(ICON)
Nicholas-
Applegate
Growth
Equity
Fund
ANNUAL
REPORT
Dec. 31, 1996
(LOGO)
<PAGE>
Nicholas-Applegate Growth Equity Fund
Performance At A Glance.
Larger company stocks were among the best performers in 1996, especially in
the second half of the year as nervous investors preferred stocks with greater
liquidity. Although large-company stocks outperformed small-company and mid-
sized company stocks, their gains were characterized by a narrow advance,
meaning that just a few of the large stocks contributed disproportionately to
the advance of the entire market. And although mid-sized company stocks did not
perform as well as the larger ones, these stocks, as a class, retained
attractive fundamental strengths, including significant earnings growth
potential, especially relative to the S&P 500. In fact, from a historical
perspective, fundamentals for mid-size companies' stocks were at their most
compelling valuation levels since the early 1990s.
<TABLE>
Cumulative Total Returns1 As of 12/31/96
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 16.5% 81.1% 221.6%
Class B 15.5 73.5 120.0
Class C 15.5 N/A 49.6
Lipper Growth Fund Avg3 19.2 87.1 210.3
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 12/31/96
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 10.6% 11.5% 12.2%
Class B 10.5 11.5 15.1
Class C 14.5 N/A 18.1
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 5% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% over six
years, for Class B shares. Class C shares have a 1% CDSC for one year. Class B
shares automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 4/23/87 for Class A; 6/10/91 for Class B; and 8/1/94 for
Class C.
3The Lipper Growth Fund Average includes 669 funds for one year; 255 funds for
five years; and 157 funds since inception of Class A shares on 4/23/87.
How Investments Compared.
(As of 12/31/96)
(CHART)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide 12-
month total returns for several Lipper mutual fund categories to show you that
reaching for higher yields means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've included historical
20-year average annual returns. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns historically have been lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Jack Marshall, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Nicholas-Applegate Growth Equity Fund seeks to deliver capital
appreciation through investment in growth companies with market capitalizations
predominantly between $500 million and $5 billion. Our bottom-up growth
philosophy focuses on identifying and investing in stocks meeting our criteria
of sustainable, accelerating earnings growth, and market leadership. There can
be no assurance that the Fund will achieve its investment objective.
Overview.
The focus of our investment philosophy is to identify companies benefiting
from positive, timely and sustainable change. As a result of our disciplined
search for these equity opportunities, our Growth Equity Fund invests in what
we believe are the best growth stocks with strong capital appreciation
potential.
Strategy Session.
Nicholas-Applegate selects stocks based on their individual merit. Using this
"bottom-up" approach to investing, we consider hundreds of individual
companies and invest in those we believe to be the most promising. With the
narrow advance of the stock market in 1996, when just a few large-company, or
"large-cap," stocks contributed disproportionately to the advance of the
entire market, choosing individual stocks proved especially challenging. For
example, of the nearly 6,000 stocks in the NASDAQ Composite Index, the largest
five were responsible for 48.4% of the composite's return. And, according to
Lipper Analytical Services, only 25% of fund managers outperformed the S&P 500.
Even among mid- and small-cap indexes, the largest stocks were the best
performers. Overall, as large caps outperformed mid- and small-cap stocks
during the second half of the year, the Fund's relative performance declined.
Although mid-sized company and smaller-cap stocks did not perform as well as
large caps in 1996, they retained attractive fundamentals. They are expected
to provide greater earnings growth than large company stocks in 1997 at lower
prices, relative to earnings.
During the first half of the year, we sold many of our holdings in the health
care sector as shrinking margins and increased competition led to concerns
about the sustainability of earnings growth. We added positions in companies
in the retail, telecommuni-cations and energy sectors. At year end, tough
retail sales and fewer shopping days than normal in the Thanksgiving-to-
Christmas season led to some disappointments in the department store and
specialty retail store areas, causing retail stocks to lag. Our stock
selection within the telecommuni-cations equipment area impacted returns
positively.
The addition of energy stocks to the portfolio also benefited returns. In
general, the energy sector performed well above expectations.
Our significant exposure in technology holdings (13% at year end) as well as
our individual stock selection in this area contributed significantly to the
portfolio's total return for the year.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 12/31/96.
(PIE CHART)
<PAGE>
What Went Well.
Technology stocks added to the Fund's performance throughout the year with the
exception of a brief drop during the summer's market correction. In fact, two
of the Fund's top performers -- Dell Computer and Intel -- were technology
stocks. Intel steadily increased more than 100% for the year; Dell Computer
gained more than 400% for the year. In addition, our stock selection in the
software industry further contributed to the Fund's gains.
Increasing our weighting in Financial Services also helped as SunAmerica, an
independent financial services firm, ended the year as one of the Fund's best
performing stocks.
With the high demand for oil lifting prices to their highest levels since the
Gulf War, Fund returns benefited from our oil-related holdings. Ensco
International Inc., a company that provides contract drilling services and
marine transportation in the Gulf of Mexico, the North Sea and offshore
Venezuela and Southeast Asia, was a top performer for the fourth quarter.
And Not So Well.
Specialty chains did not fare well this year. For example, Toys R Us was hurt
by sluggish retail sales, particularly during the holidays. The company's
earnings subsequently fell short of expectations.
Apparel stocks were similarly affected by companies' earnings disappointments.
Lower-than-expected holiday sales gains, due to the shortened shopping season,
negatively impacted such holdings as Tommy Hilfiger, and Nautica.
Health care stocks also were poor performers. We reduced positions in such
companies as Watson Pharmaceuticals Inc. and Pfizer Inc. and virtually
eliminated holdings in some health care industries, such as hospitals, managed
health care, and medical supplies.
Five Largest
Holdings.
2.2% Intel Corp.
Electronic Components
2.1 Jones Apparel Group, Inc.
Apparel & Textiles
2.0 Parametric Technology Corp.
Computer Software
1.9 Dell Computer Corp.
Computers-Services
1.9 Nokia Corp. (ADR)
Telecommunications
Expressed as a percentage of total net assets as of 12/31/96.
Looking Ahead.
Although Fund performance declined in the fourth quarter, it was up 16% for the
year. The strength of the Fund's fundamental characteristics gives us optimism.
For example, the median earnings growth rate for stocks in the Fund was 31.64%
at year-end versus the expected 11.8% earnings gain for the stocks of the S&P
500. We believe shareholders will continue to benefit from exposure to what
we believe to be some of the country's most promising growth companies. We
retain strict adherence to the investment disciplines, which have guided our
long-term performance.
- -------------------------------------------------------------------------------
1
<PAGE>
NICHOLAS-APPLEGATE FUND, INC. Portfolio of Investments
NICHOLAS-APPLEGATE GROWTH EQUITY FUND December 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
COMMON STOCKS--93.8%
CAPITAL GOODS--27.4%
Computers-Services--6.0%
80,900 Compaq Computer Corp.* $ 6,006,825
169,600 Dell Computer Corp.* 9,010,000
170,000 EMC Corporation * 5,631,250
137,700 Gateway 2000 Inc.* 7,375,556
--------------
28,023,631
--------------
Electronic Components--7.1%
198,500 CompUSA Inc.* 4,094,063
150,500 FORE Systems, Inc.* 4,947,687
78,000 Intel Corp. 10,213,125
260,000 Tech Data Corp.* 7,117,500
150,000 Vitesse Semiconductor Corp.* 6,825,000
--------------
33,197,375
--------------
Retail Specialty Chain--3.5%
165,100 Borders Group, Inc.* 5,922,962
162,500 Consolidated Stores Corp.* 5,220,313
178,800 Toys "R" Us, Inc.* 5,364,000 --------------
16,507,275
--------------
Telecommunication--10.8%
220,000 ADC Telecommunications, Inc.* 6,847,500
110,000 Andrew Corp.* 5,836,875
91,900 Ascend Communications, Inc.* 5,709,287
196,900 Ericsson (L.M.)
Telephone Co., Inc. (ADR) 5,943,919
92,000 LCI International, Inc.* 1,978,000
265,000 NEXTEL Communications, Inc.* 3,461,563
151,900 Nokia Corp. (ADR) 8,753,237
190,400 Teleport Communications
Group Inc.* 5,807,200
170,000 Tellabs, Inc.* 6,396,250
--------------
50,733,831
--------------
CONSUMER NON-DURABLES--17.3%
Airlines--1.4%
105,700 UAL Corporation* 6,606,250
--------------
Drugs & Healthcare--10.2%
195,600 Biogen, Inc.* $ 7,579,500
120,800 Boston Scientific Corp.* 7,248,000
129,650 Cardinal Health, Inc. 7,552,112
167,100 Dura Pharmaceuticals, Inc.* 7,979,025
156,300 HEALTHSOUTH Corp.* 6,037,088
110,000 Oxford Health Plans, Inc.* 6,441,875
121,300 Vertex Pharmaceuticals, Inc.* 4,882,325
--------------
47,719,925
--------------
Hotels & Restaurants--0.6%
180,900 Host Marriott Corp.* 2,894,400
--------------
Leisure And Recreation--3.6%
160,000 Harley-Davidson Inc. 7,520,000
350,000 International Game Tech., Inc. 6,387,500
164,300 WMS Industries, Inc.* 3,286,000
--------------
17,193,500
--------------
Retail-Services--1.5%
225,900 CUC International Inc.* 5,365,125
39,700 Kohl's Corp.* 1,558,225
--------------
6,923,350
--------------
ENERGY--13.3%
Oil & Gas-Production/Pipeline--9.9%
155,000 BJ Services Co.* 7,905,000
138,900 Burlington Resources, Inc. 6,997,087
119,500 Diamond Offshore
Drilling, Inc.* 6,811,500
153,100 Pogo Producing Co. 7,233,975
175,000 Smith International, Inc.* 7,853,125
50,200 United Meridian Corp.* 2,597,850
192,750 Williams Cos., Inc. 7,228,125
--------------
46,626,662
--------------
Oil Services--3.4%
180,000 ENSCO International Inc.* 8,730,000
103,500 Western Atlas, Inc.* 7,335,563
--------------
16,065,563
--------------
</TABLE>
See Notes to Financial Statements -2-
<PAGE>
NICHOLAS-APPLEGATE FUND, INC. Portfolio of Investments
NICHOLAS-APPLEGATE GROWTH EQUITY FUND December 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
ENVIRONMENTAL SECTOR--3.3%
Pollution Control
Equipment & Service--3.3%
239,700 Republic Industries, Inc.* $ 7,475,644
245,680 USA Waste Services, Inc.* 7,831,050
--------------
15,306,694
--------------
FINANCIAL SERVICES--11.3%
Financial/Business Services--11.3%
160,000 APAC Teleservices Inc.* 6,140,000
166,100 Associates First Capital Corp. 7,329,163
139,400 Danka Business
Systems PLC (ADR) 4,931,275
210,000 Equifax, Inc. 6,431,250
162,000 Green Tree Financial Corp. 6,257,250
86,800 MGIC Investment Corp. 6,596,800
233,800 Money Store, Inc. (The) 6,458,725
196,600 SunAmerica, Inc. 8,724,125
--------------
52,868,588
--------------
GENERAL BUSINESS--8.2%
Apparel & Textiles--8.2%
104,000 Gucci Group NV (ADR) 6,643,000
257,000 Jones Apparel Group, Inc.* 9,605,375
232,200 Mohawk Industries, Inc.* 5,108,400
216,900 Nautica Enterprises, Inc.* 5,476,725
78,700 NIKE, Inc. 4,702,325
149,300 Tommy Hilfiger Corp.* 7,166,400
--------------
38,702,225
--------------
TECHNOLOGY SECTOR--13.0%
Computer Hardware--1.1%
205,800 Sun Microsystems, Inc.* 5,286,488
--------------
Computer-Software--11.9%
174,000 BMC Software Inc.* 7,199,250
202,400 Cambridge Technology
Partners, Inc.* 6,793,050
89,400 Computer Associates
International, Inc. $ 4,447,650
124,300 McAfee Associates, Inc.* 5,469,200
44,200 Microsoft Corp.* 3,652,025
112,000 Netscape
Communications Corp.* 6,370,000
181,400 Parametric Technology Corp.* 9,319,425
166,200 Rational Software Corp.* 6,575,287
130,000 Synopsys, Inc.* 6,012,500
--------------
55,838,387
--------------
Total common stocks
(cost $347,551,519) 440,494,144
--------------
<CAPTION>
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--6.7%
Commercial Paper--6.7%
American Electric Power Co., Inc.
$ 8,032 6.55%, 1/2/97 8,030,539
Merrill Lynch & Co., Inc.
23,128 6.50%, 1/2/97 23,123,824
--------------
31,154,363
Other
115 Seven Seas Money Market Fund 115,004
--------------
Total short-term investments
(cost $31,269,367) 31,269,367
--------------
Total Investments--100.5%
(cost $378,820,886; Note 4) 471,763,511
Liabilities in excess of other
assets--(0.5%) (2,140,504)
--------------
Net Assets--100% $469,623,007
--------------
--------------
</TABLE>
- --------------
* Non-income producing security.
ADR--American Depository Receipt
-3- See Notes to Financial Statements
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1996
<S> <C>
Investments, at value (cost $378,820,886) $471,763,511
Cash 43,789
Receivable for Fund shares sold 2,281,118
Receivable for investments sold 2,192,400
Dividends and interest receivable 45,558
Deferred expenses and other assets 9,533
------------
Total assets 476,335,909
------------
Liabilities
Payable for investments purchased 4,529,796
Payable for Fund shares reacquired 1,134,247
Management fee payable 380,075
Accrued expenses 357,364
Distribution fee payable 299,377
Directors' fees payable 12,043
------------
Total liabilities 6,712,902
------------
Net Assets $ 469,623,007
------------
------------
Net assets were comprised of:
Common stock, at par $ 318,347
Paid-in capital in excess of par 355,155,899
------------
355,474,246
Accumulated net realized gain on investments 21,206,136
Net unrealized appreciation on investments 92,942,625
------------
Net assets, December 31, 1996 $469,623,007
------------
------------
Class A:
Net asset value and redemption price per share
($145,120,322 / 9,417,367 shares of common stock
issued and outstanding) $15.41
Maximum sales charge (5% of offering price) 81
-------
Maximum offering price to public $16.22
-------
Class B:
Net asset value, offering price and redemption price per share
($317,767,563 / 21,952,085 shares of common stock
issued and outstanding) $14.48
-------
-------
Class C:
Net asset value, offering price and redemption price per share
($6,735,122 / 465,271 shares of common stock
issued and outstanding) $14.48
-------
-------
</TABLE>
See Notes to Financial Statements -4-
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-------------------
<C> <S>
Net Investment Loss
Income
Dividends (net of foreign withholding taxes of
$12,568) $ 927,752
Interest 1,210,222
------------
Total income 2,137,974
------------
Expenses
Management fees 4,251,372
Distribution fee -- Class A 246,258
Distribution fee -- Class B 3,048,413
Distribution fee -- Class C 58,615
Transfer agent's fees and expenses 616,000
Reports to shareholders 144,000
Custodian's fees and expenses 140,000
Registration fees 79,000
Insurance expense 77,600
Directors' fees 77,000
Legal fees and expenses 50,000
Audit fees and expenses 32,000
Miscellaneous 34,360
------------
Total expenses 8,854,618
------------
Net investment loss (6,716,644)
------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment transactions 72,328,335
Net change in unrealized appreciation/
depreciation on investments (173,258)
------------
Net gain on investments 72,155,077
------------
Net Increase in Net Assets
Resulting from Operations $65,438,433
</TABLE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
Increase (Decrease) 1996 1995
in Net Assets
<S> <C> <C>
Operations
Net investment loss $ (6,716,644) $ (5,354,509)
Net realized gain on
investment transactions 72,328,335 37,652,628
Net change in unrealized
appreciation/depreciation
on investments (173,258) 68,899,944
---------------- ---------------
Net increase in
net assets resulting
from operations 65,438,433 101,198,063
---------------- ---------------
Net equalization debits -- (25,587)
---------------- ---------------
Distributions to shareholders
from net realized gains on
investments
Class A (18,962,078) (3,870,372)
Class B (44,527,983) (9,969,062)
Class C (917,000) (145,786)
---------------- ---------------
(64,407,061) (13,985,220)
---------------- ---------------
Fund share transactions (Note 5)
(net of share conversions)
Net proceeds from shares
subscribed 899,616,382 497,447,785
Net asset value of shares
issued to shareholders in
reinvestment of
distributions 58,287,125 12,582,750
Cost of shares reacquired (909,300,156) (523,457,280)
---------------- ---------------
Net increase (decrease) in
net assets from Fund
share transactions 48,603,351 (13,426,745)
---------------- ---------------
Total increase 49,634,723 73,760,511
Net Assets
Beginning of year 419,988,284 346,227,773
---------------- ---------------
End of year $ 469,623,007 $ 419,988,284
</TABLE>
See Notes to Financial Statements See Notes to Financial Statements
-5-
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Notes to Financial Statements
Nicholas-Applegate Growth Equity Fund (the "Fund") is currently the only series
of Nicholas-Applegate Fund, Inc. The Fund commenced operations as a closed-end,
diversified management investment company on April 9, 1987. On June 7, 1991, the
Fund ceased operations as a closed-end investment company. Effective June 10,
1991, trading in the Fund's shares was discontinued on the New York Stock
Exchange and the Fund commenced operations as an open-end, diversified
management investment company.
The Fund's investment objective is capital appreciation. It seeks to
achieve this objective by investing primarily in common stocks and in securities
convertible into or excercisable for common stocks (such as convertible
preferred stocks, convertible debentures and warrants), the earnings and
securities prices of which the investment adviser expects to grow at a rate
above that of the S&P 500.
Note 1. Accounting The following is a summary
Policies of significant accounting
policies followed by the
Fund in the preparation of
its financial statements.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last reported sales
price. If there are no sales on the date of valuation, then investments are
valued at the mean between the most recently quoted bid and asked prices
provided by principal market makers. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Fund's Board of Directors. Short-term
securities are valued at amortized cost.
In connection with transactions in repurchase agreements, it is the
Fund's policy that its custodian or designated subcustodians, as the case
may be under triparty repurchase agreements, take possession of the underlying
collateral securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by
the Fund may be delayed or limited.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date and interest income is recorded on
an accrual basis. Expenses are recorded on the accrual basis which may require
the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of
the day.
Equalization: Effective January 1, 1996, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of
proceeds from sales and costs of repurchases of capital shares, equivalent
on a per share basis to the amount of distributable net investment income on
the date of the transaction, is credited or charged to undistributed net
investment income. The balance of $25,587 undistributed net investment
income at December 31, 1996, resulting from equalization was transferred
to paid-in capital in excess of par. Such reclassification has no effect
on net assets, results of operations, or net asset value per share.
Dividends and Distributions: Dividends from net investment income and
distributions of net capital gains in excess of capital loss carryforwards,
if any, are declared and paid annually. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountant's Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income Capital Gain,
and Return of Capital Distributions by Investment Companies. For the year
ended December
-6-
<PAGE>
31, 1996 the Fund decreased accumulated net investment loss by $6,716,644, and
decreased paid-in capital by $6,716,644 due to the Fund experiencing a net
investment loss during the year. Net realized gains and net assets were not
affected by this change.
Note 2. Agreements The Fund has a management
agreement with Prudential
Mutual Fund Management, LLC ("PMF"). Pursuant to the management agreement,
PMF has responsibility for all investment advisory services and supervises
the subadviser's performance of such services. PMF has entered into a
subadvisory agreement with Nicholas-Applegate Capital Management ("NACM");
NACM furnishes investment advisory services in connection with the management
of the Fund. PMF pays for the services of the subadviser, the compensation of
officers of the Fund who are employees of PMF, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .95% of the average daily net assets of the Fund. PMF pays
NACM, as compensation for its services pursuant to the subadvisory agreement,
a fee at the rate of .75% of the average daily net assets of the Fund. During
the year ended December 31, 1996 PMF earned $4,251,372 in management fees of
which it paid $3,358,584 to NACM under the foregoing agreements.
The Fund has a distribution agreement with Prudential Securities
Incorporated ("PSI"), which acts as the distributor of the Class A, Class B
and Class C shares of the Fund. The Fund compensates PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the "Class A, B and C Plans") regardless of expenses actually
incurred by them. The distribution fees for Class A, B and C shares are
accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Class A, B and C Plans were .18 of 1% of
average daily net assets of Class A shares and 1% of the average daily net
assets of both the Class B and Class C shares, respectively, for the year
ended December 31, 1996.
PSI has advised the Fund that it has received approximately $268,300 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1996. From these fees, PSI paid such sales charges to
PRUCO Securities Corporation, an affiliated broker-dealer, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI advised the Fund that for the year ended December 31, 1996, it
received approximately $721,400 in contingent deferred sales charges imposed
upon certain redemptions by Class B and C shareholders.
PSI, PMF and ("Prusec") are (indirect) wholly-owned subsidiaries of The
Prudential Insurance Company of America. ("Prudential")
The Fund, along with other affiliated registered investment companies
(the "Funds"), entered into a credit agreement (the "Agreement") on December
31, 1996 with an unaffiliated lender. The maximum commitment under the
Agreement is $200,000,000. The Agreement expires on December 30, 1997.
Interest on any such borrowings outstanding will be at market rates. The
purposes of the Agreement is to serve as an alternative source of funding for
capital share redemptions. The Fund has not borrowed any amounts pursuant to
the Agreement as of December 31, 1996. The Funds pay a commitment fee at an
annual rate of .055 of 1% on the unused portion of the credit facility. The
commitment fee is accrued and paid quarterly on a pro-rata basis by the Funds.
Note 3. Other Prudential Mutual Fund
Transactions Services, LLC ("PMFS"), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's
transfer agent. During the year ended December 31, 1996, the Fund incurred
fees of approximately $590,000 for the services of PMFS, of which
approximately $52,700 was owed as of December 31, 1996. Transfer agent fees
and expenses in the Statement of Operations also include certain out of pocket
expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for
the year ended December 31, 1996 aggregated $487,250,242 and $524,967,988,
respectively.
The cost basis of investments for federal income tax purposes at December
31, 1996 was $378,829,945 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $92,933,566 (gross unrealized
appreciation--$100,985,442; gross unrealized depreciation--$8,051,876).
Note 5. Capital The Fund offers Class A, Class
B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 5%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending upon the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during
-7-
<PAGE>
the first year. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualified to purchase Class A
shares at net asset value.
The Fund has authorized 100 million shares of common stock at $.01 par
value per share equally divided into three classes, designated Class A, Class
B and Class C shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------- -------- --------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold 45,256,796 $ 735,771,997
Shares issued in reinvestment
of dividends and distributions 983,300 15,498,673
Shares reacquired (45,642,294) (743,356,355)
------------- ---------------
Net increase in shares
outstanding before conversion 597,802 7,914,315
Shares issued upon conversion
from Class B 628,501 10,055,961
------------- ---------------
Net increase in shares
outstanding 1,226,303 $ 17,970,276
------------- ---------------
------------- ---------------
Year ended December 31, 1995:
Shares sold 24,651,915 $ 348,256,276
Shares issued in reinvestment of
dividends and distributions 215,625 3,115,781
Shares reacquired (25,323,931) (359,037,322)
Net decrease in shares
outstanding before conversion (456,391) (7,665,265)
Shares issued upon conversion
from Class B 1,302,983 16,471,726
Net increase in shares
outstanding 846,592 $ 8,806,461
<CAPTION>
Class B
- --------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold 10,219,707 $ 155,199,983
Shares issued in reinvestment of
distributions 2,823,157 41,917,160
Shares reacquired (10,486,306) (158,450,669)
------------- ---------------
Net increase in shares
outstanding before conversion 2,556,558 38,666,474
Shares reacquired upon
conversion into Class A (664,025) (10,055,961)
------------- ---------------
Net increase in shares
outstanding 1,892,533 $ 28,610,513
------------- ---------------
------------- ---------------
<CAPTION>
Class B Shares Amount
- --------- -------- --------
<S> <C> <C>
Year ended December 31, 1995:
Shares sold 10,704,150 $ 145,320,817
Shares issued in reinvestment of
distributions 675,282 9,325,642
Shares reacquired (12,198,113) (163,546,779)
------------- ---------------
Net decrease in shares
outstanding before conversion (818,681) (8,900,320)
Shares reacquired upon
conversion into Class A (1,354,574) (16,471,726)
------------- ---------------
Net decrease in shares
outstanding (2,173,255) $ (25,372,046)
------------- ---------------
------------- ---------------
<CAPTION>
Class C
- ---------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold 564,965 $ 8,644,402
Shares issued in reinvestment of
distributions 58,630 871,292
Shares reacquired (496,192) (7,493,132)
------------- ---------------
Net increase in shares
outstanding 127,403 $ 2,022,562
------------- ---------------
------------- ---------------
Year ended December 31, 1995:
Shares sold 297,211 $ 3,870,692
Shares issued in reinvestment of
distributions 10,241 141,327
Shares reacquired (64,764) (873,179)
------------- ---------------
Net increase in shares
outstanding 242,688 $ 3,138,840
------------- ---------------
------------- ---------------
</TABLE>
Note 6. Distributions On February 7, 1997, the
Board of Directors of the
Fund declared a long-term capital distribution of $0.509 per share for Class
A, B and C shares respectively, payable on February 28, 1997 to shareholders
of record on February 14, 1997.
-8-
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1996 1995(a) 1994(a) 1993(a) 1992(a)
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 15.18 $ 11.99 $ 13.56 $ 12.77 $ 11.73
----------- ---------- ---------- ------------ -----------
Income from investment operations:
Net investment loss (0.14) (0.11) (0.07) (0.07) (0.07)
Net realized and unrealized gain (loss) on
investment transactions 2.64 3.82 (1.19) 2.63 1.11
----------- ---------- ---------- ------------ -----------
Total from investment operations 2.50 3.71 (1.26) 2.56 1.04
Less distributions:
Distributions from net realized gains from
investment transactions (2.27) (0.52) (0.31) (1.77) --
----------- ---------- ---------- ------------ -----------
Total distributions (2.27) (0.52) (0.31) (1.77) --
----------- ---------- ---------- ------------ -----------
Net asset value, end of year $ 15.41 $ 15.18 $ 11.99 $ 13.56 $ 12.77
----------- ---------- ---------- ------------ -----------
----------- ---------- ---------- ------------ -----------
TOTAL RETURN(b): 16.45% 31.20% (9.53)% 20.26% 8.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $145,120 $124,340 $ 88,069 $ 97,596 $ 84,169
Average net assets (000) $136,482 $109,740 $ 93,620 $ 90,332 $ 74,005
Ratios to average net assets:
Expenses, including distribution fee 1.41% 1.44% 1.49%(d) 1.42%(d) 1.54%(d)
Expenses, excluding distribution fee 1.23% 1.27% 1.32%(d) 1.30%(d) 1.44%(d)
Net investment loss (0.93)% (0.83)% (0.59)% (0.53)% (0.63)%
For Class A, B and C shares:
Portfolio turnover rate(c) 113% 106% 110% 112% 107%
Average commission rate paid per share $.0588 $.0592 N/A N/A N/A
</TABLE>
- ---------------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of dividends
and distributions.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(d) Current year amounts have been restated from prior periods presentation.
N/A -- Not available
-9- See Notes to Financial Statements
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
1996 1995(a) 1994(a) 1993(a) 1992(a)
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PER SHARE
OPERATING PERFORMANCE:
Net asset value, beginning of year $14.49 $ 11.56 $ 13.18 $ 12.56 $ 11.65
----------- ---------- ---------- ------------ -----------
Income from investment operations:
Net investment loss (.24) (0.22) (0.17) (0.18) (0.16)
Net realized and unrealized gain (loss) on
investment transactions 2.50 3.67 (1.14) 2.57 1.07
----------- ---------- ---------- ------------ -----------
Total from investment operations 2.26 3.45 (1.31) 2.39 0.91
----------- ---------- ---------- ------------ -----------
Less distributions:
Distributions from net realized gains from
investment transactions (2.27) (0.52) (0.31) (1.77) --
----------- ---------- ---------- ------------ -----------
Total distributions (2.27) (0.52) (0.31) (1.77) --
----------- ---------- ---------- ------------ -----------
Net asset value, end of year $14.48 $ 14.49 $ 11.56 $ 13.18 $ 12.56
----------- ---------- ---------- ------------ -----------
----------- ---------- ---------- ------------ -----------
TOTAL RETURN(b): 15.54% 30.11% (10.20)% 19.21% 7.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $317,768 $290,751 $257,059 $252,911 $123,306
Average net assets (000) $304,841 $265,597 $261,285 $179,456 $ 80,531
Ratios to average net assets:
Expenses, including distribution fee 2.23% 2.27% 2.32%(c) 2.30%(c) 2.44%(c)
Expenses, excluding distribution fee 1.23% 1.27% 1.32%(c) 1.30%(c) 1.44%(c)
Net investment loss (1.75)% (1.66)% (1.39)% (1.40)% (1.56)%
</TABLE>
- ----------------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
(c) Current year amounts have been restated from prior periods presentation.
See Notes to Financial Statements -10-
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class C
------------------------------------------------------
August 1,
1994(c)
Year Ended December 31, Through
-------------------------- December 31,
1996 1995(a) 1994(a)
----------- ---------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.49 $ 11.56 $ 11.62
Income from investment operations:
Net investment loss (0.22) (0.22) (0.05)
Net realized and unrealized gain (loss) on
investment transactions 2.48 3.67 (0.01)
----------- ---------- ------------
Total from investment operations 2.26 3.45 (0.06)
----------- ---------- ------------
Less distributions:
Distributions from net realized gains from
investment transactions (2.27) (0.52) --
----------- ---------- ------------
Total distributions (2.27) (0.52) --
----------- ---------- ------------
Net asset value, end of period $ 14.48 $ 14.49 $ 11.56
----------- ---------- ------------
----------- ---------- ------------
TOTAL RETURN(b): 15.54% 30.11% (0.52)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 6,735 $ 4,897 $ 1,100
Average net assets (000) $ 5,862 $ 2,961 $ 225
Ratios to average net assets:
Expenses, including distribution fee 2.23% 2.27% 6.23%(d)(e)
Expenses, excluding distribution fee 1.23% 1.27% 5.23%(d)(e)
Net investment loss (1.75)% (1.63)% (3.36)%(d)
</TABLE>
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. total return
is calculated assuming purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods less than a full year are not
annualized.
(c) Commencement of offering Class C shares.
(d) Annualized.
(e) Current year amounts have been restated from prior periods presentation.
-11- See Notes to Financial Statements
<PAGE>
R E P O R T O F I N D E P E N D E N T A U D I T O R S
To the Board of Directors and Shareholders of
Nicholas-Applegate Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Nicholas-Applegate Growth Equity Fund, the only series of Nicholas-Applegate
Fund, Inc., including the portfolio of investments, as of December 31, 1996,
and the related statement of operations for the year then ended, and the
statements of changes in net assets and the financial highlights for each of
the two years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of
Nicholas-Applegate Growth Equity Fund for each of the three years in the
period ended December 31, 1994 for Class A and Class B shares, and for the
period from August 1, 1994 (commencement of investment operations) to
December 31, 1994 for Class C Shares, were audited by other auditors whose
report dated February 8, 1995 expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Nicholas-Applegate Growth Equity Fund as of December 31, 1996, the results
of its operations for the year then ended, and the changes in its net assets
and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
February 3, 1997
T A X I N F O R M A T I O N
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (December 31, 1996) as to the federal income tax
status of dividends and distributions paid by the Fund during such fiscal year.
Accordingly, we are advising you that in the fiscal year ended December 31,
1996, the Fund paid a long-term capital gains distribution for Class A, Class
B and Class C shares of $2.27 per share which is taxable as such.
We wish to advise you that the corporate dividends received deduction
for the Fund is zero. For the purpose of preparing your annual federal
income tax return you should report the amounts reflected on the appropriate
Form 1099-DIV or substitute 1099.
See Notes to Financial Statements -12-
<PAGE>
Comparing A $10,000 Investment.
Nicholas-Applegate Growth Equity Fund vs.
the S&P 500 Index.
// Nicholas-Applegate Growth Equity Fund
- -- S&P 500 Index
Average Annual
Total Returns
With Sales Load Class A
12.2% Since Inception (CHART)
11.5% for 5 Years
10.6% for 1 Year
Without Sales Load
12.8% Since Inception
12.6% for 5 Years
16.5% for 1 Year
Average Annual
Total Returns
With Sales Load Class B
15.1% Since Inception (CHART)
11.5% for 5 Years
10.5% for 1 Year
Without Sales Load
15.2% Since Inception
11.7% for 5 Years
15.5% for 1 Year
Average Annual
Total Returns
With Sales Load Class C
18.1% Since Inception (CHART)
14.5% for 1 Year
Without Sales Load
18.1% Since Inception
15.5% for 1 Year
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than their original cost. The charts on the right are
designed to give you an idea how much the Fund's returns can fluctuate from
year to year by measuring the best and worst calendar years in terms of total
annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Nicholas-Applegate Growth Equity Fund
(Class A, Class B and Class C) with a similar investment in the Standard &
Poor's 500 Index by portraying the initial account values at the commencement
of operations of each class, and subsequent account values at the end of this
reporting period (December 31, 1996), as measured on a quarterly basis,
beginning in 1987 for Class A shares, in 1991 for Class B shares and in 1994
for Class C shares. For purposes of the graphs, and unless otherwise indicated,
in the accompanying tables it has been assumed (a) that the maximum applicable
front-end sales charge was deducted from the initial $10,000 investment in
Class A shares; (b) the maximum applicable contingent deferred sales charge
was deducted from the value of the investment in Class B and Class C shares,
assuming full redemption on December 31, 1996; (c) all recurring fees
(including management fees) were deducted; and (d) all dividends and
distributions were reinvested. Class B shares will automatically convert to
Class A shares, on a quarterly basis, beginning approximately seven years after
purchase. This conversion feature is not reflected in the graph.
The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the reinvestment
of all dividends, but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Fund. The securities in the
S&P 500 may differ substantially from the securities in the Fund. The S&P 500
is not the only index that may be used to characterize performance of stock
funds and other indexes may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
Directors
Arthur E. Nicholas, Chairman
Dann V. Angeloff
Fred C. Applegate
Theodore J. Coburn
Robert F. Gunia
Arthur B. Laffer
Charles E. Young
Officers
Jack C. Marshall, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Robert E. Carlson, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, CA 92101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Ernst & Young LLP
515 South Flower Street
Los Angeles, California 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90017
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
653698209 MF151E
653698308 Cat. #4443715
653698407
