<PAGE>
(ICON)
Nicholas-
Applegate
Growth
Equity
Fund
ANNUAL
REPORT
Dec. 31, 1998
(LOGO)
<PAGE>
Nicholas-Applegate Growth Equity Fund
Performance At A Glance.
Confronting global financial uncertainty for much of 1998,
investors fled to a
few large, well-known companies that were expected to have
more stable earnings
and marketable stocks. Momentum investors, drawn to highly
priced brand name
stocks, generally saw the greatest returns. Your Fund, which
invests in mid-
cap stocks with fundamentals indicating strong earnings
growth potential,
returned 12.8% for the year lagging its benchmark, the
Russell Midcap Growth
Index, which returned 17.9%. For the six-month period ending
December 1998,
the Fund returned 2.2%, while the benchmark returned 5.4%.
<TABLE>
<CAPTION>
CumulativeTotal Returns1
As of 12/31/98
One Five Ten
Since
Year Years
Years Inception2
<S> <C> <C> <C>
<C>
Class A 12.83% 82.99%
358.63% 325.77%
Class B 11.87 75.92
N/A 186.72
Class C 11.87 N/A
N/A 94.88
Class Z 13.13 N/A
N/A 37.21
Lipper Mid-Cap Fund
Avg.3 12.24 102.87
335.55 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 12/31/98
One Five Ten
Since
Year Years
Years Inception2
<S> <C> <C> <C>
<C>
Class A 7.19% 11.70%
15.86% 12.65%
Class B 6.87 11.83
N/A 14.95
Class C 9.75 N/A
N/A 16.05
Class Z 13.13 N/A
N/A 19.32
</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.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. The
cumulative total returns do not take into account sales
charges. The average
annual total returns do take into account applicable sales
charges. The Fund
charges a maximum front-end sales load of 5% for Class A
shares. Class B
shares are subject to a declining contingent deferred sales
charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares
will automatically
convert to Class A shares, on a quarterly basis,
approximately seven years
after purchase. Class C shares are subject to a front-end
sales load of 1% and
a CDSC of 1% for 18 months. Class C shares bought before
November 2, 1998 have
a 1% CDSC if sold within one year. Class Z shares are not
subject to a sales
charge or distribution fee.
2 Inception dates: Class A, 4/9/87; Class B, 6/10/91; Class
C, 8/1/94; and
Class Z, 3/18/97.
3 Lipper average returns are for all funds in each share
class for the one-,
five-, and ten-year periods in the Mid-Cap Fund category.
***Lipper Since Inception returns are 335.29% for Class A;
189.12% for Class
B; 116.91% for Class C; and 43.02% for Class Z based on all
funds in each
share class.
How Investments Compared.
(As of 12/31/98)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper, Inc. 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.
U.S. Taxable Money 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>
William H. Chenoweth, 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 $1 billion and $10
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.
We are committed to building the Fund using a bottom-up
stock selection
process. We believe this time-tested method of selecting
stocks based on
their individual merit -- rather than focusing on the top-
down approach of
choosing stocks dependent on market, monetary, political,
fiscal or economic
trends -- has provided investors with attractive long-term
results.
Strategy Session.
How We Invest.
At Nicholas-Applegate, we do not concentrate on
macroeconomic factors such as
fiscal policy or economic trends. Instead, we build the
portfolio one stock at
a time. Our portfolio management team uses three strict
investment criteria in
selecting stocks: evidence of positive fundamental change,
sustainable
earnings growth, and timeliness of investment. When a stock
no longer meets
any one of these criteria, it is replaced with a more
attractive holding.
In identifying the strongest stock candidates available, we
draw upon
extensive internal research resources, including one of the
most comprehensive
databases in the industry. We use it to monitor over 4,000
stocks each day on
a real-time basis, uncovering what we believe will be the
most fundamentally
sound high-growth companies for the Fund. Our internal
analysis is buttressed
by an extensive external network of local and regional
analysts, who
contribute their expertise on stocks they closely follow.
This information
helps us identify companies that we believe will generate
excellent earnings
growth for superior long-term capital appreciation.
Portfolio Composition.
Expressed as a percentage of
total net assets as of 12/31/98.
(PIE CHART)
<PAGE>
What Went Well.
Our bottom-up stock selection process paid off as the Fund
outpaced the
benchmark in the consumer services, retail trade, and health
technology
sectors. Several retail trade stocks were top performers,
including Dollar
Tree Stores, Costco, and Amazon.Com. The Fund also benefited
from stellar
performances by Outdoor Systems, Network Appliance, and
Watson Pharmaceutical.
Price appreciation and stock-specific investments among
technology issues
lifted the Fund's weighting in the sector to 34.4%, higher
than the benchmark
of 22.3%.
On a stock-by-stock basis, we continue to add high-quality
technology stocks
to the Fund, especially with the upbeat outlook for personal
computer sales
and Internet commerce. We believe economies of scale and
positive earnings
announcements by industry bellwethers could be continued
catalysts for our
holdings.
Several holdings in the financial services sector also
appear to be well
positioned to exceed analysts' expectations. The growth
prospects could be
fueled by continued merger and acquisition activity and a
low interest-rate
environment, which could improve corporate profit margins
and cash flows.
And Not So Well.
The Fund's performance was impacted significantly by the
underperformance of
energy-related stocks such as Global Industries, Diamond
Offshore Drilling,
and Transocean Offshore. The sector has been under pressure
due to decreased
demand from Asian nations, warmer than normal weather, and
continued pressures
on commodity prices from a short-term oversupply of crude
oil.
Less than favorable earnings prospects for the financial
services sector at
the beginning of the fourth quarter led us to sell several
holdings. With the
subsequent Federal Reserve interest-rate reductions,
however, the outlook
reversed and our underexposure hindered performance.
The Fund also suffered losses in the commercial/industrial
sector, which
includes advertising and telecommunications services. We
have since reduced
our weightings in each of these sectors on a stock-by-stock
basis.
Five Largest Holdings.
2.9% Watson Pharmaceuticals, Inc.
Drugs & Health Care
2.6% Citrix Systems, Inc.
Computer Software
2.2% Ascend Communications, Inc.
Computer Networks
2.2% Amazon.Com, Inc.
Specialty Chain
2.0% Netscape Communications Corp.
Computer Software
Expressed as a percentage of net assetsas of 12/31/98.
Looking Ahead.
The outlook for the Growth Equity Fund remains positive
given the favorable
earnings environment for mid-cap stocks, low inflation, and
low interest
rates. The Fed's decision to lower interest rates in the
fourth quarter bodes
particularly well for investors, as interest-rate reductions
have historically
triggered extended periods of strong performance for mid-cap
stocks. We
believe investors will continue to favor stocks with the
potential to deliver
the strongest earnings growth. These are precisely the
stocks we seek for our
portfolios.
- ------------------------------------------------------------
- -------------------
1
<PAGE>
NICHOLAS-APPLEGATE FUND, INC. Portfolio of
Investments
NICHOLAS-APPLEGATE GROWTH EQUITY FUND December 31,
1998
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
COMMON STOCKS--98.8%
CAPITAL GOODS--21.0%
Drugs & Healthcare--2.6%
84,800 Bausch & Lomb, Inc......... $ 5,088,000
42,400 Guidant Corp............... 4,674,600
------------
9,762,600
------------
Leisure & Recreation--0.7%
51,900 Harley-Davidson, Inc....... 2,458,763
------------
Retail/Wholesale Specialty Chain--17.7%
49,200 Abercrombie & Fitch Co.*... 3,480,900
25,400 Amazon.Com, Inc.*.......... 8,159,750
112,500 Bed Bath & Beyond, Inc.*... 3,839,062
94,200 Costco Companies, Inc.*.... 6,800,062
151,875 Dollar Tree Stores Inc.*... 6,635,039
216,800 Family Dollar Stores,
Inc...................... 4,769,600
56,500 Kohl's Corp.*.............. 3,471,219
107,900 Micro Warehouse, Inc*...... 3,648,369
65,000 Rite Aid Corp.............. 3,221,563
114,800 Safeway Inc.*.............. 6,995,625
174,100 Staples, Inc.*............. 7,605,994
136,000 Starbucks Corp.*........... 7,633,000
------------
66,260,183
------------
CONSUMER NON-DURABLES--18.1%
Aerospace--0.9%
61,800 Gulfstream Aerospace
Corp.*................... 3,290,850
------------
Airlines--0.6%
71,200 Comair Holdings, Inc....... 2,403,000
------------
Business Services--3.4%
85,850 Concord EFS, Inc.*......... 3,637,894
113,200 Fiserv, Inc.*.............. 5,822,725
66,400 Metzler Group, Inc.
(The)*................... 3,232,850
------------
12,693,469
------------
Drugs & Healthcare--12.9%
112,000 Allegiance Corp............ 5,222,000
81,600 Allergan, Inc.............. 5,283,600
38,700 Cardinal Health, Inc....... 2,936,363
58,100 Elan Corp. PLC (ADR)*...... $ 4,041,581
66,300 Forest Laboratories,
Inc.*.................... 3,526,331
58,300 Genzyme Corp.*............. 2,900,425
33,100 Immunex Corp.*............. 4,164,394
67,900 McKesson Corporation....... 5,368,344
173,300 Watson Pharmaceuticals,
Inc.*.................... 10,896,237
44,500 Wellpoint Health Networks
Inc.*.................... 3,871,500
------------
48,210,775
------------
Equipment Rental--0.3%
36,300 United Rentals Inc.*....... 1,202,437
------------
ENERGY--3.3%
Oil & Gas-Production/Pipeline--1.6%
87,000 Burlington Resources,
Inc...................... 3,115,688
65,100 Diamond Offshore Drilling,
Inc...................... 1,542,056
52,300 Transocean Offshore Inc.... 1,402,294
------------
6,060,038
------------
Oil Services--1.7%
231,200 Global Industries, Ltd.*... 1,416,100
67,000 Smith International,
Inc.*.................... 1,687,562
103,100 Veritas DGC, Inc.*......... 1,340,300
102,600 Weatherford International,
Inc.*.................... 1,987,875
------------
6,431,837
------------
FINANCIAL SERVICES--11.2%
Financial/Business Services
53,900 Capital One Financial
Corp..................... 6,198,500
93,700 CIT Group*................. 2,980,831
87,000 Donaldson, Lufkin &
Jenrette, Inc............ 3,567,000
72,500 FINOVA Group, Inc.......... 3,910,469
41,700 Firstar Corp............... 3,888,525
48,800 Hartford Life, Inc......... 2,842,600
113,800 PaineWebber Group, Inc..... 4,395,525
147,550 Paychex, Inc............... 7,589,603
59,800 ReliaStar Financial
Corp..................... 2,758,275
69,300 Schwab Charles Corp.
(The).................... 3,893,794
------------
42,025,122
------------
</TABLE>
See Notes to Financial Statements. 2
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND (cont'd)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
GENERAL BUSINESS--10.8%
Advertising--3.3%
26,900 CMG Information Services,
Inc.*.................... $ 2,864,850
86,000 Lamar Advertising Co.*..... 3,203,500
214,350 Outdoor Systems, Inc.*..... 6,430,500
------------
12,498,850
------------
Home Furnishings--0.8%
120,800 Shaw Industries, Inc....... 2,929,400
------------
Media--6.7%
129,800 Clear Channel
Communications, Inc.*.... 7,074,100
60,500 Cox Communications,
Inc.*.................... 4,182,063
70,400 Infinity Broadcasting
Corp.*................... 1,927,200
88,400 Jacor Communications,
Inc.*.................... 5,690,750
183,900 USA Networks, Inc.*........ 6,091,687
------------
24,965,800
------------
TECHNOLOGY--34.4%
Computer Networks--8.6%
98,900 3Com Corp.*................ 4,431,956
126,000 Ascend Communications,
Inc.*.................... 8,284,500
210,600 Maxtor Corp.*.............. 2,948,400
112,600 Network Appliance, Inc.*... 5,067,000
115,200 Novell, Inc.*.............. 2,088,000
39,300 RF Micro Devices Inc.*..... 1,822,538
158,300 Seagate Technology,
Inc.*.................... 4,788,575
41,200 Symbol Technologies,
Inc...................... 2,634,225
------------
32,065,194
------------
Computer Services--0.9%
47,000 At Home Corp.*............. 3,489,750
------------
Computer Software--11.1%
102,200 Citrix Systems, Inc.*...... 9,919,787
76,500 Compuware Corp.*........... 5,976,562
34,500 Infoseek Corp.*............ 1,703,438
24,200 Inktomi Corp.*............. 3,130,875
125,700 Netscape Communications
Corp.*................... 7,636,275
64,300 Networks Associates,
Inc.*.................... 4,259,875
69,800 VERITAS Software Corp.*.... $ 4,183,638
20,000 Yahoo! Inc.*............... 4,738,750
------------
41,549,200
------------
Electronic Components--1.4%
84,400 ASM Lithography Holding
NV*...................... 2,574,200
29,400 Solectron Corp.*........... 2,732,362
------------
5,306,562
------------
Semiconductors--5.5%
136,800 Applied Materials, Inc.*... 5,839,650
37,100 Broadcom Corp.*............ 4,479,825
65,300 Micron Technology, Inc.*... 3,301,731
69,500 Novellus Systems, Inc.*.... 3,440,250
53,100 Xilinx, Inc.*.............. 3,458,138
------------
20,519,594
------------
Telecommunication Equipment--2.4%
164,700 General Instrument
Corp.*................... 5,589,506
79,500 Teradyne, Inc.*............ 3,368,813
------------
8,958,319
------------
Telecommunication Services--4.5%
89,500 American Tower Corp.*...... 2,645,844
93,400 Crown Castle International
Corp.*................... 2,194,900
80,900 Qwest Communications
Int'l., Inc.*............ 4,045,000
110,700 Sprint PCS *............... 2,559,937
135,500 WinStar Communications,
Inc.*.................... 5,284,500
------------
16,730,181
------------
Total common stocks
(cost $282,139,845)...... 369,811,924
------------
<CAPTION>
Principal
Amount
(000)
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENTS--2.1%
Commercial Paper
$ 7,956 Northern States Power Co.
5.05%, 1/4/99............ 7,952,652
------------
</TABLE>
See Notes to Financial Statements. 3
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND (cont'd)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Other
$ 5 Seven Seas Money Market
Fund..................... $ 5,272
------------
Total short-term
investments
(cost $7,957,925)........ 7,957,924
------------
Total Investments--100.9%
(cost $290,097,770; Note
4)....................... 377,769,848
------------
Liabilities in excess of
other
assets--(0.9%)........... (3,370,520)
------------
Net Assets--100%........... $374,399,328
------------
------------
</TABLE>
- ---------------
* Non-income producing.
ADR--American Depository Receipt.
See Notes to Financial Statements. 4
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets
December 31, 1998
- -----------------
<S>
<C>
Investments, at value (cost
$290,097,770).............................................
$ 377,769,848
Cash........................................................
.......................... 152,374
Receivable for investments
sold.......................................................
9,011,094
Receivable for Fund shares
sold.......................................................
2,357,893
Dividends and interest
receivable..................................................
... 78,080
Prepaid
expenses....................................................
.................. 53,394
- -----------------
Total
assets......................................................
................ 389,422,683
- -----------------
Liabilities
Payable for investments
purchased...................................................
.. 12,904,232
Payable for Fund shares
reacquired..................................................
.. 1,394,507
Management fee
payable.....................................................
........... 277,930
Distribution fee
payable.....................................................
......... 212,349
Accrued
expenses....................................................
.................. 234,337
- -----------------
Total
liabilities.................................................
................ 15,023,355
- -----------------
Net
Assets......................................................
...................... $ 374,399,328
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
....... $ 260,308
Paid-in capital in excess of
par....................................................
250,684,837
- -----------------
250,945,145
Accumulated net realized gain on
investments........................................
35,782,105
Net unrealized appreciation on
investments..........................................
87,672,078
- -----------------
Net assets, December 31,
1998........................................................
. $ 374,399,328
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($130,362,161 / 8,475,178 shares of common stock issued
and outstanding).......... $15.38
Maximum sales charge (5% of offering
price).........................................
.81
- -----------------
Maximum offering price to
public....................................................
$16.19
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($236,241,847 / 17,006,638 shares of common stock issued
and outstanding)......... $13.89
- -----------------
- -----------------
Class C:
$13.89
Net asset value, offering price and redemption price per
share
($6,146,000 / 442,459 shares of common stock issued and
outstanding)..............
Maximum sales charge (1% of offering
price).........................................
.14
- -----------------
Maximum offering price to
public....................................................
$14.03
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($1,649,320 / 106,487 shares of common stock issued and
outstanding).............. $15.49
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Loss 1998
-------------
<S> <C>
Income
Dividends (net of foreign
withholding taxes
of $343)......................... $ 551,149
Interest........................... 446,141
-------------
Total income..................... 997,290
-------------
Expenses
Management fees.................... 3,630,967
Distribution fee--Class A.......... 261,257
Distribution fee--Class B.......... 2,503,173
Distribution fee--Class C.......... 61,638
Transfer agent's fees and
expenses........................... 680,000
Custodian's fees and expenses...... 103,000
Reports to shareholders............ 100,000
Directors' fees.................... 77,000
Registration fees.................. 50,000
Audit fees and expense............. 33,500
Insurance expense.................. 33,000
Legal fees and expenses............ 25,000
Miscellaneous...................... 5,390
-------------
Total expenses................... 7,563,925
-------------
Net investment loss.................. (6,566,635 )
-------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions....................... 35,691,553
Net change in unrealized appreciation
of
investments........................ 13,250,865
-------------
Net gain on investments.............. 48,942,418
-------------
Net Increase in Net Assets
Resulting from Operations............ $ 42,375,783
-------------
-------------
</TABLE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
Increase (Decrease) December 31, December 31,
in Net Assets 1998 1997
------------------ ------------
- -
<S> <C> <C>
Operations
Net investment loss... $ (6,566,635) $
(6,194,430)
Net realized gain on
investment
transactions........ 35,691,553
94,942,716
Net change in
unrealized
appreciation
(depreciation)
on investments...... 13,250,865
(18,521,412)
------------------ ------------
- -
Net increase in net
assets resulting
from operations..... 42,375,783
70,226,874
------------------ ------------
- -
Distributions to
shareholders from net
realized gains on
investments
Class A............. (7,262,297)
(27,098,267)
Class B............. (15,902,446)
(63,813,523)
Class C............. (391,936)
(1,442,170)
Class Z............. (81,237)
(66,424)
------------------ ------------
- -
(23,637,916)
(92,420,384)
------------------ ------------
- -
Fund share transactions
(Note 5)
(net of share
conversions)
Net proceeds from
shares subscribed... 176,084,464
543,622,835
Net asset value of
shares issued to
shareholders in
reinvestment of
distributions....... 21,975,782
84,714,423
Cost of shares
reacquired.......... (267,946,119)
(650,219,421)
------------------ ------------
- -
Net decrease in net
assets from Fund
share
transactions........ (69,885,873)
(21,882,163)
------------------ ------------
- -
Total decrease.......... (51,148,006)
(44,075,673)
Net Assets
Beginning of year....... 425,547,334
469,623,007
------------------ ------------
- -
End of year............. $ 374,399,328 $
425,547,334
------------------ ------------
- -
------------------ ------------
- -
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<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 of
U.S. companies, the
earnings and securities prices of which the investment
adviser expects to grow
at a rate above that of the S&P 500. The Fund intends to
invest primarily 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. Capitalization of companies in the Index will
change with market
conditions.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies 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. Real-
ized 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.
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 31, 1998 the Fund decreased accumulated net
investment loss by
$6,566,635 and decreased paid-in capital by $6,566,635 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
Investments Fund
Management LLC ('PIFM'). Pursuant to the management
agreement, PIFM has
responsibility for all investment advisory services and
supervises the
subadviser's
- ------------------------------------------------------------
- --------------------
7
<PAGE>
performance of such services. PIFM 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. PIFM pays for
the services of the subadviser, the compensation of officers
of the Fund who are
employees of PIFM, occupancy and certain clerical and
bookkeeping costs of the
Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and
payable monthly at an
annual rate of .95% of the average daily net assets of the
Fund. PIFM 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, 1998, PIFM earned $3,630,967 in
management fees of which it
paid $2,868,464 to NACM under the foregoing agreements.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential
Investment
Management Services LLC ('PIMS') became the distributor of
the Fund effective
June 1, 1998 and is serving the Fund under the same terms
and conditions as
under the arrangement with PSI. The Fund compensated PSI and
PIMS 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
are accrued daily and
payable monthly. No distribution or service fees are paid to
PSI or PIMS as
distributor for the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund
compensates PIMS 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 Plans were .21 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, 1998.
PSI and PIMS have advised the Fund that they have
received approximately
$102,000 in front-end sales charges resulting from sales of
Class A shares and
after November 2, 1998 Class C shares for the year ended
December 31, 1998. From
these fees, PSI and PIMS paid such sales charges to PRUCO
Securities Corporation
('PRUSEC'), an affiliated broker-dealer, which in turn paid
commissions to
salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year
ended December 31, 1998,
they received approximately $436,400 in contingent deferred
sales charges
imposed upon certain redemptions by Class B and C
shareholders.
PSI, PIFM, PIMS 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'), had a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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
during the year
ended December 31, 1998. 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.
The Agreement
expired on December 29, 1998 and has been extended through
February 28, 1999
under the same terms.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices LLC ('PMFS'), a
with Affiliates wholly owned subsidiary of
PIFM, serves as the Fund's
transfer agent. During
the year ended December 31, 1998, the Fund incurred fees of
approximately
$572,000 for the services of PMFS. As of December 31, 1998,
approximately
$45,100 of such fees were due to PMFS. Transfer agent fees
and expenses in the
Statement of Operations also include certain out of pocket
expenses paid to
nonaffiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for
the year ended
December 31, 1998 aggregated $644,599,740 and $744,085,307,
respectively.
The cost basis of investments for federal income tax
purposes at December 31,
1998 was $290,185,266 and, accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $87,584,582
(gross unrealized
appreciation--$97,200,513; gross unrealized depreciation--
$9,615,931).
Note 5. Capital The Fund offers Class A,
Class B, Class C and Class Z
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.
Prior to November 2, 1998, Class C
- ------------------------------------------------------------
- --------------------
8
<PAGE>
shares were sold with a contingent deferred sales charge of
1% during the first
year. Effective November 2, 1998, Class C shares are sold
with a front-end sales
charge of 1% and a contingent deferred sales charge of 1%
during the first 18
months. 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. Class Z shares are not subject to
any sales or
redemption charge and are offered exclusively for sale to a
limited group of
investors.
The Fund has authorized 200 million shares of common
stock at $.01 par value
per share equally divided into four classes, designated
Class A, Class B, Class
C and Class Z shares.Transactions in shares of common stock
were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ----------- -------------
<S> <C> <C>
Year ended
December 31, 1998:
Shares sold................... 7,446,667 $ 106,396,040
Shares issued in reinvestment
of dividends and
distributions............... 449,538 6,346,234
Shares reacquired............. (9,167,087)
(131,574,252)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (1,270,882)
(18,831,978)
Shares issued upon conversion
from Class B................ 489,749 7,024,166
----------- -------------
Net decrease in shares
outstanding................. (781,133) $
(11,807,812)
----------- -------------
----------- -------------
Year ended
December 31, 1997:
Shares sold................... 26,028,147 $ 403,257,239
Shares issued in reinvestment
of dividends and
distributions............... 1,629,888 23,021,141
Shares reacquired............. (28,489,469)
(443,979,190)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (831,434)
(17,700,810)
Shares issued upon conversion
from Class B................ 670,378 10,138,513
----------- -------------
Net decrease in shares
outstanding................. (161,056) $
(7,562,297)
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
- ------------------------------ ----------- -------------
<S> <C> <C>
Year ended
December 31, 1998:
Shares sold................... 5,070,770 $ 65,665,558
Shares issued in reinvestment
of distributions............ 1,182,446 15,174,732
Shares reacquired............. (10,146,490)
(131,935,822)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (3,893,274)
(51,095,532)
Shares reacquired upon
conversion into Class A..... (538,840)
(7,024,166)
----------- -------------
Net decrease in shares
outstanding................. (4,432,114) $
(58,119,698)
----------- -------------
----------- -------------
Year ended
December 31, 1997:
Shares sold................... 9,457,319 $ 135,337,537
Shares issued in reinvestment
of distributions............ 4,638,652 60,246,458
Shares reacquired............. (13,888,004)
(200,836,623)
----------- -------------
Net increase in shares
outstanding before
conversion.................. 207,967
(5,252,628)
Shares reacquired upon
conversion into Class A..... (721,300)
(10,138,513)
----------- -------------
Net decrease in shares
outstanding................. (513,333) $
(15,391,141)
----------- -------------
----------- -------------
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
Year ended
December 31, 1998:
Shares sold................... 178,150 $ 2,342,004
Shares issued in reinvestment
of distributions............ 29,154 373,747
Shares reacquired............. (274,036)
(3,655,185)
----------- -------------
Net decrease in shares
outstanding................. (66,732) $
(939,434)
----------- -------------
----------- -------------
Year ended
December 31, 1997:
Shares sold................... 297,583 $ 4,319,397
Shares issued in reinvestment
of distributions............ 106,388 1,380,420
Shares reacquired............. (360,051)
(5,302,665)
----------- -------------
Net increase in shares
outstanding................. 43,920 $ 397,152
----------- -------------
----------- -------------
</TABLE>
- ------------------------------------------------------------
- --------------------
9
<PAGE>
<TABLE>
<CAPTION>
Class Z Shares Amount
- ------------------------------ ----------- -------------
Year ended
December 31, 1998:
<S> <C> <C>
Shares sold................... 111,423 $ 1,680,862
Shares issued in reinvestment
of dividends and
distributions............... 5,739 81,069
Shares reacquired............. (54,259)
(780,860)
----------- -------------
Net increase in shares
outstanding................. 62,903 $ 981,071
----------- -------------
----------- -------------
March 18, 1997(a) through
December 31, 1997:
Shares sold................... 45,102 $ 708,662
Shares issued in reinvestment
of distributions 4,760 66,404
Shares reacquired (6,278)
(100,943)
----------- -------------
Net increase in shares
outstanding 43,584 $ 674,123
----------- -------------
----------- -------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A
-------
- ----------------------------------------------------
Year Ended December 31,
-------
- ----------------------------------------------------
1998
1997 1996 1995(a) 1994(a)
-------
- - -------- -------- -------- -------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............... $
14.47 $ 15.41 $ 15.18 $ 11.99 $ 13.56
-------
- - -------- -------- -------- -------
Income from investment operations:
Net investment loss..............................
(.17) (.12) (.14) (.11) (.07)
Net realized and unrealized gain (loss) on
investment transactions........................
1.95 2.60 2.64 3.82 (1.19)
-------
- - -------- -------- -------- -------
Total from investment operations...............
1.78 2.48 2.50 3.71 (1.26)
-------
- - -------- -------- -------- -------
Less distributions:
Distributions from net realized gains from
investment transactions........................
(.87) (3.42) (2.27) (.52) (.31)
-------
- - -------- -------- -------- -------
Total distributions............................
(.87) (3.42) (2.27) (.52) (.31)
-------
- - -------- -------- -------- -------
Net asset value, end of year..................... $
15.38 $ 14.47 $ 15.41 $ 15.18 $ 11.99
-------
- - -------- -------- -------- -------
-------
- - -------- -------- -------- -------
TOTAL RETURN(b):.................................
12.83% 17.33% 16.45% 31.20% (9.53)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................
$130,362 $133,973 $145,120 $124,340 $88,069
Average net assets (000).........................
$124,408 $139,933 $136,482 $109,740 $93,620
Ratios to average net assets:
Expenses, including distribution fee...........
1.45% 1.37% 1.41% 1.44% 1.49%(d)
Expenses, excluding distribution fee...........
1.24% 1.19% 1.23% 1.27% 1.32%(d)
Net investment loss............................
(1.19)% (.82)% (.93)% (.83)% (.59)%
For Class A, B, C and Z shares:
Portfolio turnover rate(c).......................
171% 182% 113% 106% 110%
</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 year 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.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class B
--------
- ----------------------------------------------------
Year Ended December 31,
--------
- ----------------------------------------------------
1998
1997 1996 1995(a) 1994(a)
--------
- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.............. $ 13.26
$ 14.48 $ 14.49 $ 11.56 $ 13.18
--------
- -------- -------- -------- --------
Income from investment operations:
Net investment loss.............................
(.29) (.23) (.24) (.22) (.17)
Net realized and unrealized gain (loss) on
investment transactions....................... 1.79
2.43 2.50 3.67 (1.14)
--------
- -------- -------- -------- --------
Total from investment operations.............. 1.50
2.20 2.26 3.45 (1.31)
--------
- -------- -------- -------- --------
Less distributions:
Distributions from net realized gains from
investment transactions.......................
(.87) (3.42) (2.27) (.52) (.31)
--------
- -------- -------- -------- --------
Total distributions...........................
(.87) (3.42) (2.27) (.52) (.31)
--------
- -------- -------- -------- --------
Net asset value, end of year.................... $ 13.89
$ 13.26 $ 14.48 $ 14.49 $ 11.56
--------
- -------- -------- -------- --------
--------
- -------- -------- -------- --------
TOTAL RETURN(b):................................
11.87% 16.48% 15.54% 30.11% (10.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................... $236,242
$284,191 $317,768 $290,751 $257,059
Average net assets (000)........................ $250,317
$300,520 $304,841 $265,597 $261,285
Ratios to average net assets:
Expenses, including distribution fee..........
2.24% 2.19% 2.23% 2.27% 2.32%(c)
Expenses, excluding distribution fee..........
1.24% 1.19% 1.23% 1.27% 1.32%(c)
Net investment loss...........................
(1.98)% (1.64)% (1.75)% (1.66)% (1.39)%
</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 year
reported and
includes reinvestment of dividends and distributions.
(c) Current year amounts have been restated from prior
periods presentation.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class C Class Z
----------------------------
- -------------------------------- -----------------------
- --
August 1, March 18,
1994(c) 1997(f)
Year Ended
December 31, Through
Through
----------------------------
- --------------- December 31, December
31,
1998 1997 1996
1995(a) 1994(a) 1998 1997
------ ------ ------
- -- -------- ------------ ------- -----------
- --
<S> <C> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $13.26 $14.48 $
14.49 $ 11.56 $ 11.62 $ 14.53 $
14.48
------ ------ ------
- -- -------- ------------ ------- -----------
- --
Income from investment
operations:
Net investment loss......... (.28) (.22)
(.22) (.22) (.05) (.12)
(.22)
Net realized and unrealized
gain (loss) on investment
transactions.............. 1.78 2.42
2.48 3.67 (.01) 1.95
3.18
------ ------ ------
- -- -------- ------------ ------- -----------
- --
Total from investment
operations................ 1.50 2.20
2.26 3.45 (.06) 1.83
2.96
------ ------ ------
- -- -------- ------------ ------- -----------
- --
Less distributions:
Distributions from net
realized gains from
investment transactions... (.87) (3.42)
(2.27) (.52) -- (.87)
(2.91)
------ ------ ------
- -- -------- ------------ ------- -----------
- --
Total distributions....... (.87) (3.42)
(2.27) (.52) -- (.87)
(2.91)
------ ------ ------
- -- -------- ------------ ------- -----------
- --
Net asset value, end of
period.................... $13.89 $13.26 $
14.48 $ 14.49 $ 11.56 $ 15.49 $
14.53
------ ------ ------
- -- -------- ------------ ------- -----------
- --
------ ------ ------
- -- -------- ------------ ------- -----------
- --
TOTAL RETURN(b):............ 11.87% 16.48%
15.54% 30.11% (.52)% 13.13%
21.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $6,146 $6,750 $
6,735 $ 4,897 $ 1,100 $ 1,649 $
633
Average net assets (000).... $6,164 $6,796 $
5,862 $ 2,961 $ 225 $ 1,318 $
121
Ratios to average net
assets:
Expenses, including
distribution fee........ 2.24% 2.19%
2.23% 2.27% 6.23%(d)(e) 1.24%
1.19%(d)
Expenses, excluding
distribution fee........ 1.24% 1.19%
1.23% 1.27% 5.23%(d)(e) 1.24%
1.19%(d)
Net investment loss....... (1.98)% (1.64)%
(1.75)% (1.63)% (3.36)%(d) (.99)%
(.85)%(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 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. 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.
(f) Commencement of offering Class Z shares.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
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, 1998, and
the related statement of operations for the year then ended,
the statements of
changes in net assets for each of the two years in the
period then ended, and
the financial highlights for each of the four years in the
period then ended for
Class A, B, C shares, and for each of the two fiscal years
in the period ended
December 31, 1998 for Z shares. 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 the year ended December 31, 1994 for Class A
and Class B shares,
and for the period from August 1, 1994 (commencement of
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 and financial highlights. Our procedures included
confirmation of
securities owned as of December 31, 1998 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,
1998, the results of
its operations for the year then ended, and the changes in
its net assets for
each of the two years in the period then ended, and the
financial highlights for
each of the four years in the period then ended for Class A,
B, C shares, and
for each of the two fiscal years in the period ended
December 31, 1998 for Z
shares, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
February 12, 1999
TAX INFORMATION
We are required by the Internal Revenue Code to advise
you within 60 days of
the Fund's fiscal year end (December 31, 1998) 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,
1998, the Fund paid distributions for Class A, Class B,
Class C and Class Z
shares totaling $0.08 per share, comprised of short-term
capital gains which are
taxable as ordinary income. The Fund paid distributions for
Class A, Class B and
Class C shares totaling $0.79 per share, comprised of long-
term capital gains.
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.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like
to help. So we'll
use this space from time to time to explain some of the
words you might have
read, but not understood. And if you have a favorite word
that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent is 50 basis
points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds that
separate mortgage pools into different maturity classes,
called tranches.
These instruments are sensitive to changes in interest rates
and homeowner
refinancing activity. They are subject to prepayment and
maturity extension
risk.
Derivatives: Securities that derive their value from other
securities. The
rate of return of these financial instruments rises and
falls -- sometimes
very suddenly -- in response to changes in some specific
interest rate,
currency, stock, or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to
member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on
overnight loans.
Futures Contract: An agreement to purchase or sell a
specific amount of a
commodity or financial instrument at a set price at a
specified date in the
future.
Leverage: The use of borrowed assets to enhance return. The
expectation is
that the interest rate charged on borrowed funds will be
lower than the return
on the investment. While leverage can increase profits, it
can also magnify
losses.
Liquidity: The ease with which a financial instrument (or
product) can be
bought or sold (converted into cash) in the financial
markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings
per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock,
by a certain time for a specified price. An option need not
be exercised.
Spread: The difference between two values; often used to
describe the
difference between "bid" and "asked" prices of a security,
or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in the U.S. market
and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through
the numerous mutual funds available to find the ones that
fit your own
individual investment profile and risk tolerance. While the
newspapers and
popular magazines are full of advice about investing, they
are aimed at
generic groups of people or representative individuals, not
at you personally.
Your financial advisor or registered representative will
review your
investment objectives with you. This means you can make
financial decisions
based on the assets and liabilities in your current
portfolio and your risk
tolerance -- not just based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Comparing A $10,000 Investment.
Nicholas-Applegate Growth Equity Fund vs. the S&P 500 Index.
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. The boxes on
top of the graphs
are designed to give you an idea of 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, B, C, and Z shares) with a similar investment in
the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index) by
portraying the
initial account values at the commencement of operations of
Class B, C, and
Z shares, and for 10 years for Class A shares, and
subsequent account values
at the end of each fiscal year (December 31), as measured on
a quarterly
basis, beginning in 1988 for Class A shares, 1991 for Class
B shares, 1994
for Class C shares, and 1997 for Class Z shares. For
purposes of the graphs,
and unless otherwise indicated in the accompanying tables,
it has been assumed
that (a) the maximum applicable front-end sales load was
deducted from the
initial $10,000 investment in Class A shares; (b) the
maximum applicable
contingent deferred sales charges were deducted from the
value of the
investment in Class B and Class C shares, assuming full
redemption on December
31, 1998; (c) Class C shares are subject to a front-end
sales load of 1% and a
CDSC of 1% for 18 months. Class C shares bought before
November 2, 1998 have a
1% CDSC if sold within one year; (d) all recurring fees
(including management
fees) were deducted; and (e) all dividends and distributions
were reinvested.
Class B shares will automatically convert to Class A shares,
on a quarterly
basis, approximately seven years after purchase. This
conversion feature is
not reflected in the graphs. Class Z shares are not subject
to a sales charge
or distribution fee.
The S&P 500 Index is a market capitalization-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 Index 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 S&P 500 Index is not the only index that may be
used to characterize
performance of equity funds, and other indexes may portray
different
comparative performance. Investors cannot invest directly in
an index.
// Nicholas-Applegate Growth Equity Fund
- -- S&P 500 Index
(Class A)
Average Annual Total
Returns - Class A
With Sales Load
12.65% Since Inception
15.86% for 10 Years
11.70% for 5 Years
7.19% for 1 Year
Without Sales Load
13.15% Since Inception
16.45% for 10 Years
12.85% for 5 Years
12.83% for 1 Year
(Class B)
Average Annual
Total Returns - Class B
With Sales Load
14.95% Since Inception
11.83% for 5 Years
6.87% for 1 Year
Without Sales Load
14.95% Since Inception
11.96% for 5 Years
11.87% for 1 Year
(Class C)
Average Annual
Total Returns - Class C
With Sales Load
16.05% Since Inception
9.75% for 1 Year
Without Sales Load
16.31% Since Inception
11.87% for 1 Year
(Class Z)
Average Annual
Total Returns - Class Z
19.32% Since Inception
13.13% for 1 Year
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Arthur E. Nicholas, Chairman
Dann V. Angeloff
Fred C. Applegate
Theodore J. Coburn
Robert F. Gunia
Arthur B. Laffer
Charles E. Young
Officers
Arthur E. Nicholas, Chairman and President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
Robert E. Carlson, Assistant Secretary
Manager
Prudential Investments 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
725 South Figueroa Street
Los Angeles, California 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
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.
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