior investment management experience with AEGON
Usa
B.B.A.--University of Iowa
HIGH YIELD BOND
JAN FRIEDLI
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with Stone
Capital Management, PIMCO, and the Vanguard Group, Inc.
M.B.A.--University of Chicago, B.S.--Villanova University
HIGH YIELD BOND
SUSAN MALONE
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with BEA
Associates
M.B.A.--New York University; B.S.--Carnegie Mellon University
BALANCED GROWTH AND HIGH YIELD BOND
<PAGE>
42
RISK FACTORS AND SPECIAL CONSIDERATIONS
MUTUAL FUND CONSIDERATIONS IN GENERAL
Prospective investors should know that any mutual fund investment is subject to
market fluctuations and other risks inherent in investing in securities. There
can be no assurance that your investment will increase in value. The value of
your investment will go up and down depending upon market forces and you may not
recoup your original investment. You should consider an investment in any of the
Funds a long-term investment.
DERIVATIVE CONTRACTS AND
SECURITIES CONSIDERATIONS
The term "derivative" traditionally applies to certain contracts that "derive"
their value from changes in the value of underlying securities, currencies,
commodities or indices. Investors refer to certain types of securities that
incorporate the performance characteristics of these contracts as derivatives.
Derivatives are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. These include
swap agreements, options, futures, and convertible securities. The Funds seek to
use derivative contracts and securities to reduce volatility and increase total
performance. While the price reaction of certain derivatives to market changes
may differ from traditional investments such as stocks and bonds, derivatives do
not necessarily present greater market risks than traditional investments.
Derivatives are also subject to credit risks related to the counterparty's
ability to perform, and any deterioration in the counterparty's creditworthiness
could adversely affect the instrument. The Funds will only use derivatives in a
manner consistent with their investment objectives, policies and limitations.
INTERNATIONAL INVESTING CONSIDERATIONS
CURRENCY FLUCTUATIONS. Because the assets in each Fund may be invested in
instruments issued by foreign companies, the principal, income and sales
proceeds may be paid to the Funds in local foreign currencies. A reduction in
the value of local currencies relative to the U.S. dollar could mean a
corresponding reduction in the value of the Funds. The value of a foreign
security generally tends to decrease when the value of the U.S. dollar rises
against the foreign currency in which the security is denominated, and tends to
increase when the value of the dollar falls against such currency. The Funds may
incur costs in connection with conversions between currencies.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. Such
instability may result from, among other things, the following: authoritarian
governments; popular unrest associated with demands for improved political,
economic and social conditions; internal insurgencies and terrorist activities;
hostile relations with neighboring countries; and drug trafficking. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ favorably or unfavorably and
significantly from the economy of the United States in such respects as the rate
of growth of gross domestic product, rate of inflation, currency depreciation,
savings rates, fiscal balances, and balance of payments positions. Governments
of many foreign countries continue to exercise substantial control over private
enterprise and own or control many companies. Government actions could have a
significant impact on economic conditions in certain countries which could
affect the value of the securities of the Funds. For example, a foreign country
could nationalize an entire industry. In such a case, the Funds may not be
fairly compensated for their losses and might lose their entire investment in
the country involved.
The economies of certain foreign countries are heavily dependent upon
international trade and accordingly are affected by protective trade barriers
and the economic conditions of their trading partners. The enactment by the
United States or other principal trading partners of protectionist legislation
could have a significant adverse effect on the securities markets of these
countries. Some foreign countries are large debtors of commercial banks, foreign
governments, and supranational organizations. These obligations, as well as
future restructurings of debt, may affect the economic performance and political
and social stability of these countries.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets as a result of the
rapid convergence in those countries, beginning in the fourth quarter of 1997,
of a number of the social, political and economic risk factors referred to
above. The unsettled condition of several Asian financial markets has also
affected emerging markets in other countries and regions. These conditions could
continue or deteriorate further in the future.
<PAGE>
43
Hong Kong transferred its sovereignty from Great Britain to the People's
Republic of China in 1997. China has espoused policies antagonistic to free
enterprise capitalism and democracy. There can be no assurance that China will
continue to protect property rights in Hong Kong after 1997, although China has
moved toward free enterprise, and has established stock exchanges of its own.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
MARKET CHARACTERISTICS
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time. In addition, the
securities markets of some foreign countries are susceptible to being influenced
by large investors trading significant blocks of stocks.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Local commercial, corporation and securities
laws govern the sale and resale of securities, and certain restrictions may
apply. Although brokerage commissions are generally higher than those in the
U.S., the Investment Adviser will seek to achieve the most favorable net
results. In addition, securities settlements and clearance procedures may be
less developed and less reliable than those in the United States. Delays in
settlement could result in temporary periods in which the assets of the Funds
are not fully invested, or could result in a Fund being unable to sell a
security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain. For example, the share registrar may require a shareholder to travel
to that country to present required documentation before buying or selling
securities. In some instances, there may be no requirements to maintain back-up
shareholder records. Failure by the share registrar to properly maintain
shareholder records, protect the same against fire or computer virus, or carry
adequate insurance against such occurrences, potentially could result in a loss
of a Fund's investment in those securities.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are in many respects less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
LOWER RATED SECURITIES CONSIDERATIONS. Securities rated below investment grade
usually offer higher yields than higher rated securities but are also subject to
more risk than higher rated securities. Lower rated or unrated debt obligations
are more likely to react to developments affecting market and credit risks than
are more high rated securities, which react primarily to movements in interest
rates. In the past, economic downturns or increases in interest rates caused a
higher incidence of default by issuers of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the
<PAGE>
44
RISK FACTORS AND SPECIAL CONSIDERATIONS
market less liquid than those of higher-rated securities. Consequently, the
Funds may at times experience difficulty in liquidating their investments at the
desired times and prices.
The average percentages of assets invested by the Funds listed below in bonds of
each permissible rating (as rated by Standard & Poor's Corporation), on a
monthly dollar-weighted basis, were as follows for the year ended March 31,
1998: Convertible-- AAA-1.87%; AA-2.21%; A-9.57%; BBB-12.46%; BB-9.57%; B-8.80%;
CCC-0.13%; non-rated-9.05%; Balanced Growth--AAA-21.02%; AA-1.60%; A-4.31%;
BBB-1.94%; BB-0.26%; B-2.29%; CCC-0.99%; CC-0.01%; non-rated-1.55%; High Quality
Bond--AAA-61.28%; AA-5.35%; A-10.57%; BBB-5.29%; BB-1.81%; B-4.87%; CCC-0.67%;
CC-0.15%; non-rated-2.94%; and High Yield Bond--BB-10.41%; B-47.74%; CCC-11.29%;
non-rated-17.16%. A description of the rating categories is contained in this
prospectus.
THE FUNDS' INVESTMENTS
EQUITY SECURITIES. Equity securities include common stocks, convertible
securities and warrants. The Funds may invest in growth companies, cyclical
companies, companies with smaller market capitalizations, or companies believed
to be undergoing a basic change in operations or markets. Although equity
securities have a history of long-term growth in value, their prices rise and
fall as a result of changes in the company's financial condition as well as
movements in the overall securities markets.
SMALLER ISSUERS. Smaller and medium sized issuers may be less seasoned, have
more limited product lines, markets, financial resources and management depth,
and be more susceptible to adverse market conditions than larger issuers. As a
result, the securities of such smaller issuers may be less actively traded than
those of larger issuers and may also experience greater market volatility.
CONVERTIBLE SECURITIES. A convertible security is a fixed income equity security
that may be converted into a prescribed amount of common stock at a specified
formula. A convertible security entitles the owner to receive interest until the
security matures or is converted. Convertibles have several unique investment
characteristics such as: (a) higher yields than common stocks but lower yields
than straight debt securities; (b) lesser degree of fluctuation in value than
the underlying stock since they have fixed income characteristics; and (c)
potential for capital appreciation if the market price of the underlying
security increases.
CORPORATE DEBT SECURITIES. Corporate debt securities are subject to the risk of
the issuer's inability to meet principal and interest payments on the obligation
(credit risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the credit-worthiness of the
issuer and general market liquidity (market risk). When interest rates decline,
the value of the Funds' debt securities can be expected to rise, and when
interest rates rise, the value of those securities can be expected to decline.
Debt securities with longer maturities tend to be more sensitive to interest
rate movements than those with shorter maturities.
Debt obligations that are deemed investment grade carry a rating of at least Baa
from Moody's or BBB from Standard and Poor's, or a comparable rating from
another rating agency or, if not rated by an agency, are determined by the
Investment Adviser to be of comparable quality. Bonds rated Baa or BBB have
speculative characteristics and changes in economic circumstances are more
likely to lead to a weakened capacity to make interest and principal payments
than higher rated bonds. For a further explanation of these ratings, see
"Corporate Bond Ratings" beginning on page 45.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities such as U.S. Treasury bills, notes, bonds, and
certificates issued by the Government National Mortgage Association ("GNMA") are
supported by the full faith and credit of the United States. Other U.S.
Government securities, such as securities issued by the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Bank Board, are supported
by the right of the issuer to borrow from the U.S. Treasury. Still others, such
as securities of the Student Loan Marketing Association, are supported only by
the credit of the issuer. U.S. Government securities may include zero coupon
securities that are issued or purchased at a significant discount from face
value.
ZERO COUPON SECURITIES. These securities are sold at a substantial discount from
face value and redeemed at face value at their maturity date without interim
payments of principal and interest. They may be subject to greater volatility
than other securities. In addition, because income is accrued on a current
basis, a Fund may have to sell other portfolio securities to make necessary
income distributions.
MORTGAGE-RELATED SECURITIES. Collateralized mortgage obligations ("CMOs") are
debt obligations collateralized by a pool of mortgage loans or mortgage
<PAGE>
45
pass-through securities. Typically CMOs are collateralized by certificates
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
such as GNMA. GNMA certificates are mortgaged-backed securities representing
part ownership of a pool of mortgage loans, which are issued by lenders such as
mortgage bankers, commercial banks, and savings associations, and are either
insured by the Federal Housing Administration or the Veterans Administration.
The rate of prepayment of underlying mortgage loans in a pool rises when
interest rates fall and falls when interest rates rise. Accordingly, it is not
possible to predict accurately the average life of a particular pool.
ASSET BACKED SECURITIES. The non-mortgage-related asset-backed securities in
which certain Funds invest include, but are not limited to, interests in pools
of receivables, such as credit card and accounts receivables and motor vehicle
and other installment purchase obligations and leases. Interests in these pools
are not backed by the U.S. Government and may or may not be secured.
The credit characteristics of asset-backed securities differs in a number of
respects from those of traditional debt securities. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to other debt obligations, and there is a possibility that recoveries
on repossessed collateral may not be available to support payment on these
securities.
SOVEREIGN DEBT SECURITIES. Sovereign debt securities are issued by governments
of foreign countries. The sovereign debt in which the Funds may invest may be
rated below investment grade. These securities usually offer higher yields than
higher rated securities but are also subject to greater risk than higher rated
securities.
BRADY BONDS. Brady bonds represent a type of sovereign debt. These obligations
were created under a debt restructuring plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady, in which foreign entities issued these
obligations in exchange for their existing commercial bank loans. Brady Bonds
have been issued by Argentina, Brazil, Costa Rica, the Dominican Republic,
Mexico, the Philippines, Uruguay and Venezuela, and may be issued by other
emerging countries.
INVESTMENT COMPANY SECURITIES. Each Fund may invest up to 10% of its total
assets in the shares of other investment companies. The Funds may invest in
money market mutual Funds in connection with the management of their daily cash
positions. The Funds may also make indirect foreign investments through other
investment companies that have comparable investment objectives and policies as
the Funds. In addition to the advisory and operational fees a Fund bears
directly in connection with its own operation, the Fund would also bear its pro
rata portions of each other investment company's advisory and operational
expenses.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (except the Money Market
Fund which may invest up to 10%) of its net assets in securities that are
considered illiquid. An illiquid investment is generally an investment that is
not registered under U.S. securities laws, or cannot be disposed of within seven
days in the normal course of business at approximately the amount at which the
Fund values it. Limitations on resale may adversely affect the marketability of
illiquid securities and the Fund may not be able to dispose of these securities
at the desired time and price. A Fund may bear additional expenses if it has to
register these securities under U.S. securities laws before being resold. The
Board of Trustees has determined that Rule 144A securities are not illiquid
securities.
TEMPORARY INVESTMENTS. Each Fund may, from time to time on a temporary basis,
invest all of its assets in short-term instruments to maintain liquidity or when
the Investment Adviser determines that the market conditions call for a
temporary defensive posture. These temporary investments include: notes issued
or guaranteed by the U.S. Government, its agencies or instrumentalities;
commercial paper rated in the highest two rating categories; certificates of
deposit; repurchase agreements and other high grade corporate debt securities.
THE FUNDS' INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Repurchase agreements are the purchase by the Fund of a
security that the seller has agreed to buy back, usually within one to seven
days. The seller's promise to repurchase the security is fully collateralized by
securities equal in value to 102% of the purchase price, including accrued
interest. If the seller defaults and the collateral value declines, the Fund
might incur a loss. If the seller declares bankruptcy, the Fund may not be able
to sell the collateral at the desired time. The Funds enter into these
agreements only with brokers, dealers, or banks that meet credit quality
standards established by the Board of Trustees.
SECURITIES SWAPS. A securities swap is a technique primarily used to indirectly
participate in the securities market of a country from which a Fund would
<PAGE>
46
RISK FACTORS AND SPECIAL CONSIDERATIONS
otherwise be precluded for lack of an established securities custody and
safekeeping system. The Fund deposits an amount of cash with its custodian (or
the broker, if legally permitted) in an amount equal to the selling price of the
underlying security. Thereafter, the Fund pays or receives cash from the broker
equal to the change in the value of the underlying security.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has been
borrowed from a third party on the expectation that the market price will drop.
If the price of the security drops, the Fund will make a profit by purchasing
the security in the open market at a lower price than at which it sold the
security. If the price of the security rises, the Fund may have to cover its
short position at a higher price than the short sale price, resulting in a loss.
A short sale can be covered or uncovered. In a covered short sale, the Fund
either (1) borrows and sells securities it already owns (also known as a short
sale "against the box"), or (2) deposits in a segregated account cash, U.S.
Government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase or sell
securities for delivery at a future date, generally 15 to 45 days after the
commitment is made. The other party's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous. A Fund
may not purchase when issued securities or enter into firm commitments if, as a
result, more than 15% of the Fund's net assets would be segregated to cover such
securities.
BORROWING. Each Fund may borrow up to 20% of its total assets for temporary,
extraordinary or emergency purposes. Each Fund may also borrow money through
reverse repurchase agreements, uncovered short sales, and other techniques. All
borrowings by a Fund cannot exceed one-third of a Fund's total assets. Interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, a Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
SECURITIES LENDING. The Funds may lend securities only to financial institutions
such as banks, broker/ dealers and other recognized institutional investors in
amounts up to 30% of the Fund's total assets. These loans earn income for the
Fund and are collateralized by cash, securities or letters of credit. The Fund
might experience a loss if the financial institution defaults on the loan.
FOREIGN CURRENCY TRANSACTIONS. Each Fund investing in foreign securities may
enter in to foreign currency transactions either on a spot or cash basis at
prevailing rates or through forward foreign currency exchange contracts in order
to have the necessary currencies to settle transactions. Each such Fund may also
enter into foreign currency transactions to protect Fund assets against adverse
changes in foreign currency exchange rates. Such efforts could limit potential
gains that might result from a relative increase in the value of such
currencies, and might, in certain cases, result in losses to a Fund.
OPTIONS. Options on securities, securities indices and foreign currencies may be
used to manage market, interest rate and currency risks. A Fund may not purchase
or sell options if more than 25% of its net assets would be hedged. The Funds
may also write covered call options and secured put options to seek to generate
income or lock in gains on up to 25% of their net assets.
FUTURES AND OPTIONS ON FUTURES. A futures contract obligates the seller of the
contract to deliver and the purchaser of the contract to take delivery of the
type of foreign currency, financial instrument or security called for in the
contract at a specified future time for a specified price. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made. As a general
rule, no Fund will purchase or sell futures if, immediately thereafter, more
than 25% of its net assets would be hedged.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. When a Fund uses options, futures and
options on futures as hedging devices, there is a risk that the prices of the
hedging vehicles may not correlate
<PAGE>
47
perfectly with the prices of the portfolio securities being hedged. This may
cause the futures contract and any related options to react differently than the
Fund's portfolio securities to market changes. In addition, the Investment
Adviser could be incorrect in its expectations about the direction or the extent
of market movements. In these events, a Fund could lose money on the futures
contracts or option. Although the Investment Adviser will consider liquidity
before entering into these transactions, there is no assurance that a liquid
secondary market will exist for positions in futures contracts or for options at
all times.
NON-HEDGING STRATEGIC TRANSACTIONS. Each Fund's options, futures and swap
transactions will generally be entered into for hedging purposes--to protect
against possible changes in the market values of securities held in or to be
purchased for the Fund's Portfolio resulting from securities markets, currency,
or interest rate fluctuations, to protect the Fund's unrealized gains in the
values of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of the
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchase or sale of particular securities. However, in
addition to the hedging transactions referred to above, the High Quality Bond
Fund may enter into options, futures and swap transactions to enhance potential
gain in circumstances where hedging is not involved. The Fund's net loss
exposure resulting from transactions entered into for such purposes will not
exceed 5% of the Fund's net assets at any one time and , to the extent
necessary, the Fund will close out transactions in order to comply with this
limitation. Such transactions are subject to the limitations described above
under "Options" and "Futures and Options on Futures."
THE YEAR 2000
The Investment Adviser has taken steps that it believes are reasonably designed
to address the potential failure of computer programs used by the Investment
Adviser and the Trust's service providers to address the Year 2000 issue. There
can be no assurance that these steps will be sufficient to avoid any adverse
impact.
In addition, the Year 2000 problem may adversely affect the Funds' investments.
For example, portfolio companies may incur substantial costs to address the
problem. They may also suffer losses caused by corporate and governmental data
processing errors.
CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
<PAGE>
48
RISK FACTORS AND SPECIAL CONSIDERATIONS
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B-
rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
<PAGE>
49
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following table sets forth historical performance information for the
Class A, B and C shares of the Mid Cap Growth, Convertible and International
Small Cap Growth Funds. It includes historical performance information for the
A, B and C Portfolios which preceded the Funds prior to the reorganization of
the Trust in March, 1998, for the corresponding master funds of the Master Trust
which were operated by the Investment Adviser prior to the organization of such
A, B and C Portfolios, and for the following investment partnerships which
preceded such master funds: Mid Cap Growth Fund--includes performance
information for Whitehall Partners, a California limited partnership the assets
of which were transferred to the predecessor of the Mid Cap Growth Fund in
April, 1993; Convertible Fund--includes performance information for Coventry
Partners, a California limited partnership the assets of which were transferred
to the predecessor of the Convertible Fund in April, 1993; International Small
Cap Growth Fund--includes performance information for Huntington Partners, a
California limited partnership the assets of which were transferred to the
predecessor of the International Small Cap Growth Fund in January, 1994.
All information set forth in the table relies on data supplied by the
Investment Adviser or from statistical services, reports or other sources
believed by the Investment Adviser to be reliable. However, such information has
not been verified and is unaudited. See "Performance Information" in the
Statement of Additional Information for information about calculation of total
return.
The Investment Adviser has advised the Trust that such partnerships were
operated with materially equivalent investment objectives, policies, strategies
and restrictions as such A, B and C Portfolios, and their assets were
transferred to the corresponding master funds of the Master Trust prior to the
effective date of the Portfolios' registration statement. It has indicated that
such results for the prior partnerships and for the corresponding master funds
of the Master Trust, have been adjusted to reflect the deduction of the fees and
expenses of the A, B and C Portfolios (including Rule 12b-1 fees), and, for the
period preceding the reorganization of the Trust, the proportionate shares of
the operating expenses of the corresponding master funds of the Master Trust
(including advisory fees), and give effect to transaction costs (such as sales
loads) as well as reinvestment of income and gains. However, the prior
investment partnerships were not registered under the 1940 Act and were not
subject to certain investment restrictions imposed by such Act; if they had been
so registered, their performance might have been adversely affected.
The results presented on the following pages may not necessarily equate with
the return experienced by any particular shareholder or partner as a result of
the timing of investments and redemptions. In addition, the effect of taxes on
any shareholder or partner will depend on such person's tax status, and the
results have not been reduced to reflect any income tax which may have been
payable.
<PAGE>
50
<TABLE>
<CAPTION>
CLASS A SHARES OF THE FUNDS
MID CAP GROWTH CONVERTIBLE INTERNATIONAL SMALL
PERFORMANCE PERFORMANCE CAP PERFORMANCE
RUSSELL CS FIRST SALOMON
MID CAP MID CAP BOSTON INTERNATIONAL EPAC/
GROWTH GROWTH CONVERTIBLE CONVERTIBLE SMALL CAP EMI
YEAR FUND INDEX(1) FUND INDEX(2) FUND INDEX(3)
<S> <C> <C> <C> <C> <C> <C>
1985(4) 18.05% n/a n/a n/a n/a n/a
1986 25.07 17.55% n/a n/a n/a n/a
1987(4) (2.47) 2.76 (8.74%) (0.22%) n/a n/a
1988 6.02 12.92 12.92 13.41 n/a n/a
1989 26.06 31.48 20.87 13.76 n/a n/a
1990(4) (5.11) (5.13) (4.07) (6.89) (22.06%) (16.96%)
1991 46.53 47.03 30.29 29.11 5.29 6.66
1992 6.95 8.71 3.41 17.58 (17.42) (15.42)
1993 12.78 11.19 19.85 18.55 18.77 30.34
1994 (15.67) (2.17) (13.04) (4.72) 3.12 9.44
1995 30.45 33.99 15.33 23.72 0.00 4.79
1996 9.76 17.48 13.94 13.84 11.48 6.47
1997 9.79 22.58 16.16 16.92 7.50 (10.27)
Last year(5) 34.36 42.40 24.16 25.87 29.15 7.75
Last 5 years(5) 14.40 18.42 15.50 13.40 15.59 7.94
Last 10 years(5) 18.15 17.08 16.66 13.11 n/a n/a
Since inception(5) 19.42 16.35 14.88 12.23 7.91 2.99
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES OF THE FUNDS
MID CAP GROWTH CONVERTIBLE INTERNATIONAL SMALL
PERFORMANCE PERFORMANCE CAP PERFORMANCE
RUSSELL CS FIRST SALOMON
MID CAP MID CAP BOSTON INTERNATIONAL EPAC/
GROWTH GROWTH CONVERTIBLE CONVERTIBLE SMALL CAP EMI
YEAR FUND INDEX(1) FUND INDEX(2) FUND INDEX(3)
<S> <C> <C> <C> <C> <C> <C>
1985(4) 19.38% n/a n/a n/a n/a n/a
1986 26.24 17.55% n/a n/a n/a n/a
1987(4) (2.70) 2.76 (9.12%) (0.22%) n/a n/a
1988 6.28 12.92 13.41 13.41 n/a n/a
1989 27.30 31.48 12.83 13.76 n/a n/a
1990(4) (5.50) (5.13) (4.43) (6.89) (22.17%) (16.96%)
1991 48.66 47.03 31.68 29.11 5.46 6.66
1992 7.15 8.71 3.48 17.58 (17.75) (15.42)
1993 13.36 (11.19) 20.51 18.55 19.55 30.34
1994 (16.06) (2.17) (13.31) (4.72) 2.32 9.44
1995 31.92 33.99 15.91 23.72 (0.26) 4.79
1996 10.17 22.96 14.61 13.84 11.89 6.47
1997 10.16 22.58 17.02 16.92 7.90 (10.27)
Last year(5) 35.84 42.40 25.51 25.87 35.63 7.75
Last 5 years(5) 14.68 18.42 15.86 13.40 15.99 7.94
Last 10 years(5) 18.04 17.03 16.57 13.11 n/a n/a
Since inception(5) 19.18 16.36 14.72 12.23 11.89 2.99
</TABLE>
<PAGE>
51
<TABLE>
<CAPTION>
CLASS C SHARES OF THE FUNDS
MID CAP GROWTH CONVERTIBLE INTERNATIONAL SMALL
PERFORMANCE PERFORMANCE CAP PERFORMANCE
RUSSELL CS FIRST INTERNATIONAL SALOMON
MID CAP MID CAP BOSTON SMALL CAP EPAC/
GROWTH GROWTH CONVERTIBLE CONVERTIBLE GROWTH EMI
YEAR FUND INDEX(1) FUND INDEX(2) FUND INDEX(3)
<S> <C> <C> <C> <C> <C> <C>
1985(4) 23.28% n/a n/a n/a n/a n/a
1986 31.24 17.55% n/a n/a n/a n/a
1987(4) 2.30 2.76 (4.33%) (0.22%) n/a n/a
1988 11.28 12.92 18.41 13.41 n/a n/a
1989 32.30 31.48 26.83 13.76 n/a n/a
1990(4) (0.52) (5.13) 0.57 (6.89) (18.89%) (16.96%)
1991 53.66 47.03 36.68 29.11 10.46 6.66
1992 12.15 8.71 8.48 17.58 (13.42) (15.42)
1993 18.23 11.19 25.51 18.55 24.55 30.34
1994 (11.53) (2.17) (8.75) (4.72) 8.77 9.44
1995 36.80 33.99 20.83 23.72 3.57 4.79
1996 15.20 17.48 19.55 13.84 16.91 6.47
1997 15.19 22.58 21.76 16.92 12.74 (10.27)
Last year(5) 40.95 42.40 30.22 25.87 35.63 7.75
Last 5 years(5) 14.94 18.42 15.99 13.40 15.99 7.94
Last 10 years(5) 18.05 17.03 16.53 13.11 n/a n/a
Since inception(5) 19.19 16.35 14.68 12.23 7.89 2.99
</TABLE>
1 The Russell Mid Cap Growth Index measures the performance of those
companies among the 800 smallest companies in the Russell 1000 Index with
higher than average price-to-book ratios and forecasted growth. The Russell
1000 Index contains the top 1,000 securities of the Russell 3000 Index,
which comprises the 3,000 largest U.S. securities as determined by total
market capitalization. The Russell Mid Cap Growth Index is considered
generally representative of the U.S. market for mid cap stocks. The average
market capitalization is approximately $4 billion, the median market
capitalization is approximately $2.5 billion and the largest company in the
Index had an approximate market capitalization of $8.7 billion. This Index
reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing. The Index was not available until 1986.
2 The CS First Boston Convertible Index is an unmanaged market weighted index
representing the universe of convertible securities, whether they are
convertible preferred stocks or convertible bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or markups, or other
expenses of investing.
3 The Salomon EPAC Extended Market Index ("EMI") is an unmanaged index that
includes shares of approximately 2,800 companies in 22 countries excluding
Canada and the United States. Companies included in the Index are smaller
capitalization companies with available float market capitalizations
greater than U.S. $100 million. Only issues that are legally and
practically available to outside investors are included in the Index. 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.
4 Inception dates are as follows:
Core Growth Portfolio A (predecessor to the Class A shares of the Mid Cap
Fund)--September 30, 1985 (registration statement effective April 19,
1993); Income & Growth Portfolio A (predecessor series to the Class A
shares of the Convertible Fund)--December 31, 1986 (registration statement
effective April 19, 1993); International Small Cap Growth Portfolio A
(predecessor to the Class A shares of the International Small Cap Growth
Fund)--June 7, 1990 (registration statement effective August 31, 1994).
Core Growth Portfolio B (predecessor to the Class B shares of the Mid Cap
Fund)--September 30, 1985 (registration statement effective May 31, 1995);
Income & Growth Portfolio B (predecessor series to the Class B shares of
the Convertible Fund)--December 31, 1986 (registration statement effective
April 19, 1993); International Small Cap Growth Portfolio B (predecessor to
the Class B shares of the International Small Cap Growth Fund)--June 7,
1990 (registration statement effective May 31, 1995).
Core Growth Portfolio C (predecessor to the Class C shares of the Mid Cap
Fund)--September 30, 1985 (registration statement effective April 19,
1993); Income & Growth Portfolio C--(predecessor series to the Class C
shares of the Convertible Fund)--December 31, 1986 (registration statement
effective April 19, 1993); International Small Cap Growth Portfolio C
(predecessor to the Class C shares of the International Small Cap Growth
Fund)--June 7, 1990 (registration statement effective August 31, 1994).
5 Through March 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NEW ACCOUNT FORM (NON-IRA) NICHOLAS APPLEGATE-Registered Trademark MAIL TO:
- -------------------------- M U T U A L F U N D S Nicholas-Applegate Mutual Funds
A B C PORTFOLIOS PO Box 8326
Boston, MA 02266-8326
FOR AN IRA ACCOUNT APPLICATION, CALL 800-551-8043. 800- 551-8043
- ------------------------------------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION
- ------------------------------------------------------------------------------------------------------------
PLEASE PRINT. COMPLETE ONE SECTION ONLY. Joint account owners will be registered joint tenants with the
right of survivorship unless otherwise indicated. It is the shareholder(s) responsibility to specify
ownership designations which comply with applicable state law.
/ / INDIVIDUAL OR JOINT ACCOUNT
First Name Middle Initial Last Name -----------------------
Social Security Number
Joint Tenant (IF ANY) Middle Initial Last Name -----------------------
Social Security Number
/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)
Custodian's First Name (ONLY ONE) Middle Initial Last Name
Minor's First Name (ONLY ONE) Middle Initial Last Name
- - - -
Minor's State or Residence Minor's Date of Birth Minor's Social Security Number
/ / TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY (CORPORATE RESOLUTION REQUIRED)
Name of Trust, Corporation or Other Entity
- -
Trustee Name(s) or Type of Entity Date of Trust Agreement
- -
Name of Beneficiary (OPTIONAL) Taxpayer Identification Number
- ------------------------------------------------------------------------------------------------------------
2. YOUR ADDRESS
- ------------------------------------------------------------------------------------------------------------
Do you have any other identically registered Nicholas-Applegate accounts? / / Yes / / No
CITIZENSHIP
/ / U.S.
Street Address or PO Box Number Apartment Number / / Resident Alien
/ / Non-resident Alien
Specify Country (if not U.S.)
-
City State Zip
- - - -
Area Code Home Phone Area Code Business Phone
- ------------------------------------------------------------------------------------------------------------
3. YOUR INVESTMENT
- ------------------------------------------------------------------------------------------------------------
Please select your fund choices and appropriate share class. See prospectus for investment minimums.
CLASS CLASS CLASS AMOUNT
- ------------------------------------------------------------------------------------------------------------
Small Cap Growth A(357) / / B(765) / / C(358) / / $
- ------------------------------------------------------------------------------------------------------------
Mid Cap Growth A(360) / / B(758) / / C(366) / / $
- ------------------------------------------------------------------------------------------------------------
Large Cap Growth A(966) / / B(967) / / C(968) / / $
- ------------------------------------------------------------------------------------------------------------
Convertible A(361) / / B(759) / / C(367) / / $
- ------------------------------------------------------------------------------------------------------------
Balanced Growth A(362) / / B(760) / / C(368) / / $
- ------------------------------------------------------------------------------------------------------------
High Quality Bond A( ) / / B( ) / / C( ) / / $
- ------------------------------------------------------------------------------------------------------------
Value A( ) / / B( ) / / C( ) / / $
- ------------------------------------------------------------------------------------------------------------
Money Market A(365) / / $
- ------------------------------------------------------------------------------------------------------------
Emerging Countries A(177) / / B(766) / / C(178) / / $
- ------------------------------------------------------------------------------------------------------------
International Small Cap A(353) / / B(764) / / C(355) / / $
- ------------------------------------------------------------------------------------------------------------
International Core Growth A(674) / / B(675) / / C(754) / / $
- ------------------------------------------------------------------------------------------------------------
Worldwide Growth A(363) / / B(761) / / C(369) / / $
- ------------------------------------------------------------------------------------------------------------
High Yield Bond A( ) / / B( ) / / C( ) / / $
- ------------------------------------------------------------------------------------------------------------
Other $
- ------------------------------------------------------------------------------------------------------------
TOTAL $
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
4. YOUR METHOD OF PAYMENT
- ------------------------------------------------------------------------------------------------------------
/ / BY CHECK: Payable to NICHOLAS-APPLEGATE MUTUAL FUNDS / / BY EXCHANGE: Portfolio name from which
(Third party checks will NOT be accepted.) you are exchanging
/ / BY WIRE: Please call (800)551-8043 for your account number / / BY CONFIRM TRADE ORDER: Trade Order #
<PAGE>
- ------------------------------------------------------------------------------------------------------------
5. TO REDUCE YOUR SALES CHARGE -- A SHARES ONLY
- ------------------------------------------------------------------------------------------------------------
/ / AGGREGATION/COMBINED PURCHASES you may aggregate investments for yourself and your immediate family
as well as through concurrent purchases of shares of two or more of the Nicholas-Applegate Series A
Portfolios.
/ / RIGHTS OF ACCUMULATION list the accounts of other Nicholas-Applegate funds that you and your
immediate family already own. I apply for reduced sales charges subject to the Agent's confirmation
of the following holdings of my account(s) of eligible related investors as described in the
applicable Prospectus.
Fund Name Shareholder(s) & Relationship Account Number (IF KNOWN)
Fund Name Shareholder(s) & Relationship Account Number (IF KNOWN)
/ / NET ASSET VALUE FOR RETIREMENT PLANS I certify that I am purchasing shares for a Retirement Plan of
an organization with 50 or more eligible employees.
/x/ LETTER OF INTENT A letter of intent option is also available. Please contact us at (800) 551-8043
for further details.
- ------------------------------------------------------------------------------------------------------------
6. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS
- ------------------------------------------------------------------------------------------------------------
Distributions will automatically be reinvested in additional shares of your Fund(s) unless you check the
box(es) below.
DIVIDENDS (CHECK ONE) / / Reinvest / / Cash CAPITAL GAINS (CHECK ONE) / / Reinvest / / Cash
/ / CROSS FUND REINVESTMENT(+) (OPTIONAL) Reinvest all dividends and capital gains into an existing
account in another Nicholas-Applegate Portfolio.
From To
Portfolio Name Portfolio Name
(+) MUST BE SAME ACCOUNT TYPE AND CLASS OF SHARES. MUST BE A $5,000 MINIMUM ACCOUNT VALUE FOR THIS SERVICE.
SERVICE OPTIONS
- ------------------------------------------------------------------------------------------------------------
7. TELEPHONE REDEMPTIONS AND EXCHANGES
- ------------------------------------------------------------------------------------------------------------
This allows you to use the telephone to redeem or exchange shares, unless you check the box below.
Redemptions will be made payable to the registered owner(s) and mailed to the address of record.
Maximum redemption by telephone is $50,000.
/ / I do not want telephone redemption privilege. / / I do not want telephone exchange privilege.
- ------------------------------------------------------------------------------------------------------------
8. SYSTEMATIC INVESTMENT--TO MY MUTUAL FUND ACCOUNT VIA ACH
- ------------------------------------------------------------------------------------------------------------
/ / Check this box to invest on a regular basis from your bank account. Please complete "Checking
Account Information" (Section 11).
$ , .
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
$ , .
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
- ------------------------------------------------------------------------------------------------------------
9. SYSTEMATIC EXCHANGES--FROM ONE NICHOLAS-APPLEGATE MUTUAL FUND ACCOUNT TO ANOTHER
- ------------------------------------------------------------------------------------------------------------
/ / Check this box to exchange on a regular basis from one Nicholas-Applegate account to another. (MUST
BE SAME SHARE CLASS AND REGISTRATION.)
FROM:
$ , .
Fund Name Amount ($50 MINIMUM, $5,000 MIN.ACCT.VALUE) Day* Monthly Quarterly
(JAN/APRIL/JULY/OCT)
Account Number (IF KNOWN)
TO:
$ , .
Fund Name Amount ($50 MINIMUM, $5,000 MIN.ACCT.VALUE) Day* Monthly Quarterly
(JAN/APRIL/JULY/OCT)
Account Number (IF KNOWN)
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
<PAGE>
- ------------------------------------------------------------------------------------------------------------
10. SYSTEMATIC WITHDRAWAL--FROM MY MUTUAL FUND ACCOUNT VIA ACH OR CHECK
- ------------------------------------------------------------------------------------------------------------
/ / Check this box to withdraw on a regular basis from my mutual fund account. Please complete
"Checking Account Information" below (SECTION 11).
BY ACH TO MY BANK ACCOUNT
$ , .
Fund Name Amount ($50 MINIMUM, $5,000 MIN.ACCOUNT.VALUE) Day* Monthly Quarterly
(JAN/APRIL/JULY/OCT)
BY CHECK (DO NOT NEED TO COMPLETE SECTION 11)
$ , . 15
Fund Name Amount ($50 MINIMUM, $5,000 MIN.ACCOUNT.VALUE) Day* Monthly Quarterly
(JAN/APRIL/JULY/OCT)
SEND PROCEEDS TO:
/ / Address of record
/ / Special Payee (LIST BELOW)
First Name Middle Initial Last Name
-
Address City State Zip
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
- ------------------------------------------------------------------------------------------------------------
11. CHECKING ACCOUNT INFORMATION--FOR ACH OR REDEMPTIONS BY WIRE
- ------------------------------------------------------------------------------------------------------------
Must be completed for Sections 8 and 10. PLEASE ATTACH A VOIDED CHECK OR DEPOSIT SLIP.
Name of Institution
-
Address City State Zip
Bank ABA Routing Number Bank Account Number
Any joint owner of your bank account who is NOT a joint owner of your portfolio account(s) must sign above.
- ------------------------------------------------------------------------------------------------------------
12. DUPLICATE STATEMENTS
- ------------------------------------------------------------------------------------------------------------
/ / I wish to have a duplicate statement sent to the interested party listed below.
Name of Interested Party
Address City State Zip
(SEE REVERSE)
- ------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------
CHECK-WRITING SIGNATURE CARD
-----------------------------------------------------------
FOR THE NICHOLAS-APPLEGATE MONEY MARKET PORTFOLIO A
STATE STREET BANK AND TRUST COMPANY
Account Number
-----------------------------------------------------------
ACCOUNT NAME(S) AS REGISTERED
AUTHORIZED SIGNATURE(S)
1.
2.
/ / Check if ALL signatures are required.
/ / Check if only ONE signature is required.
SUBJECT TO CONDITIONS ON REVERSE SIDE
- ------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------
13. DEALER INFORMATION
- ------------------------------------------------------------------------------------------------------------
HOME OFFICE INFORMATION (TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)
- -
Dealer Name and Number (IF KNOWN) Area Code Phone
-
Home Office Address City State Zip
BRANCH OFFICE INFORMATION
- -
Branch Office Number Area Code Phone
-
Branch Office Address City State Zip
REPRESENTATIVE INFORMATION
Representative's Name Representative's Number
- ------------------------------------------------------------------------------------------------------------
14. SIGNATURES
- ------------------------------------------------------------------------------------------------------------
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
/ / I have received and read the prospectus for each of the Funds in which I am investing, and I
believe each investment is suitable for me. I understand that the prospectus terms are incorporated
into this New Account Form by reference.
/ / I authorize the Nicholas-Applegate Funds, their affiliates and agents to act on any instructions
believed to be genuine for any service authorized on this form. I agree they will not be liable for
any resulting loss or expense.
/ / I am of legal age in my state and have the authority and legal capacity to purchase mutual fund
shares.
/ / I understand that neither the fund(s) nor the distributor, Nicholas-Applegate Securities, is a
bank and that fund shares are not obligations of or guaranteed by any bank or insured by the FDIC.
/ / I understand that mutual funds involve risks, including possible loss of principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is correct. (If I fail to
give the correct number or to sign this form, the Nicholas-Applegate Funds may reject or redeem my
investment. I may also be subject to any applicable IRS Backup Withholding for all distributions
and redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have not been notified of it
or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Funds, nor any of their affiliates will be
responsible for the authenticity of any instructions given and shall be fully indemnified as to and
held harmless from any and all direct and indirect liabilities, losses, or costs resulting from acting
upon such transactions.
- -
Shareholder, Custodian, Trustee or Authorized Officer Date
- -
Joint Owner, Custodian, Trustee or Authorized Officer Date
- ------------------------------------------------------------------------------------------------------------
The payment of funds is authorized by the signature(s) appearing on the reverse side.
If this card is signed by more than one person, all checks will require all signatures
appearing on the reverse side unless a lesser number is indicated. If no indication is
given, all checks will require all signatures. Each signatory guarantees the genuineness
of the other signatures.
The Bank is hereby appointed agent for the person(s) (the "Depositor(s)") signing this
card and, as agent, is authorized and directed to present checks drawn on this checking
account to the Fund or its transfer agent as requested to redeem units of the Fund
registered in the name of the Depositor(s) in the amounts of such check and to deposit
the proceeds of such redemptions in this checking account. The Bank will be liable only
for its own negligence.
The Depositor(s) agree to be subject to the rules and regulations of the Bank pertaining
to this checking account as amended from time to time. The Bank reserves the right to
change, modify or terminate this checking account and authorization at any time.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
Two documents are available that
offer further information on the
Nicholas-Applegate Mutual Funds:
ANNUAL OR SEMI-ANNUAL REPORTS
TO SHAREHOLDERS
Include financial statements, detailed
performance information, portfolio
holdings, a statement from portfolio
management, and the auditor's report.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed information
on all aspects of the Funds.
A current SAI has been filed with the
Securities and Exchange Commission
and is incorporated by reference into
this prospectus.
To request a free copy of the current
annual or semi-annual report or SAI,
please call or write:
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, CA 92101
Telephone: (800) 551-8045
<PAGE>
NEW FUNDS
Nicholas-Applegate has opened two new funds to individual investors:
HIGH YIELD BOND FUND
VALUE FUND
NEW FUND NAMES
Nicholas-Applegate has renamed the following funds to more accurately
reflect and clearly communicate their objectives:
THE EMERGING GROWTH FUND WAS RENAMED THE SMALL CAP GROWTH FUND
THE CORE GROWTH FUND WAS RENAMED THE MID CAP GROWTH FUND
THE INCOME & GROWTH FUND WAS RENAMED THE CONVERTIBLE FUND
REORGANIZED FUND
The GOVERNMENT INCOME FUND was merged with the FULLY
DISCRETIONARY FUND and renamed the HIGH QUALITY BOND FUND.
NICHOLAS-APPLEGATE-REGISTERED TRADEMARK-
600 West Broadway
San Diego, California 92101
800-551-8045
Nicholas-Applegate Securities, Distributor
www.nacm.com
MFABCPROI998
