<PAGE>
[NICHOLAS APPLEGATE LOGO]
-Registered Trademark-
MUTUAL FUNDS
ANNUAL REPORT
MARCH 31, 1998
- ----------------------------------------------------
INSTITUTIONAL SHARES
- -----------------------------------------------------------
GLOBAL BLUE CHIP FUND
EMERGING MARKETS BOND FUND
LATIN AMERICA FUND
PACIFIC RIM FUND
GREATER CHINA FUND
HIGH YIELD BOND FUND
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
<S> <C>
Letter to Shareholders.................................................. 1
The Funds' Review and Outlook, Performance and the Funds' Schedules of
Investments
Global Blue Chip...................................................... 3
Emerging Markets Bond................................................. 7
Latin America......................................................... 10
Pacific Rim........................................................... 13
Greater China......................................................... 16
High Yield Bond....................................................... 19
The Funds'
Financial Highlights.................................................. 24
Statements of Assets and Liabilities.................................. 26
Statements of Operations.............................................. 27
Statements of Changes in Net Assets................................... 28
Notes to the Financial Statements..................................... 29
Report of Independent Auditors.......................................... 33
The High Yield Bond Fund's
Financial Highlights.................................................. 34
Statement of Assets and Liabilities................................... 36
Statement of Operations............................................... 37
Statements of Changes in Net Assets................................... 38
Notes to the Financial Statements..................................... 39
Report of Independent Auditors.......................................... 43
</TABLE>
- ------------
This report is authorized for distribution to shareholders and to others only
when preceded or accompanied by a currently effective prospectus for
Nicholas-Applegate High Yield Bond Fund. Distributor: Nicholas-Applegate
Securities.
<PAGE>
LETTER TO SHAREHOLDERS
- ------------------------------------------------------------------------
DEAR FELLOW SHAREHOLDERS,
It's been an exciting year for investors, with stock markets climbing to record
levels and bond markets enjoying steady growth. Mid and small-sized companies
are beginning to reassert themselves after a long period of investor preference
for large company stocks.
The U.S. market continues to grow with a strong economy and currency, as well
as low inflation and interest rates. High consumer confidence has led to
exceptional growth. An example of a company benefiting from this trend is Ethan
Allen Interiors, a retailer of quality home furnishings which we hold in our
Emerging Growth Fund. This nationwide chain continues to establish its presence
in premium locations, introduce innovative products and expand its sales base
among new home buyers, all contributing to profitability.
Europe is also experiencing one of its most dynamic growth periods ever, with
healthy trends toward deregulation and consolidation of industries, particularly
in the financial sector. Credito Italiano is one of Italy's largest banks, and
is a primary example of a European financial institution benefiting from falling
interest rates and a shift toward investing in stocks.
Asia, of course, presents the biggest challenges, with currencies and stock
markets experiencing drastic declines. Some countries are working fervently to
reform their economies toward recovery while others stubbornly resist change. We
have lowered our exposure significantly, though our style of investing continues
to uncover good opportunities. For example, Sony generates high consumer demand
worldwide, resulting in record earnings and profits, in spite of Japan's
stagnant economy.
Nicholas-Applegate's process is focused on investment leadership in a changing
world. Our goal has always been superior performance and client service. We go
after the best opportunities by setting our sights on change wherever it occurs.
We're after companies demonstrating growing earnings and the potential to exceed
the expectations we set for them. A growing company only meets our criteria when
it shows it can sustain this potential a year or more down the road. A company
may be doing well financially and demonstrate sustainability, though it must
also keep pace with market and technological developments to capture our
interest. As you'll see throughout this report, our portfolio managers apply
these tenets to invest in exciting opportunities worldwide.
Perhaps one area that demonstrates positive change most clearly is emerging
markets, where modern technology is opening up business opportunities that were
non-existent only a few years ago. Take, for example, Hungary's telephone
company, Matav, which we held in our Emerging Countries Fund. This is the only
telephone company in Hungary. As modernization proceeds and more private
residences acquire telephones, Matav enjoys dramatic growth. This is the kind of
positive change we're after.
We find it with superior information management. We build our research on
relationships with expert analysts around the world. We've pioneered an exchange
program bringing analysts to work at our offices in the United States and
sending our people overseas to learn first hand how things work in different
markets. In addition, our proprietary database tracks over 20,000 companies
worldwide.
Once we gather information, we put it to work. Our portfolio managers thrive
on communication, so we've structured our trading floor in an open environment.
When news in one area of the market affects Nicholas-Applegate holdings in
another, information flows swiftly to the portfolio management team that can use
it.
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1
<PAGE>
LETTER TO SHAREHOLDERS -- CONTINUED
- --------------------------------------------------------------------------------
We're also acutely aware that when the U.S. market is closed, the rest of the
world is still open for business. We don't miss opportunities just because they
are happening in different time zones.
All of these elements account for Nicholas-Applegate's ability to find
compelling opportunities, not only in strong markets such as Europe and the
United States, but also in challenging markets including Latin America and
Eastern Europe. We believe the future for continued long-term growth is bright,
even in Asia, and encourage investors to share our disciplined, long-term
perspective.
Thank you for your support of the Nicholas-Applegate Mutual Funds. We welcome
your comments and look forward to continuing our work with you in the coming
years.
Sincerely yours,
/s/ ART NICHOLAS
Art Nicholas
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2
<PAGE>
GLOBAL BLUE CHIP FUND
INSTITUTIONAL SHARES
- ------------------------------------------------------------------------
MANAGEMENT TEAM
Catherine Somhegyi,
Partner, Chief Investment Officer, Equities
Lawrence S. Speidell,
CFA, Partner, Director of Global/Systematic Portfolio
Management and Research
Melisa A. Grigolite,
Portfolio Manager
John N. Tribolet,
Portfolio Manager
Pedro V. Marcal,
Partner, Portfolio Manager
Eswar Menon,
Portfolio Manager
Loretta J. Morris,
Partner, Portfolio Manager
Alex Muromcew,
Portfolio Manager
Ernesto Ramos, Ph.D.,
Senior Portfolio Manager
GOAL: The Nicholas-Applegate Global Blue Chip Fund seeks to maximize total
return through investing in stocks around the world.
REVIEW & OUTLOOK: Favorable economic conditions in the United States and
Europe provided a positive investment backdrop for our Global Blue Chip Fund.
Since its introduction in October 1997, the Fund advanced 18.5%, while its
benchmark, the MSCI World Index, rose 11.5%.
The combination of low interest rates and moderate economic growth in the
United States propelled large-cap stocks to record highs in the last 12 months.
Similarly, equity markets in Europe trekked to uncharted heights in the run-up
to European Monetary Union (EMU) on January 1, 1999. The requirements for the
planned union have led to the convergence of interest rates. Another fundamental
development has taken shape: A record number of merger and acquisition
activities have swept throughout the region, as competition intensifies at both
the corporate and country level.
Our bottom-up stock selection approach helped us unearth exciting
opportunities benefiting from these favorable trends. As of March 31, 1998, the
Fund's holdings are concentrated on stocks in Europe and the United States. We
also held stocks in Hungary, Portugal, and Brazil during the same period.
Among the Fund's top-performing holdings was Credito Italiano, one of Italy's
largest banks and a leader in asset management. In addition to capitalizing on
falling rates, the company is benefiting from a shift toward equity investing
and consolidations within the banking industry.
Nokia Corp., a pioneer in mobile telephone-equipment development, was also a
strong contributor to the Fund's performance. Nokia, the world's leading
developer of digital handsets and wireless data, is projected to benefit from
the continued growth in telecommunications technology around the globe.
Another company well positioned to take advantage of this growth is Lucent
Technologies, one of the Fund's holdings in the United States. The company
designs, builds and delivers a wide range of public and private networks,
communications systems and software, consumer and business telephone systems and
microelectronics components. Prospects for the company remain bright amid the
ongoing trend for telecommunications technology development worldwide.
REPRESENTATIVE HOLDINGS
Amvescap, United Kingdom
Bank of Ireland, Ireland
BCA De Roma, Italy
Credito Italiano, Italy
Ericsson LM, Sweden
HBO & Co., United States
Lucent Technologies, United States
Nestle, Switzerland
Newcourt Cr Group, Canada
Nokia, Finland
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3
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
GLOBAL BLUE CHIP FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
COMMON STOCKS -- 101.3%
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AUSTRALIA -- 0.7%
Telstra Corp., Ltd......................... 18,700 $ 48,240
----------
BRAZIL -- 0.9%
Telecomunicacoes Brasileiras S/A -- ADR.... 500 64,906
----------
CANADA -- 1.0%
Newcourt Credit Group, Inc................. 1,500 74,888
----------
DENMARK -- 1.0%
Tele Danmark AS Class B.................... 800 72,628
----------
FINLAND -- 1.2%
Oy Nokia Ab -- ADR......................... 800 86,350
----------
FRANCE -- 5.2%
AXA -- UAP................................. 1,000 102,975
Cie Financiere de Paribas SA............... 900 91,079
Groupe Danone -- ADR....................... 2,400 115,500
Total SA................................... 600 72,050
----------
381,604
----------
GERMANY -- 9.9%
Adidas AG.................................. 500 88,951
Bayerische Motoren Werke AG................ 90 101,323
Deutsche Bank AG........................... 1,500 112,459
Deutsche Lufthansa AG...................... 4,000 84,138
Mannesmann AG.............................. 100 72,350
Porsche AG................................. 50 111,661
SAP AG..................................... 200 79,596
Volkswagen AG.............................. 100 78,298
----------
728,776
----------
HONG KONG -- 1.1%
China Telecom Ltd.......................... 28,000 56,737
Sun Hung Kai Properties Ltd................ 4,000 27,233
----------
83,970
----------
HUNGARY -- 1.1%
Magyar Tavkozlesi Rt -- ADR*............... 2,600 80,925
----------
IRELAND -- 0.2%
Bank of Ireland............................ 705 13,938
----------
ITALY -- 4.8%
Banco di Roma SpA*......................... 79,000 133,265
Credito Italiano SpA....................... 27,700 136,838
Telecom Italia SpA......................... 10,200 80,381
----------
350,484
----------
JAPAN -- 0.8%
Nippon Telegraph & Telephone Corp.......... 7 58,267
----------
PORTUGAL -- 1.9%
Jeronimo Martins SA........................ 1,900 78,151
Portugal Telecom SA........................ 1,200 62,418
----------
140,569
----------
SINGAPORE -- 2.0%
Keppel Land Ltd............................ 53,000 73,185
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
</TABLE>
SINGAPORE (CONTINUED)
<TABLE>
<S> <C> <C>
Natsteel Electronics Ltd.*................. 36,000 $ 69,996
----------
143,181
----------
SPAIN -- 4.2%
Banco Bilbao Vizcaya SA.................... 1,100 51,634
Corporacion Bancaria de Espana SA.......... 700 57,958
Tabacalera SA -- A......................... 1,300 145,888
Telefonica de Espana -- Sponsored ADR*..... 400 52,900
----------
308,380
----------
SWEDEN -- 2.3%
Nordbanken Holding AB...................... 6,400 42,430
Telefonaktiebolaget LM Ericsson -- ADR..... 2,600 123,663
----------
166,093
----------
SWITZERLAND -- 6.0%
Credit Suisse Group........................ 400 80,027
Nestle SA.................................. 60 114,649
Swiss Reinsurance Co....................... 60 131,809
Union Bank of Switzerland Class B.......... 70 114,334
----------
440,819
----------
UNITED KINGDOM -- 8.6%
Amvescap PLC............................... 5,600 60,580
Bank of Ireland............................ 6,551 129,339
British Energy PLC......................... 4,200 36,907
British Land Corporation PLC............... 2,800 35,166
Guardian Royal Exchange PLC................ 8,200 58,703
Orange PLC*................................ 20,400 129,985
Rolls-Royce PLC............................ 15,900 74,287
Standard Chartered PLC..................... 4,500 65,221
Unilever PLC............................... 4,500 42,576
----------
632,764
----------
UNITED STATES OF AMERICA -- 48.4%
Allstate Corp.............................. 1,200 110,325
American Express Co........................ 1,200 110,175
Ameritech Corp............................. 2,400 118,650
AMR Corp.*................................. 800 114,550
Ascend Communications, Inc.*............... 3,500 132,562
AT&T Corp.................................. 1,600 105,000
B.F. Goodrich Co........................... 2,000 102,125
CBS Corp................................... 3,000 101,812
Cendant Corp.*............................. 3,000 118,875
Chevron Corp............................... 1,300 104,406
Computer Sciences Corp.*................... 2,000 110,000
Dayton Hudson Corp......................... 1,300 114,400
Federal National Mortgage Association...... 1,700 107,525
Federal-Mogul Corp......................... 1,500 79,781
General Motors Corp........................ 2,000 90,500
HBO & Co................................... 1,500 90,563
Health Management Associates Inc., Class
A*....................................... 4,500 128,813
Home Depot, Inc............................ 1,900 128,131
Lucent Technologies, Inc................... 1,300 166,238
Maytag Corp................................ 2,500 119,531
McDonald's Corp............................ 1,800 108,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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4
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
COMMON STOCKS (Continued)
- ---------------------------------------------------------
UNITED STATES OF AMERICA (CONTINUED)
<TABLE>
<S> <C> <C>
Pfizer, Inc................................ 1,300 $ 129,594
Ross Stores, Inc........................... 2,300 101,488
Schering Plough Corp....................... 1,500 122,531
Sterling Commerce, Inc.*................... 2,000 92,750
Tandy Corp................................. 2,700 126,900
The Equitable Cos., Inc.................... 2,600 146,737
U.S. West, Inc.*........................... 3,300 114,675
Unisys Corp.*.............................. 4,000 76,000
Wellpoint Health Networks, Inc.*........... 2,300 155,250
Worldcom, Inc.*............................ 2,600 111,963
----------
3,539,850
----------
<CAPTION>
VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $6,245,976)........................................ $7,416,632
----------
TOTAL INVESTMENTS -- 101.3%
(Cost $6,245,976)........................................ 7,416,632
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.3%) (97,034)
----------
NET ASSETS -- 100.0%....................................... $7,319,598
----------
</TABLE>
- ------------
* Non-Income Producing Security
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
5
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
GLOBAL BLUE CHIP FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Aerospace................................... 1.0%
Airlines.................................... 2.7
Automobiles................................. 4.0
Automotive Equipment........................ 1.1
Chemicals................................... 1.4
Clothing Chains............................. 1.4
Computers/Office Automation................. 2.8
Computer Services........................... 1.0
Department/Discount Stores.................. 1.6
Drugs/Pharmaceuticals....................... 3.4
Electric Utilities.......................... 0.5
Electronics/Music Chains.................... 1.7
Finance Companies........................... 4.0
Food Chains................................. 1.1
Grocery Products............................ 3.7
Home Furnishings............................ 1.6
Hospitals................................... 1.8
Investment Companies........................ 0.8
Life Insurers............................... 2.0
Machinery/Equipment......................... 1.0
Managed Health Care/HMO's................... 2.1
Military/Defense Technology................. 1.2
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Money Center Banks.......................... 12.0%
Multi-Line Insurers......................... 1.4
Oil/Gas Production.......................... 2.4
Other Commercial/Industrial Services........ 1.6
Other Health Services....................... 1.2
Property Casualty Insurance................. 2.3
Real Estate Development/Investment.......... 1.9
Recreational Products....................... 1.2
Regional/Commercial Banks................... 2.1
Reinsurance................................. 1.8
Restaurants................................. 1.4
Retail Building Products.................... 1.8
Semiconductors/Electric Companies........... 1.0
Software.................................... 1.1
Specialty Chains............................ 1.4
Telecommunication Equipment................. 7.0
Telecommunication Services.................. 7.9
Telephone................................... 7.9
Tobacco Products............................ 2.0
Liabilities in Excess of Other Assets....... (1.3)
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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6
<PAGE>
EMERGING MARKETS BOND FUND
INSTITUTIONAL SHARES
- ------------------------------------------------------------------------
MANAGEMENT TEAM
Fred S. Robertson,
Partner, Chief Investment Officer, Fixed Income
Malcom S. Day,
CFA, Portfolio Manager
Jan Friedli,
Portfolio Manager
GOAL: The Nicholas-Applegate Emerging Markets Bond Fund seeks to deliver
current income and long-term capital appreciation from a diversified portfolio
of Brady bonds, other U.S. dollar-denominated bonds, and local
currency-denominated bonds of emerging market countries.
REVIEW AND OUTLOOK: The Nicholas-Applegate Emerging Markets Bond Fund was
introduced on October 1, 1997. The spread of the Asian monetary and economic
crises in the fourth quarter of 1997 created an extremely difficult environment,
particularly in October. The impact of the crises was not exclusive to South
East Asian countries as investors ignored country-specific fundamentals and
emerging debt markets around the world suffered declines. The bonds of Latin
American countries, especially Argentina and Brazil, were negatively impacted by
the Asian crises despite generally improving fundamentals.
For the 6-month period ending March 31, 1998, the Fund was up 2.7% while the
JP Morgan Emerging Markets Bond Index+ fell 0.1%.
Heading into the fourth quarter of 1997, the Fund was well positioned for the
ensuing market declines. Holdings in shorter-maturity securities and securities
of higher quality issuers such as Poland and Panama, as well as low exposure to
lower credit countries such as Brazil and Russia helped relative returns.
Shorter-maturity, higher credit-quality emerging market bonds significantly
outperformed long-maturity, low credit-quality bonds during the fourth quarter.
During the first quarter of 1998, returns rebounded as investors re-evaluated
both the fundamentals of the regions and the countries on their individual
merits. Amid the quarter's improving environment, we increased our holdings in
countries with greater risk/reward profiles, such as Brazil, and benefited from
their appreciation.
We also increased our exposure to Argentinean peso-denominated securities
following a sell-off in the fourth quarter. Amid fears of spreading currency
devaluations, investors seemed to believe the Hong Kong dollar peg and the
Argentinean currency boards would fail to hold. As it became clear the
Argentinean peso would maintain its value, our peso-denominated holdings
appreciated.
Reflecting the inherent risk in emerging markets, a significant position we
held in Indonesian commercial paper was negatively impacted by consequences of
the Asian crises and was primarily responsible for adversely affecting the
Fund's performance, particularly in March.
Looking ahead, we have concerns regarding the potential for additional rounds
of credit deterioration in the short term caused by the weak Japanese economy
and rising defaults. Longer term, we retain an extremely positive outlook,
especially for countries such as Brazil and Mexico where significant progress
has been made in addressing imbalances in fiscal and monetary policies.
REPRESENTATIVE HOLDINGS
Brazil C 8% 4-15-14
City of Buenos Aires 10.5% 5-24-04
Mexico 11.375% 9-15-16
Panama 8.875% 9-30-27
Petro Mexicanos 9.5% 9-15-27
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7
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
EMERGING MARKETS BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
CORPORATE BONDS -- 44.2%
- --------------------------------------------------------------------------
ARGENTINA -- 8.4%
Autopistas del Sol
10.25%, 08/01/09......................... $100,000 $ 98,000
CIA International Telecommunication
10.375%, 08/01/04........................ 100,000 91,250
----------
189,250
----------
BRAZIL -- 4.3%
Banco Nacional de Desenvolvimento Economico
E Social
9.00%, 09/24/07.......................... 100,000 96,250
----------
INDONESIA -- 11.6%
PT Polysindo Interest -- Promissory
Note*.................................... 40,000 23,600
PT Polysindo Principal -- Promissory
Note*.................................... 400,000 236,000
----------
259,600
----------
MEXICO -- 12.9%
Banco Nacional de Obras Y Servicios
Publicos SNC
9.625%, 11/15/03......................... 80,000 83,600
Ispat Mexicana, S.A.
10.375%, 03/15/01........................ 100,000 103,750
Petroleos Mexicanos
9.500%, 09/15/27......................... 100,000 101,000
----------
288,350
----------
RUSSIA -- 7.0%
Lukinter Finance BV
1.00%, 11/03/03.......................... 55,000 47,093
Tatneft Finance PLC
9.00%, 10/29/02.......................... 120,000 110,400
----------
157,493
----------
TOTAL CORPORATE BONDS
(Cost $987,224).......................................... 990,943
----------
- --------------------------------------------------------------------------
GOVERNMENT BONDS -- 64.1%
- --------------------------------------------------------------------------
ARGENTINA -- 18.0%
City of Buenos Aires
10.50%, 05/28/04......................... 100,000 93,625
Republic of Argentina
11.75%, 02/12/07......................... 300,000 311,625
----------
405,250
----------
BRAZIL -- 12.4%
Republic of Brazil
10.125%, 05/15/27........................ 20,000 19,825
Republic of Brazil -- Series 20 yr
4.590%, 04/15/14......................... 307,870 258,611
----------
278,436
----------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
BULGARIA -- 4.4%
Republic of Bulgaria -- Series A
6.563%, 07/28/24**....................... $120,000 $ 98,625
----------
KAZAKHSTAN -- 4.5%
Republic of Kazakhstan
9.250%, 12/20/99......................... 100,000 101,250
----------
MEXICO -- 7.1%
Mexican Cetes
0.000%, 09/24/98*........................ 50,000 53,338
United Mexican States
11.375%, 09/15/16**...................... 90,000 105,750
----------
159,088
----------
PANAMA -- 4.5%
Republic of Panama
8.875%, 09/30/27**....................... 100,000 100,250
----------
PERU -- 4.4%
Peru PDI (Past Due Interest) Series 20 yr
4.00%, 03/07/17.......................... 145,000 99,416
----------
POLAND -- 4.4%
Poland Non-US Global
4.00%, 10/27/14**........................ 110,000 98,450
----------
RUSSIA -- 4.4%
Vnesheconombank
6.719%, 12/15/15......................... 140,000 98,700
----------
TOTAL GOVERNMENT BONDS
(Cost $1,346,027)........................................ 1,439,465
----------
- --------------------------------------------------------------------------
COMMERCIAL PAPER -- 9.4%
- --------------------------------------------------------------------------
RUSSIA -- 9.4%
Chase (GKO)
0.00%, 06/25/98*......................... 209,654 209,840
----------
TOTAL INVESTMENTS -- 117.7%
(Cost $2,542,905)........................................ 2,640,248
LIABILITIES IN EXCESS OF OTHER ASSETS -- (17.7%)........... (396,145)
----------
NET ASSETS -- 100.0%....................................... $2,244,103
----------
</TABLE>
- ------------
* Non-Income Producing Security.
** Pledged as Collateral for Reverse Repurchase Agreements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
EMERGING MARKETS BOND FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Financial Services.......................... 27.9%
Foreign Government Bonds.................... 59.7
Industrial.................................. 4.5
Metal....................................... 4.6
Oil/Gas Production.......................... 4.5
Regional/Commercial Banks................... 12.4
Telecommunication........................... 4.1
Liabilities in Excess of Other Assets....... (17.7)
------
NET ASSETS.................................. 100.0%
------
------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
9
<PAGE>
LATIN AMERICA FUND
INSTITUTIONAL SHARES
- ------------------------------------------------------------------------
MANAGEMENT TEAM
Catherine Somhegyi,
Partner, Chief Investment Officer, Equities
Lawrence S. Speidell,
CFA, Partner, Director of Global/Systematic Portfolio
Management and Research
Ernesto Ramos, Ph.D.,
Senior Portfolio Manager
Aaron M. Harris,
Portfolio Manager
Jon Borchardt,
Portfolio Manager
GOAL: The Nicholas-Applegate Latin America Fund seeks to provide long-term
capital appreciation primarily through investment in the securities of companies
in Latin American countries such as Mexico, Brazil, Argentina, and Chile.
REVIEW AND OUTLOOK: Amid widespread uncertainty regarding the world's emerging
markets brought on by currency and economic crises in South East Asia, the
Nicholas-Applegate Latin America Fund was introduced on December 1, 1997.
Within this precarious environment, our country analysis and bottom-up
security selection were responsible for the Fund's outperformance for the
4-month period ending March 31, 1998. The Fund was up 11.7% during the period
versus a 6.9% advance for the MSCI EMF-Latin America Index.*
Declining commodity prices during the period, particularly for oil and copper,
negatively impacted the region as falling prices cut revenues for many Latin
American countries. In Venezuela, for example, 60% of government revenue is
derived from the state-owned oil company, Petroleos de Venezuela (PDVSA).
During the period, we reduced our exposure to Mexico based upon macroeconomic
factors, such as the appointment of a new head of the central bank who has a
dovish reputation on currency, as well as stock-specific analysis. Finding what
we believed to be better opportunities elsewhere, we significantly increased our
exposure in Brazil and Peru.
During the period, stock selection, particularly in Brazil, was the primary
contributor to the Fund's outperformance. Among the Fund's top-performing
holdings was Telebras, which benefited from increased efficiency as a result of
privatization.
In Peru, we identified a number of construction companies poised to benefit
from rebuilding in the aftermath of significant flood damage caused by El Nino.
Such stocks include Ferreyros, Grana y Montero, and Cementos Lima.
While short-term factors such as diminished investor confidence and low
commodity prices may contribute to volatility, longer-term prospects for the
region are compelling. Privatization, declining inflation, improving political
environments, and solid economic growth all bode well for Latin America's
future.
REPRESENTATIVE HOLDINGS
Banespa, Brazil
Cementos Lima, Peru
CIE, Mexico
Disco, Argentina
Ferreyros, Peru
Panamerican Beverages, Mexico
Telebras, Brazil
Telesp, Brazil
- ------------
* The MSCI EMF Latin America Index is an unmanaged index composed of companies
representative of the market structure of seven emerging market countries in
Latin America, including, Argentina, Chile, Columbia, Brazil, Mexico Free, Peru
and
Venezuela. Returns reflect the reinvestment of income dividends and capital
gains distributions but do not reflect fees, brokerage commissions, or other
expenses of investing. Past performance is no indication of future performance.
- --------------------------------------------------------------------------------
10
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
LATIN AMERICA FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS -- 94.5%
- ----------------------------------------------------------------------------
ARGENTINA -- 5.7%
Banco de Galicia y Buenos Aires S.A. de
C.V. -- ADR.............................. 1,000 $ 24,500
Disco S.A. -- ADR*......................... 400 16,100
Telefonica de Argentina S.A. -- ADR........ 700 26,644
------------
67,244
------------
BRAZIL -- 49.9%
Banco do Estado de Sao Paulo S.A. --
Preferred................................ 486,000 32,356
Banco Itau S.A. -- Preferred............... 60,000 38,416
Companhia Energetica de Minas Gerais PN.... 1,300,000 63,225
Companhia Paranaense de Energia-Copel...... 1,880,000 27,066
Companhia Vale Rio Doce -- Preferred....... 800 19,067
Confeccoes Guararapes S.A.................. 8,000 25,540
Marko Atacadista S.A. -- GDR 144A*......... 2,800 35,700
Petroleo Brasileiro S.A. -- Preferred...... 150,000 35,618
Telecomunicacoes Brasileiras S.A. -- ADR... 900 116,831
Telecomunicacoes de Sao Paulo S.A. --
Preferred................................ 303,000 97,265
Telecomunicacoes do Rio de Janeiro S.A..... 420,000 59,285
Uniao de Bancos Brasileiros S.A. -- GDR.... 1,100 39,875
------------
590,244
------------
CHILE -- 6.1%
Compania Cervecerias Unidos S.A. -- ADR.... 500 15,125
Linea Aerea Nacional Chile S.A. -- ADR*.... 1,900 26,125
Quimica Minera Chile S.A. -- ADR........... 400 17,600
Vina Concha y Toro S.A. -- ADR............. 400 13,100
------------
71,950
------------
MEXICO -- 23.8%
Cifra S.A. de C.V. -- C.................... 36,700 65,663
Consorcio Hogar S.A. de C.V. -- B*......... 22,400 47,073
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>
MEXICO (CONTINUED)
<TABLE>
<S> <C> <C>
Corporacion Interamericana de
Entertenimiento S.A.*.................... 5,780 $ 44,922
Grupo Tribasa S.A. de C.V. -- ADR*......... 3,800 23,513
Panamerican Beverages, Inc................. 1,700 68,213
Pasteleria Francesa S.A.*.................. 88,000 33,060
------------
282,444
------------
PERU -- 6.0%
Cementos Lima S.A.......................... 1,000 19,584
Cervecercia Backus & Johnston S.A.......... 21,000 15,478
Enrique Ferreyros S.A...................... 22,600 24,544
Grana Y Montero S.A........................ 20,500 11,533
------------
71,139
------------
UNITED STATES OF AMERICA -- 1.0%
Harken Energy Corp.*....................... 1,900 12,231
------------
VENEZUELA -- 2.0%
Compania Anonima Nacional Telefonos de
Venezuela -- ADR......................... 300 12,544
F.V.I. Fondo de Valores Inmobiliarios
S.A.C.A. -- ADR*......................... 1,100 11,412
------------
23,956
------------
TOTAL COMMON STOCKS
(Cost $1,007,408)........................................ 1,119,208
------------
TOTAL INVESTMENTS -- 94.5%
(Cost $1,007,408)........................................ 1,119,208
OTHER ASSETS IN EXCESS OF LIABILITIES -- 5.5% 64,623
------------
NET ASSETS -- 100.0%....................................... $ 1,183,831
------------
</TABLE>
- ------------
* Non-Income Producing Security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
11
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
LATIN AMERICA FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Airlines.................................... 2.2%
Alcoholic Beverages......................... 2.4
Apparel..................................... 2.2
Beverages/Soft Drinks....................... 5.8
Building Materials.......................... 2.6
Chemicals................................... 1.5
Department/Discount Stores.................. 8.5
Electric.................................... 7.6
Entertainment............................... 3.8
Food Chains................................. 5.4
Homebuilding................................ 4.0
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Industrial Engineering/Construction......... 2.0%
Metals...................................... 3.7
Oil Companies............................... 4.0
Real Estate Development/Investment.......... 1.0
Regional/Commercial Banks................... 11.4
Telecommunication........................... 3.3
Telephone................................... 23.1
Other Assets in Excess of Liabilities....... 5.5
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
12
<PAGE>
PACIFIC RIM FUND
INSTITUTIONAL SHARES
- ------------------------------------------------------------------------
MANAGEMENT TEAM
Catherine Somhegyi,
Partner, Chief Investment Officer, Equities
Lawrence S. Speidell,
CFA, Partner, Director of Global/Systematic Portfolio
Management and Research
Eswar Menon,
Portfolio Manager
Julia Sze,
Portfolio Manager
Robert Brewis,
Portfolio Manager, Hong Kong
Tim Greaton,
Senior Portfolio Manager, Hong Kong
Yeo Boon Hong,
Portfolio Manager, Singapore
Pedro V. Marcal,
Partner, Portfolio Manager
Alex Muromcew,
Portfolio Manager
Reginald Tan,
Portfolio Manager, Singapore
GOAL: The Nicholas-Applegate Pacific Rim Fund seeks to maximize total return
through investing in stocks located in countries within the Pacific Rim region
including Australia, China, Japan, India, Indonesia, South Korea, Malaysia, New
Zealand, the Philippines, Singapore, and Taiwan.
REVIEW & OUTLOOK: Rebounding from last year's currency and economic crises in
Asia, markets in the Pacific Rim managed to regain their footing between January
and March 1998. During the same period, our Pacific Rim Fund advanced 1.3%
versus a 4.3% gain for the MSCI Pacific Index.*
Since its introduction on January 1, 1998, the Fund's holdings benefited from
stock selection in countries such as India, Taiwan, Australia, and the
Philippines. Our overweighting in Singapore and China relative to the Index also
helped performance.
However, the Fund was negatively impacted by its exposure in Japan, Thailand,
Pakistan, Indonesia, and South Korea. In Japan, economic problems have weighed
on equities on the back of dormant domestic demand and an ongoing banking
crisis. Our higher weighting in Thailand and Indonesia relative to the Index was
another negative contributor to the Fund. Despite these factors, strict
adherence to our investment philosophy helped us uncover attractive companies in
the region.
In Taiwan, the Fund owns Phoenixtec Power, a manufacturer of uninterrupted
power supply (UPS) systems, an important commodity in emerging countries where
power supply is not stable. It is the number one contract supplier of UPS for
companies such as NEC and Siemens.
Jollibee Foods in the Philippines was another positive contributor to the
Fund's performance. A leading fast-food chain, Jollibee operates 243 stores in
the Philippines. In 1997, consolidated revenues were up 27% from year-ago
levels. Jollibee's plan to expand overseas is expected to further boost revenues
in the years ahead.
Going forward, we believe the application of our investment philosophy, and
the long-term growth prospects for the Pacific Rim region will continue to
reward shareholders in the years to come.
REPRESENTATIVE HOLDINGS
China Telecom, China
Daewoo Heavy Industries, South Korea
Hana Microelectronics, Thailand
Jollibee Foods, Philippines
Natsteel Electronics, Singapore
News Corp., Australia
Nichiei, Japan
Phoenixtec Power, Taiwan
Sony, Japan
Ranbaxy, India
- ------------
* The MSCI Pacific Index is an unmanaged index representative of the market
structure of six developed market countries in the Pacific Basin. Returns
reflect
the reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
- --------------------------------------------------------------------------------
13
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
PACIFIC RIM FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS -- 92.0%
- ----------------------------------------------------------------------------
AUSTRALIA -- 9.6%
Colonial Ltd............................... 6,800 $ 22,322
Telstra Corp., Ltd......................... 9,600 24,765
The News Corp., Ltd........................ 3,700 24,463
Westpac Banking Corp., Ltd................. 3,100 20,805
Woolworths Ltd............................. 6,000 22,481
------------
114,836
------------
HONG KONG -- 18.8%
Beijing Datang Power Generation Co., Ltd... 44,000 20,302
Beijing Enterprises Holdings Ltd........... 12,000 30,898
China Merchants Holdings International Co.,
Ltd...................................... 26,000 24,161
China Resources Beijing Land............... 18,000 9,641
China Telecom Ltd.......................... 14,000 28,368
CLP Holdings Ltd........................... 3,500 17,617
Henderson Land Development Co., Ltd........ 4,000 20,289
Hutchison Whampoa Ltd...................... 3,000 21,102
New World Development Co., Ltd............. 13,000 45,889
Yanzhou Coal Mining Co., Ltd............... 20,000 6,298
------------
224,565
------------
INDIA -- 6.3%
Mahanagar Telephone Nigam Ltd. -- GDR*..... 1,700 29,198
Ranbaxy Laboratories Ltd. -- GDR........... 800 20,900
State Bank of India -- GDR................. 1,400 25,018
------------
75,116
------------
JAPAN -- 11.2%
Bridgestone Corp........................... 1,000 22,647
Ibiden Co., Ltd............................ 2,000 25,947
Keyence Corp............................... 100 13,798
Nichiei Co., Ltd........................... 220 19,467
Orix Corp.................................. 400 27,176
Sony Corp.................................. 300 25,422
------------
134,457
------------
KOREA -- 3.7%
Daewoo Heavy Industries.................... 8,600 44,088
------------
MALAYSIA -- 2.3%
Sime Darby Berhad.......................... 25,000 28,023
------------
PAKISTAN -- 1.4%
Hub Power Co............................... 15,700 16,713
------------
PHILIPPINES -- 6.1%
Jollibee Foods*............................ 50,000 23,418
Music Corp.*............................... 55,000 21,406
Philippine Long Distance Telephone Co...... 1,000 27,837
------------
72,661
------------
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
SINGAPORE -- 9.7%
Gul Technologies........................... 17,000 $ 7,158
Keppel Land Ltd............................ 20,000 27,617
Natsteel Electronics Ltd.*................. 15,000 29,165
Singapore Press Holdings, Ltd.............. 2,552 29,234
Singapore Technologies Engineering Ltd.*... 26,000 23,022
------------
116,196
------------
TAIWAN -- 5.2%
Phoenixtec Power Co., Ltd.*................ 11,000 39,159
Standard Foods Taiwan*..................... 11,250 23,105
------------
62,264
------------
THAILAND -- 15.0%
Hana Microelectronics Public Co., Ltd...... 6,000 22,166
National Finance & Securities Public Co.,
Ltd...................................... 11,000 6,096
Sawang Export Co., Ltd..................... 35,000 24,969
Shinawatra Computer Public Co. Ltd......... 4,400 27,129
Thai Farmers Bank Public Co., Ltd.......... 40,000 99,366
------------
179,726
------------
UNITED STATES OF AMERICA -- 2.7%
Syntel, Inc.*.............................. 800 32,800
------------
TOTAL COMMON STOCKS
(Cost $1,044,067)........................................ 1,101,445
------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 12.6%
- ----------------------------------------------------------------------------
J.P. Morgan & Co., Inc. $151,000 at 5.92%,
(Agreement dated 03/31/98 to be
repurchased at $151,025 on 04/01/98,
collateralized by $150,000 FNMA Notes,
6.74%, due 05/07/01)
(Cost $151,000).......................... $ 151,000 151,000
------------
TOTAL INVESTMENTS -- 104.6%
(Cost $1,195,067)........................................ 1,252,445
LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.6%)............ (55,381)
------------
NET ASSETS -- 100.0%....................................... $ 1,197,064
------------
</TABLE>
- ------------
* Non-Income Producing Security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
14
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
PACIFIC RIM FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Automotive Equipment........................ 1.9%
Building Materials.......................... 2.0
Coal Mining................................. 0.5
Computers/Office Automation................. 2.9
Consumer Electricals........................ 2.1
Drugs/Pharmaceuticals....................... 1.7
Electric Utilities.......................... 4.6
Electronics Instruments..................... 1.2
Finance Companies........................... 1.6
Financial Services.......................... 12.6
Food Chains................................. 1.9
Grocery Products............................ 1.9
Investment Companies........................ 2.4
Machinery/Equipment......................... 3.7
Military/Defense Technology................. 1.9
Money-Center Banks.......................... 10.0
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Other Commercial/Industrial Services........ 2.6%
Other Production/Manufacturing.............. 4.1
Other Retail Trade.......................... 2.1
Publishing.................................. 4.5
Real Estate Development/Investment.......... 8.6
Regional/Commercial Banks................... 2.1
Rental/Leasing Companies.................... 2.3
Restaurants................................. 2.0
Semiconductors/Electric Companies........... 11.5
Software.................................... 2.7
Telecommunication Services.................. 6.9
Telephone................................... 2.3
Liabilities in Excess of Other Assets....... (4.6)
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
15
<PAGE>
GREATER CHINA FUND
INSTITUTIONAL SHARES
- ------------------------------------------------------------------------
MANAGEMENT TEAM
Catherine Somhegyi,
Partner, Chief Investment Officer, Equities
Lawrence S. Speidell,
CFA, Partner, Director of Global/Systematic Portfolio
Management and Research
Tim Greaton,
Senior Portfolio Manager, Hong Kong
Robert Brewis,
Portfolio Manager, Hong Kong
Pedro V. Marcal,
Partner, Portfolio Manager
Eswar Menon,
Portfolio Manager
GOAL: The Nicholas-Applegate Greater China Fund seeks to maximize total return
through investing in stocks in the Greater China region.
REVIEW & OUTLOOK: Since its introduction on January 1, 1998 through March 31,
1998, the Nicholas-Applegate Greater China Fund delivered outstanding returns,
advancing 13.1% versus a 13.7% drop for its benchmark, the Credit Lyonnais China
World Index.*
In the face of the turmoil that has roiled the Asian region last year, China,
Hong Kong, and Taiwan were less affected compared to other Asian countries. For
instance, China and Hong Kong currencies have remained stable throughout the
crisis. Also, China's exports growth remained robust, rising 10% in the first
three months of 1998. Foreign direct investments in the country were likewise up
10% in that same period. The Fund's holdings reflect diversity in terms of
stocks and sectors we invest in, with the goal of giving investors a wide range
of exposure to the Greater China economy and industry.
One example is Sichuan Expressway, a toll-road company in the Sichuan province
which connects the two biggest cities in the largest provinces in China. The
company is expected to be a beneficiary of solid economic growth expected in the
region. Expressway firms are a large portion of the Fund's holdings as we see
stable returns in this sector.
Other top holdings in the Fund include: Brilliance China Auto, a maker of mini
vans; Legend Holdings, the largest maker and seller of PCs in China; Compal, a
maker of notebook computers with U.S.-based Dell Computer as its main customer;
Cheung Kong, a leading property company in Hong Kong; China Merchants, a leading
conglomerate; and China Telecom, a monopoly on mobile communications in China,
which is expected to experience high earnings growth in the years ahead.
We believe the long-term prospects for the Greater China region are
compelling. Privatization, deregulation, and solid economic growth all bode well
for the region's future.
REPRESENTATIVE HOLDINGS
Sichuan Expressway
Brilliance China Auto
Legend Holdings
Cheung Kong
China Telecom
China Merchants
Compal
- ------------
* The Credit Lyonnais China World Index is an unmanaged index that is a
representative benchmark for gauging the performance of China funds which are
free to invest in red chips, H shares, B shares and N shares. Returns reflect
the reinvestment of
income dividends and capital gains distributions but do not reflect fees,
brokerage commissions, or other expenses of investing. Past performance is no
indication of future performance.
- --------------------------------------------------------------------------------
16
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
GREATER CHINA FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
COMMON STOCKS -- 91.9%
- --------------------------------------------------------------------------
CHINA -- 7.8%
Heilongjiang Electric Power Co., Ltd....... 45,000 $ 33,930
Shandong Huaneng Power Co., Ltd............ 5,000 36,875
Zhejiang Southeast Electric Power Co.,
Ltd.*.................................... 63,000 22,050
----------
92,855
----------
HONG KONG -- 74.7%
Amoy Properties Ltd........................ 56,000 44,811
Anhui Expressway Co., Ltd.................. 112,000 20,382
Brilliance China Automotive Holdings
Ltd...................................... 4,000 42,500
Cheung Kong Holdings Ltd................... 7,000 49,690
China Foods Holdings Ltd................... 60,000 23,038
China Merchants Holdings International Co.,
Ltd...................................... 42,000 39,029
China Resources Enterprise Ltd............. 6,000 12,158
China Shipping Development Co., Ltd.*...... 56,000 12,359
China Southern Airlines Co., Ltd.*......... 72,000 19,979
China Telecom Ltd.*........................ 18,000 36,474
Chongqing Chagan Automobile Co., Ltd....... 59,903 20,952
Cosco Pacific Group Ltd.................... 34,000 28,523
Dalian Refrigeration Co., Ltd.*............ 8,000 2,788
First Tractor Co., Ltd..................... 30,000 20,521
Goldlion Holdings Ltd...................... 34,000 8,776
Guangdong Brewery Holdings Ltd.*........... 126,000 20,653
Guangdong Electric Power Development Co.,
Ltd...................................... 39,800 21,574
Guangdong Investments Ltd.................. 80,000 36,912
Guangdong Kelon Electric Holding........... 28,000 32,524
Henderson Land Development Co., Ltd........ 2,000 10,145
Hutchison Whampoa Ltd...................... 7,000 49,238
Jiangsu Expressway Co., Ltd. 144A.......... 108,000 30,666
Legend Holdings Ltd.*...................... 102,000 42,456
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
</TABLE>
HONG KONG (CONTINUED)
<TABLE>
<S> <C> <C>
New World Development Co., Ltd............. 11,000 $ 38,829
New World Infrastructure Ltd.*............. 14,200 34,272
Ng Fung Hong Ltd........................... 22,000 21,438
Ocean-Land Group Ltd....................... 44,000 11,642
SA SA International Holdings Ltd........... 132,000 27,770
Shandong Chenming Paper Holdings Ltd....... 20,580 10,040
Shanghai Industrial Holdings Ltd........... 6,000 24,548
Shenzhen Expressway Co., Ltd............... 60,000 16,843
Sichuan Expressway Co...................... 248,000 42,891
Wai Kee Holdings Ltd....................... 100,000 18,069
Yanzhou Coal Mining Co., Ltd.*............. 34,000 10,707
Zhenhai Refining and Chemical Co., Ltd..... 22,000 6,886
----------
890,083
----------
TAIWAN -- 9.4%
Compal Electronics Inc..................... 12,000 48,013
Phoenixtec Power Co., Ltd.................. 6,000 21,359
Siliconware Precision Industries Co........ 11,000 33,302
Yageo Corp................................. 4,000 9,858
----------
112,532
----------
TOTAL COMMON STOCKS
(Cost $992,923).......................................... 1,095,470
----------
TOTAL INVESTMENTS -- 91.9%
(Cost $992,923).......................................... 1,095,470
OTHER ASSETS IN EXCESS OF LIABILITIES -- 8.1%.............. 96,898
----------
NET ASSETS -- 100.0%....................................... $1,192,368
----------
</TABLE>
- ------------
* Non-Income Producing Security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
GREATER CHINA FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Airlines.................................... 1.7%
Appliances.................................. 2.7
Automobiles................................. 5.3
Buildings................................... 4.4
Commercial Services......................... 2.4
Computers................................... 3.6
Electric Utilities.......................... 12.7
Electronics................................. 7.6
Foods....................................... 5.4
Investment Companies........................ 4.9
Machinery/Equipment......................... 3.8
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Manufacturing............................... 2.1%
Mining Services............................. 0.9
Oil Refining................................ 0.6
Paint....................................... 3.3
Paper....................................... 0.8
Real Estate Investment...................... 14.0
Retail -- Perfume & Cosmetics............... 2.3
Telecommunication........................... 3.1
Transportation.............................. 10.3
Other Assets in Excess of Liabilities....... 8.1
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
18
<PAGE>
HIGH YIELD BOND FUND
INSTITUTIONAL SHARES
- ------------------------------------------------------------------------
MANAGEMENT TEAM
Fred S. Robertson,
Partner, Chief Investment Officer, Fixed Income
Douglas G. Forsyth,
CFA, Portfolio Manager
James E. Kellerman,
Partner, Portfolio Manager
Sandra K. Durn,
Portfolio Manager
Jan Friedli,
Portfolio Manager
Richard J. King,
CFA, Portfolio Manager
Susan Malone,
Portfolio Manager
GOAL: The Nicholas-Applegate High Yield Bond Fund seeks to deliver a high
level of current income and long-term capital growth by investing in a
diversified portfolio consisting primarily of U.S. corporate fixed-income
securities.
REVIEW AND OUTLOOK: The Nicholas-Applegate High Yield Bond Fund delivered
outstanding performance for the fiscal year based on superior bond selection and
the powerful domestic economy. The Fund returned 25.5%, outperforming the First
Boston High Yield Index which returned 14.3%.
Continued domestic growth, stable interest rates, low inflation, high consumer
confidence, and low unemployment proved ideal for high yield investing. Strong
inflows, combined with a record pace of new issues, drove the high yield market.
Expert bond selection was the primary factor driving outperformance. Holdings
boosting the Fund's advance included arts and crafts retailer Michael's Stores
and Orbital Sciences, a company operating low-Earth-orbit satellites to track
machinery and systems operations throughout the world.
Our outlook is bright for continued outperformance for the Fund, given current
positive market conditions. Moreover, our focus on company fundamentals
positions us to find attractive opportunities regardless of changes to the
macroeconomic environment.
REPRESENTATIVE HOLDINGS
Amresco
Bally Total Fitness
Chancellor Media
IDT
Michael's Stores
Musicland
Omnipoint
Orbital Sciences -- Orbcomm
Viacom
Winstar Communications
- --------------------------------------------------------------------------------
19
<PAGE>
HIGH YIELD BOND FUND
- ------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN NICHOLAS-APPLEGATE
HIGH YIELD BOND INSTITUTIONAL SHARES WITH THE FIRST BOSTON HIGH YIELD INDEX.
<TABLE>
<S> <C> <C>
SINCE
1 YEAR ANNUALIZED TOTAL RETURNS INCEPTION
25.49% As of 03/31/98 23.92%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD BOND INSTITUTIONAL SHARES FIRST BOSTON HIGH YIELD BOND INDEX
<S> <C> <C>
31-Jul-96 $ 250,000.00 $ 250,000.00
30-Sep-96 265,701.85 257,071.87
31-Dec-96 278,313.49 268,409.15
31-Mar-97 284,739.53 272,366.41
30-Jun-97 305,704.81 284,126.03
30-Sep-97 331,437.96 297,492.29
31-Dec-97 337,881.57 302,300.65
31-Mar-98 357,326.30 311,386.98
</TABLE>
This graph compares a $250,000 investment in the High Yield Bond Institutional
Shares with the First Boston High Yield Index, on a cumulative return basis. All
return calculations reflect the reinvestment of income dividends and capital
gains distributions, if any, as well as all fees and expenses applicable to the
Institutional Shares.
The total returns reflect the fact that the Investment Adviser has agreed to
waive or defer its management fees and to pay other operating expenses otherwise
payable by the Institutional Shares, subject to possible later reimbursement
during a five year period. Total return results may have been lower had there
been no waiver or deferral.
The First Boston High Yield Index includes over 180 U.S. domestic issues with an
average maturity range of seven to ten years and with a minimum issues size of
$100 million.
The Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
Past performance is no guarantee of future performance. Investment return and
the principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
20
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS -- 0.8%
- ---------------------------------------------------------------------------------------------------
COMPUTER NETWORKS -- 0.4%
Legato Systems, Inc............................................ 2,000 $ 118,750
------------
GAMING -- 0.4%
Rio Hotel and Casino, Inc.*.................................... 5,000 129,687
------------
TOTAL COMMON STOCK
(Cost $229,425)................................................................ 248,437
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 87.2%
- ---------------------------------------------------------------------------------------------------
BROADCASTING -- 7.8%
American Mobile Satellite
12.250%, 04/01/08................................................. $ 500,000 520,000
Fox Liberty Networks LLC
8.875%, 08/15/07.................................................. 250,000 260,000
Satelites Mexicanos SA
10.125%, 11/01/04................................................. 250,000 256,875
Source Media, Inc.
12.000%, 11/01/04................................................. 1,300,000 1,293,500
------------
2,330,375
------------
CATALOG RETAILING -- 5.1%
Brylane L.P., Series B
10.000%, 09/01/03................................................. 250,000 265,625
Shop At Home, Inc.
11.000%, 04/01/05................................................. 1,250,000 1,262,500
------------
1,528,125
------------
ELECTRONIC RETAILING -- 0.4%
Electronic Retailing Systems, Inc.
0.000%, 02/01/04*................................................. 200,000 116,000
------------
ENGINEERING SERVICES -- 0.9%
MSX International, Inc.
11.375%, 01/15/08................................................. 250,000 259,375
------------
ENTERTAINMENT -- 0.5%
Premier Parks, Inc.
0.000%, 04/01/08*................................................. 250,000 159,375
------------
EQUIPMENT -- 0.9%
Phase Metrics, Inc.
10.750%, 02/01/05................................................. 250,000 252,812
------------
FINANCIAL SERVICES -- 11.3%
AMRESCO, Inc.
9.875%, 03/15/05.................................................. 1,200,000 1,221,000
Bluegreen Corp.
10.500%, 04/01/08................................................. 750,000 751,875
CRIIMI MAE, Inc.
9.125%, 12/01/02.................................................. 750,000 754,687
MCII Holdings
0.000%, 11/15/02*................................................. 250,000 236,250
Px Escrow Corp.
0.000%, 02/01/06*................................................. 200,000 142,250
Resource America, Inc.
12.000%, 08/01/04................................................. 250,000 262,500
------------
3,368,562
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
FOOD PROCESSING -- 1.7%
Purina Mills, Inc.
9.000%, 03/15/10.................................................. $ 500,000 $ 516,250
------------
HOTELS AND MOTELS -- 0.9%
Extended Stay America
9.150%, 03/15/08.................................................. 250,000 251,875
------------
INDUSTRIAL -- 3.5%
Orbital Imaging Corp.
11.625%, 03/01/05................................................. 950,000 1,045,000
------------
MACHINERY -- 0.9%
Newcor Inc.
9.875%, 03/01/08.................................................. 250,000 253,125
------------
MOTION PICTURES -- 0.9%
Ascent Entertainment Group
0.000%, 12/15/04*................................................. 450,000 264,375
------------
MUSIC/CLUBS -- 0.9%
Imax Corp.
10.000%, 03/01/01................................................. 250,000 261,250
------------
PAPER AND PAPER PRODUCTS -- 1.7%
Plainwell, Inc.
11.000%, 03/01/08................................................. 500,000 506,250
------------
PRODUCERS/MANUFACTURING -- 2.3%
Associated Materials, Inc.
9.250%, 03/01/08.................................................. 200,000 205,500
Doskocil Manufacturing Co., Inc.
10.125%, 09/15/07................................................. 200,000 214,000
Foodmaker, Inc.
9.250%, 03/01/99.................................................. 18,000 18,225
Inter-City Products Corp.
9.750%, 03/01/00.................................................. 250,000 254,063
------------
691,788
------------
PUBLISHING -- 0.9%
Liberty Group Operating
9.375%, 02/01/08.................................................. 250,000 255,625
------------
RECREATIONAL CENTERS -- 1.1%
Bally Total Fitness Holding, Series B
9.875%, 10/15/07.................................................. 300,000 319,500
------------
SOFTWARE -- 2.9%
IDT Corp.
8.750%, 02/15/06.................................................. 875,000 873,906
------------
SPECIAL PURPOSE -- 1.0%
Pinnacle Holdings, Inc.
0.000%, 03/15/08*................................................. 500,000 313,125
------------
SPECIALTY RETAILING -- 4.6%
CompUSA, Inc.
9.500%, 06/15/00.................................................. 150,000 155,063
Maxim Group, Inc., Series B
9.250%, 10/15/07.................................................. 200,000 203,250
Michaels Stores, Inc.
10.875%, 06/15/06................................................. 100,000 112,000
Musicland Group
9.000%, 06/15/03.................................................. 500,000 495,000
Tuesday Morning Corp.
11.000%, 12/15/07................................................. 400,000 412,500
------------
1,377,813
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998 -- CONTINUED
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS -- 18.6%
Covad Comm Group
0.000%, 03/15/08*................................................. $ 500,000 $ 262,500
Global Telesystems Group
9.875%, 02/15/05.................................................. 625,000 646,094
Nextel Communications
0.000%, 09/15/07*................................................. 1,000,000 668,750
Nextlink Communications
0.000%, 04/15/08*................................................. 1,500,000 950,625
Omnipoint Corp.
11.625%, 08/15/06................................................. 750,000 826,875
ORBCOMM Global, LP, Series B
14.000%, 08/15/04................................................. 1,250,000 1,459,375
Sitel Corp.
9.250%, 03/15/06.................................................. 700,000 707,000
------------
5,521,219
------------
TELEPHONE -- 13.2%
21st Century Telecom Group
0.000%, 02/15/08*................................................. 250,000 147,500
Esprit Telecom Group PLC
11.500%, 12/15/07................................................. 750,000 825,938
Facilicom International
10.500%, 01/15/08................................................. 250,000 261,250
McLeodUSA, Inc.
8.375%, 03/15/08.................................................. 500,000 517,500
Qwest Communications International
0.000%, 10/15/07*................................................. 300,000 220,500
Teligent, Inc.
11.500%, 12/01/07................................................. 600,000 627,000
WinStar Communications, Inc.
0.000%, 10/15/05.................................................. 300,000 251,250
WinStar Communications, Inc.
0.000%, 03/01/07*................................................. 800,000 1,062,000
------------
3,912,938
------------
TRANSPORTATION -- 5.2%
Premier Cruises Ltd.
11.000%, 03/15/08................................................. 500,000 493,750
Trans World Airlines
11.500%, 12/15/04................................................. 1,000,000 1,060,000
------------
1,553,750
------------
TOTAL CORPORATE BONDS
(Cost $25,649,727)................................................................ 25,932,413
------------
FOREIGN CORPORATE OBLIGATIONS -- 0.4%
- ---------------------------------------------------------------------------------------------------
INDONESIA -- 0.4%
PT Polysindo Eka Perkasa Interest Promissory Note*.................. 10,000 5,900
PT Polysindo Eka Perkasa Interest Promissory Note*.................. 10,000 5,900
PT Polysindo Eka Perkasa Principal Promissory Note*................. 200,000 118,000
------------
129,800
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS
(Cost $129,766)................................................................... 129,800
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 2.0%
- ---------------------------------------------------------------------------------------------------
BROADCASTING -- 1.0%
Chancellor Media, Inc., Series A, 12.25%....................... $ 2,000 $ 284,500
------------
TELECOMMUNICATION SERVICES -- 1.0%
Dobson Communication Corp., 12.25%............................. 2,500 275,000
IXC Communciations, Inc., Series B, 12.50%..................... 70 8,540
------------
283,540
------------
TOTAL PREFERRED STOCK
(Cost $507,910)................................................................ 568,040
------------
- ---------------------------------------------------------------------------------------------------
MUTUAL FUND -- 0.0%
- ---------------------------------------------------------------------------------------------------
BOND FUNDS -- 0.0%
Nicholas Applegate High Yield Bond Fund Trust*
(Cost $1,000)................................................ 55 1,000
------------
- ---------------------------------------------------------------------------------------------------
WARRANTS -- 0.0%
- ---------------------------------------------------------------------------------------------------
ELECTRONIC INSTRUMENTS -- 0.0%
Electronic Retailing Systems, Inc.*
(Cost $12,219)............................................... 300 7,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 6.0%
- ---------------------------------------------------------------------------------------------------
Associates First Capital Corp.
6.050%, 04/01/98.................................................. $ 587 587,000
Merrill Lynch
6.050%, 04/01/98.................................................. 1,205 1,205,000
------------
TOTAL COMMERCIAL PAPER
(Cost $1,792,000)................................................................. 1,792,000
------------
TOTAL INVESTMENTS -- 96.4%
(Cost $28,322,047)................................................................ 28,679,190
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 3.6%............................................................... 1,055,558
------------
NET ASSETS -- 100.0%................................................................ $ 29,734,778
------------
</TABLE>
- ---------------
* Non-Income Producing Security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
22
<PAGE>
(This page intentionally left blank)
- --------------------------------------------------------------------------------
23
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED DISTRIBUTIONS
VALUES AT INVESTMENT AND UNREALIZED FROM NET DISTRIBUTIONS
BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM
OF PERIOD (DEFICIT) ON INVESTMENTS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
GLOBAL BLUE CHIP FUND(1)
For the period ended
3/31/98................... $ 12.50 $ (0.00) $ 2.31 -- --
EMERGING MARKETS BOND FUND(1)
For the period ended
3/31/98................... 12.50 0.59 (0.28) $ (0.59) $ (0.03)
LATIN AMERICA FUND(2)
For the period ended
3/31/98................... 12.50 0.15 1.27 -- --
PACIFIC RIM FUND(3)
For the period ended
3/31/98................... 12.50 0.02 0.14 -- --
GREATER CHINA FUND(3)
For the period ended
3/31/98................... 12.50 0.02 1.62 -- --
</TABLE>
- -----------------
(1) Commenced Operations on September 30, 1997.
(2) Commenced Operations on November 28, 1997.
(3) Commenced Operations on December 31, 1997.
* Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
24
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO EXPENSES TO
AVERAGE NET AVERAGE NET
NET ASSETS ASSETS, AFTER ASSETS, BEFORE
NET ASSET AT EXPENSE EXPENSE
VALUES AT TOTAL END OF REIMBURSEMENT REIMBURSEMENT
END OF PERIOD RETURN PERIOD AND FEE WAIVER* AND FEE WAIVER*
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
GLOBAL BLUE CHIP FUND(1)
For the period ended
3/31/98................... $ 14.81 18.48% $ 7,319,598 1.20% 2.14%
EMERGING MARKETS BOND FUND(1)
For the period ended
3/31/98................... 12.19 2.67% 2,244,103 0.95% 3.31%
LATIN AMERICA FUND(2)
For the period ended
3/31/98................... 13.92 11.14% 1,183,831 1.65% 5.20%
PACIFIC RIM FUND(3)
For the period ended
3/31/98................... 12.66 1.28% 1,197,064 1.40% 4.50%
GREATER CHINA FUND(3)
For the period ended
3/31/98................... 14.14 13.12% 1,192,368 1.40% 4.70%
<CAPTION>
RATIO OF NET RATIO OF NET
INCOME (DEFICIT) TO INCOME (DEFICIT) TO
AVERAGE NET AVERAGE NET
ASSETS, AFTER ASSETS, BEFORE
EXPENSE EXPENSE AVERAGE
REIMBURSEMENT REIMBURSEMENT PORTFOLIO COMMISSION
AND FEE WAIVER* AND FEE WAIVER* TURNOVER RATE
<S> <C> <C> <C> <C>
- ------------------------------
GLOBAL BLUE CHIP FUND(1)
For the period ended
3/31/98................... (0.06%) (1.00%) 238.02% $ 0.0246
EMERGING MARKETS BOND FUND(1)
For the period ended
3/31/98................... 9.79% 7.43% 220.57% --
LATIN AMERICA FUND(2)
For the period ended
3/31/98................... 3.33% (0.21%) 188.19% 0.0019
PACIFIC RIM FUND(3)
For the period ended
3/31/98................... 0.74% (2.37%) 86.04% 0.0188
GREATER CHINA FUND(3)
For the period ended
3/31/98................... 0.57% (2.73%) 34.08% 0.0039
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
25
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
GLOBAL BLUE MARKETS BOND LATIN AMERICA PACIFIC RIM GREATER CHINA
CHIP FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
ASSETS
Investments, at value*................ $ 7,416,632 $ 2,640,248 $ 1,119,208 $ 1,252,445 $ 1,095,470
Foreign currencies, at value**........ -- -- -- 33,774 98,644
Cash.................................. -- 17,997 -- 343 6,679
Receivable for investment securities
sold................................ 446,580 289,793 45,820 3,648 --
Dividends receivable.................. 9,720 -- 17,604 3,396 1,788
Interest receivable................... 325 37,453 -- 43 --
Due from advisor...................... 3,387 11,087 7,349 5,067 5,985
Other assets.......................... -- 4,174 14,770 13,798 13,871
-----------------------------------------------------------------------------
Total assets........................ 7,876,644 3,000,752 1,204,751 1,312,514 1,222,437
-----------------------------------------------------------------------------
LIABILITIES
Payable for investment securities
purchased........................... 272,599 271,645 -- 111,239 23,460
Due to advisor........................ -- -- 256 -- --
Accrued expenses...................... 10,809 6,828 6,039 4,211 6,609
Unrealized loss on foreign currency
contracts........................... -- 8,392 -- -- --
Reverse repurchase agreements......... -- 468,284 -- -- --
Margin variation...................... -- 1,500 -- -- --
Cash overdraft........................ 273,638 -- 14,625 -- --
-----------------------------------------------------------------------------
Total liabilities................... 557,046 756,649 20,920 115,450 30,069
-----------------------------------------------------------------------------
NET ASSETS.............................. $ 7,319,598 $ 2,244,103 $ 1,183,831 $ 1,197,064 $ 1,192,368
-----------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital....................... 6,263,394 2,292,092 1,065,688 1,184,107 1,051,770
Accumulated net investment income
(deficit)........................... (1,581) (102) 12,745 2,096 1,562
Accumulated net realized gain
(loss).............................. (73,479) (131,703) (449) (32,489) 38,966
Accumulated net realized foreign
exchange loss....................... (37,190) (5,135) (5,924) (16,428) (2,073)
Net unrealized foreign exchange gain
(loss).............................. (2,202) (8,392) (29) 2,400 (404)
Net unrealized appreciation on
investments......................... 1,170,656 97,343 111,800 57,378 102,547
-----------------------------------------------------------------------------
Net assets.......................... $ 7,319,598 $ 2,244,103 $ 1,183,831 $ 1,197,064 $ 1,192,368
-----------------------------------------------------------------------------
* Investments, at cost................ $ 6,245,976 $ 2,542,905 $ 1,007,408 $ 1,195,067 $ 992,923
-----------------------------------------------------------------------------
** Foreign currencies, at cost........ -- -- -- $ 32,938 $ 99,050
-----------------------------------------------------------------------------
Shares of beneficial interest, no par
value, issued and outstanding
(unlimited shares authorized)....... 494,078 184,041 85,042 94,571 84,342
-----------------------------------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/Outstanding shares of
beneficial interest)................ $ 14.81 $ 12.19 $ 13.92 $ 12.66 $ 14.14
-----------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
26
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED MARCH 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL BLUE EMERGING MARKETS LATIN AMERICA PACIFIC RIM GREATER CHINA
CHIP FUND+ BOND FUND+ FUND++ FUND+++ FUND+++
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................. $ 23,081 -- $ 18,001 $ 3,582 $ 1,208
Interest.............................. 7,398 $ 114,941 1,051 2,501 4,163
----------------------------------------------------------------------------
Total income........................ 30,479 114,941 19,052 6,083 5,371
EXPENSES
Advisory fee.......................... 21,373 7,492 4,778 2,848 2,721
Accounting fee........................ 3,560 3,359 1,329 30 30
Administration fee.................... 12,466 12,466 8,288 6,164 6,164
Audit & tax fees...................... 568 152 198 33 32
Co-Administration fee................. 2,246 1,070 382 -- 272
Custodian fee......................... 5,608 1,785 773 500 440
Legal fee............................. 3,711 2,852 4 3 2
Miscellaneous......................... 1,057 1,153 163 13 13
Registration fee (State).............. 1,032 1,093 1,397 1,306 1,200
Transfer agent fee.................... 1,158 918 273 231 220
Shareholder reporting................. 1,751 371 127 93 89
Trustees' fee......................... 2,707 2,707 2,155 1,603 1,603
----------------------------------------------------------------------------
Total expenses...................... 57,237 35,418 19,867 12,824 12,786
Less: Reimbursement from advisor...... (22,931) (24,180) (13,178) (8,837) (8,705)
Less: Co-Administration fees waived... (2,246) (1,070) (382) -- (272)
----------------------------------------------------------------------------
Net expenses........................ 32,060 10,168 6,307 3,987 3,809
----------------------------------------------------------------------------
Net investment income (deficit)... (1,581) 104,773 12,745 2,096 1,562
----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security
transactions........................ (73,479) (126,774) (449) (32,489) 38,966
Net realized foreign exchange loss.... (37,190) (5,135) (5,924) (16,428) (2,073)
Change in net unrealized foreign
exchange gain (loss)................ (2,202) (8,392) (29) 2,400 (404)
Change in net unrealized appreciation
of investments...................... 1,170,656 97,343 111,800 57,378 102,547
----------------------------------------------------------------------------
Net gain (loss) on investments...... 1,057,785 (42,958) 105,398 10,861 139,036
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $ 1,056,204 $ 61,815 $ 118,143 $ 12,957 $ 140,598
----------------------------------------------------------------------------
</TABLE>
- -------------
+ Commenced Operations on September 30, 1997.
++ Commenced Operations on November 28, 1997.
+++ Commenced operations on December 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
27
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING LATIN GREATER
GLOBAL BLUE MARKETS AMERICA PACIFIC RIM CHINA
CHIP FUND BOND FUND FUND FUND FUND
------------- ------------- ------------- ------------- -------------
FOR THE FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998+ 1998+ 1998++ 1998+++ 1998+++
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (deficit)..... $ (1,581) $ 104,773 $ 12,745 $ 2,096 $ 1,562
Net realized gain (loss) from
security transactions............. (73,479) (126,774) (449) (32,489) 38,966
Net realized foreign exchange
loss.............................. (37,190) (5,135) (5,924) (16,428) (2,073)
Change in net unrealized foreign
exchange gain (loss).............. (2,202) (8,392) (29) 2,400 (404)
Change in net unrealized
appreciation of investments....... 1,170,656 97,343 111,800 57,378 102,547
-----------------------------------------------------------------------------
Net increase in net assets
resulting from operations..... 1,056,204 61,815 118,143 12,957 140,598
-----------------------------------------------------------------------------
DISTRIBUTIONS
Investment Income................... -- (104,875) -- -- --
Capital Gains....................... -- (4,929) -- -- --
-----------------------------------------------------------------------------
Net decrease in net assets
resulting from
distributions................. -- (109,804) -- -- --
-----------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........... 6,967,912 2,243,871 1,255,972 1,223,943 1,063,297
Proceeds from shares issued for
distribution reinvestment......... -- 109,801 -- -- --
Cost of shares repurchased.......... (704,518) (61,580) (190,284) (39,836) (11,527)
-----------------------------------------------------------------------------
Net increase in net assets from
capital share transactions...... 6,263,394 2,292,092 1,065,688 1,184,107 1,051,770
-----------------------------------------------------------------------------
Total increase in net assets.... 7,319,598 2,244,103 1,183,831 1,197,064 1,192,368
-----------------------------------------------------------------------------
NET ASSETS
BEGINNING OF PERIOD................... -- -- -- -- --
END OF PERIOD......................... $ 7,319,598 $ 2,244,103 $ 1,183,831 $ 1,197,064 $ 1,192,368
-----------------------------------------------------------------------------
CHANGES IN SHARES OUTSTANDING
Beginning balance..................... -- -- -- -- --
Shares sold........................... 553,026 180,092 99,495 97,763 85,172
Shares issued for distributions
reinvested.......................... -- 9,132 -- -- --
Shares repurchased.................... (58,948) (5,183) (14,471) (3,192) (830)
-----------------------------------------------------------------------------
Ending balance.................. 494,078 184,041 85,024 94,571 84,342
-----------------------------------------------------------------------------
</TABLE>
- -------------
+ Commenced Operations on September 30, 1997.
++ Commenced Operations on November 28, 1997.
+++ Commenced operations on December 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
28
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Nicholas-Applegate Mutual Funds (the "Trust"), a diversified, open-end
management investment company organized as a Delaware business trust, offers
various separate series portfolios (the "Funds") as of March 31, 1998.
The five funds herein are authorized to offer five classes of shares. As of
March 31, 1998, only the Institutional class has outstanding shares.
THE INVESTMENT OBJECTIVES OF THE FUNDS ARE AS FOLLOWS:
Global Blue Chip Fund seeks to maximize long-term capital appreciation through
investment primarily in common stocks traded in U.S. and foreign securities
markets.
Emerging Markets Bond Fund seeks to maximize total return and high current
income through investments primarily in debt securities of issuers located in
emerging countries.
Latin America Fund seeks long-term growth of capital through investments
primarily in equity and debt securities of issuers located in Latin American
countries.
Pacific Rim fund seeks long-term growth of capital through investments
primarily in equity and debt securities of issuers located in Pacific Rim
countries.
Greater China Fund seeks long-term growth of capital through investments
primarily in equity and debt securities of issuers located in China, Hong Kong
or Taiwan.
SECURITIES TRANSACTIONS
Equity securities are valued at the last sale price (for exchange-listed and
NASDAQ national market system securities) or the mean between the closing bid
and asked prices (if lacking any sales and for over-the counter securities).
Debt securities generally are valued at the quoted bid prices. Securities with
60 days or less remaining to maturity are valued on an amortized cost basis,
which approximates market value. Securities for which market quotations are not
readily available are valued at fair value determined in good faith by or under
the directions of the Trust's Board of Trustees.
Securities transactions are accounted for on the trade date. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend income is recognized on the ex-dividend date, except that
certain dividends from foreign securities are recorded as soon as the
information is available to the Funds. Interest income is recorded on the
accrual basis. Discounts and premiums on securities purchased are accreted and
amortized over the life of the respective securities.
FOREIGN CURRENCY TRANSLATION
Values of investments denominated in foreign currencies are converted into
U.S. dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such translations. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
FEDERAL INCOME TAXES
It is the Funds' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of their taxable income to their shareholders. Accordingly, no
federal income tax provisions are required if the Funds continue to comply with
such requirements.
Net investment income and net realized gains for the year (or period where
appropriate) differ for
- --------------------------------------------------------------------------------
29
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
financial statement and tax purposes primarily because of one or all of the
following: deferral of wash-sale losses, passive foreign investments, and
capital loss carryforwards.
As of March 31, 1998, Global Blue Chip Fund, Latin America Fund and Pacific
Rim Fund had available for Federal tax purposes $48,610, $449, and $29,784,
respectively, of unused capital loss carryovers which expire in 2006.
The character of distributions made during the year (or period where
appropriate) from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes due to book/tax
differences in the character of income and expense recognition. The prospectus
for the Nicholas-Applegate Mutual Funds describes each Fund's policies with
respect to declaration and payment of dividends and distribution of capital
gains.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
ALLOCATION OF EXPENSES
Expenses arising in connection with a specific class of shares are allocated
directly. All other expenses are allocated pro rata based on relative net
assets.
B. TRANSACTIONS WITH AFFILIATES
ADVISORY AGREEMENTS
The investment advisor to the Trust is Nicholas-Applegate Capital Management
("Nicholas-Applegate" or "Investment Advisor"). The advisory fee is computed
daily based upon the following percentages of each Fund's average daily net
assets:
<TABLE>
<CAPTION>
FUND FEE
- -------------------------------------------------- ------
<S> <C>
Global Blue Chip.................................. 0.80%
Emerging Markets Bond............................. 0.70%
Latin America..................................... 1.25%
Pacific Rim....................................... 1.00%
Greater China..................................... 1.00%
</TABLE>
To assist in the management of the Pacific Rim Fund and the Greater China
Fund, the Investment Adviser has entered into sub-advisory agreements with its
investment advisory affiliates, Nicholas-Applegate Capital Management -- Hong
Kong and Nicholas-Applegate Capital Management -- Asia. Pursuant to each
sub-advisory agreement, the Investment Adviser pays each of its affiliates a fee
ranging from 20% to 40% of the fees it receives.
ADMINISTRATIVE SERVICES AGREEMENT
The Trust pays the Investment Advisor for co-administrative services at an
annual rate of 0.10% of average daily net assets of each of the Portfolios.
These fees are in addition to the administrative fees charged by Investment
Company Administration Corporation. The Investment Advisor has agreed to waive
these fees if the related Fund's expenses before reimbursement is greater than
the expense limitation. In subsequent years, each Fund will reimburse the
Investment Advisor, up to actual cost, when operating expenses before
reimbursement are less than the applicable expense limitation.
EXPENSE LIMITATIONS
Nicholas-Applegate and the Trust have undertaken to limit the Funds' expenses
to certain annual levels. Overall operating expenses for each Fund will not fall
below the percentage limitation until the Investment Adviser has been fully
reimbursed for fees foregone or expenses paid by the Investment Adviser under
this agreement. Each Fund will reimburse the Investment Adviser in subsequent
years when operating expenses (before reimbursement) are less than the
applicable percentage limitation.
- --------------------------------------------------------------------------------
30
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
These percentages are based on the average net assets of the Funds, exclusive
of interest, taxes brokerage commissions, and other costs incurred in connection
with portfolio securities transactions, capital expenditures, and extraordinary
expenses.
The cumulative unreimbursed amounts paid by Nicholas-Applegate on behalf of
the Funds, during the period from inception (respectively) to March 31, 1998 are
as follows:
<TABLE>
<CAPTION>
FUND AMOUNT
- -------------------------------------------------- ---------
<S> <C>
Global Blue Chip.................................. $ 25,177
Emerging Markets Bond............................. 25,250
Latin America..................................... 13,560
Pacific Rim....................................... 8,837
Greater China..................................... 8,977
</TABLE>
Effective March 31, 1998, Nicholas-Applegate agreed to amend the expense
reimbursement agreement to limit the possible recoupment period of any expense
reimbursements to five years from the year of the reimbursement, and subject to
the Funds' ability to effect such reimbursement and remain in compliance with
applicable expense limitations.
RELATED PARTIES
Certain officers of the Trust are also officers of the Investment Adviser.
C. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investment securities, other than
short-term obligations, for the fiscal period ended March 31, 1998, were as
follows (in 000's):
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- -------------------------------------------------- --------- ---------
<S> <C> <C>
Global Blue Chip.................................. $ 19,484 $ 13,164
Emerging Markets.................................. 6,458 4,060
Latin America..................................... 3,127 2,119
Pacific Rim....................................... 1,972 895
Greater China..................................... 1,241 287
</TABLE>
At March 31, 1998, the net unrealized appreciation (depreciation) based on the
cost of investments for Federal income tax purposes was as follows (in 000's):
<TABLE>
<CAPTION>
GROSS GROSS NET
TAX UNREALIZED UNREALIZED UNREALIZED
FUND COST APPRECIATION DEPRECIATION APPRECIATION
- ---------------- --------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Global Blue
Chip........... $ 6,246 $ 1,202 $ 31 $ 1,171
Emerging Markets
Bond........... 2,543 178 81 97
Latin America... 1,007 118 6 112
Pacific Rim..... 1,195 84 27 57
Greater China... 993 119 16 103
</TABLE>
D. OFF BALANCE SHEET RISKS AND DERIVATIVE INSTRUMENTS
The Funds' investments in foreign securities may entail risks due to the
potential of political and economic instability in the countries where the
securities are being offered. In addition, foreign exchange fluctuations could
affect the value of positions held. It is the policy of the Funds to
continuously monitor its exposure to these risks.
Some of the Funds may utilize forward foreign currency exchange contracts as
part of their strategy of preserving capital. Upon entering into forward foreign
currency contracts, the Funds are required to deposit with the broker an amount
of cash or cash equivalents equal to the amount of the contract. The daily
changes in the contract are recorded as unrealized gains or losses. The Funds
recognize a realized gain or loss when the contract is sold. The forward value
of amounts due to the Funds netted against the forward value of the currency to
be delivered by the Funds and the remaining amount is shown as receivable
(payable) for unrealized gain (loss) on forward currency contracts open in the
financial statements.
- --------------------------------------------------------------------------------
31
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
E. REPURCHASE AGREEMENTS
The Funds' may enter into repurchase agreements, which are purchases by the
Funds of a security that a seller has agreed to buy back, usually within one to
seven days. The seller's promise to repurchase the security is fully
collateralized by securities equal in value to 102% of the purchase price,
including accrued interest. The Funds' may enter into these agreements only with
brokers, dealers, or banks that meet credit quality standards established by the
Board of Trustees of the Trust.
F. REVERSE REPURCHASE AGREEMENTS
The Funds' may enter into reverse repurchase agreements, which is similar to
borrowing cash. These transactions involve the selling by the Fund of a
portfolio security to a financial institution with a promise to repurchase the
same security in the future at a predetermined price plus interest. The Funds'
use the proceeds of these sales to purchase other securities which are
segregated at trade date and marked to the market daily and maintained until the
Funds settle these transactions. At March 31, 1998, Emerging Markets Bond Fund
had outstanding reverse repurchase agreements with Chase Manhattan Bank in the
amount of $468,284.
G. SECURITIES LENDING
Global Blue Chip Fund and Latin America Fund loaned securities to certain
brokers, dealers and other financial institutions who paid the Funds negotiated
lenders' fees. The Funds received cash collateral, letters of credit or U.S.
Government securities in an amount equal to 102% of the market value of the
loaned securities at the inception of each loan. The loans will be
collateralized at all times in an amount equal to at least 100% of the market
value of the securities loaned. At March 31, 1998, the market value of
securities loaned by Global Blue Chip Fund was $166,132 for which the Fund
received collateral of $171,300, and the market value of securities loaned by
Latin America Fund was $64,114 for which the Fund received collateral of
$69,400.
H. CREDIT FACILITY
The Funds participate in a $75 million redemption credit facility ("Facility")
to be utilized for temporary or emergency purposes, including the financing of
redemptions. In connection therewith, the Funds have agreed to pay commitment
fees on its pro rata portion of the Facility. Interest is charged to the Funds
at rates based on market rates in effect at the time of borrowings. At March 31,
1998, there were no outstanding borrowings under the Facility. The maximum
amount borrowed under this line of credit at any time during the period ended
March 31, 1998 was $0.
- --------------------------------------------------------------------------------
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------
ERNST & YOUNG LLP
515 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
PHONE: 213 977 3200
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NICHOLAS-APPLEGATE MUTUAL FUNDS
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the following series of
Nicholas-Applegate Mutual Funds: Global Blue Chip Fund, Emerging Markets Bond
Fund, Latin America Fund, Pacific Rim Fund, and Greater China Fund (hereinafter
the "Funds"), as of March 31, 1998, and the related statements of operations,
statements of changes in net assets, and the financial highlights for the fiscal
year then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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 March
31, 1998, by correspondence with the custodians 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 each
of the respective series of Nicholas-Applegate Mutual Funds referred to above as
of March 31, 1998, the results of their operations, changes in their net assets
and the financial highlights for the fiscal year then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
May 15, 1998
- --------------------------------------------------------------------------------
33
<PAGE>
HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS
VALUE AT NET AND UNREALIZED FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT GAINS ON INVESTMENT FROM
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
A SHARES+
For the period ended March
31, 1998.................. $ 12.70 $ 0.01 $ 0.01 $ -- $ --
B SHARES+
For the period ended March
31, 1998.................. 12.69 0.01 0.01 -- --
C SHARES+
For the period ended March
31, 1998.................. 12.69 0.01 0.01 -- --
I SHARES++
For the year ended March 31,
1998 13.20 1.11 2.02 (1.15) (1.72)
For the period ended March
31, 1997.................. 12.50 0.74 0.95 (0.73) (0.26)
Q SHARES+
For the period ended March
31, 1998.................. 12.70 0.01 0.01 -- --
Portfolio Turnover Rate for
the Year Ended March 31,
1998 484.39%
Portfolio Turnover Rate for
the Period Ended March 31,
1997 465.32%
</TABLE>
- -----------------
+ Commenced Operations on March 27, 1998.
++ Commenced Operations on July 31, 1996.
* Annualized
** Represents total return for the four day period from March 27, 1998 through
March 31, 1998 for the A, B, C and Q shares (see Note A). The total return
for the period from February 27, 1998 through March 27, 1998 was 1.60%,
1.52%, 1.52% and 1.60%, respectively for the A, B, C and Q shares.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
34
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses to Expenses to
Average Net Average Net
Net Assets Assets, After Assets, Before
Net Asset at Expense Expense
Value at Total End of Reimbursement Reimbursement
End of Period Return** Period and Fee Waiver* and Fee Waiver*
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
A SHARES+
For the period ended March
31, 1998.................. $ 12.72 0.16% $ 4,690,089 1.06% 1.06%
B SHARES+
For the period ended March
31, 1998.................. 12.71 0.16% 8,891,534 1.69% 1.69%
C SHARES+
For the period ended March
31, 1998.................. 12.71 0.16% 4,814,892 1.66% 1.66%
I SHARES++
For the year ended March 31,
1998 13.46 25.49% 10,771,172 0.76% 2.66%
For the period ended March
31, 1997.................. 13.20 13.90% 4,607,559 0.75% 1.95%
Q SHARES+
For the period ended March
31, 1998.................. 12.72 0.16% 567,091 0.97% 0.97%
Portfolio Turnover Rate for
the Year Ended March 31,
1998
Portfolio Turnover Rate for
the Period Ended March 31,
1997
<CAPTION>
Ratio of Net Ratio of Net
Income to Income to
Average Net Average Net
Assets, After Assets, Before
Expense Expense
Reimbursement Reimbursement
and Fee Waiver* and Fee Waiver*
<S> <C> <C>
- ------------------------------
A SHARES+
For the period ended March
31, 1998.................. 7.22% 7.22%
B SHARES+
For the period ended March
31, 1998.................. 6.61% 6.61%
C SHARES+
For the period ended March
31, 1998.................. 6.91% 6.91%
I SHARES++
For the year ended March 31,
1998 8.28% 6.38%
For the period ended March
31, 1997.................. 8.47% 7.97%
Q SHARES+
For the period ended March
31, 1998.................. 7.53% 7.53%
Portfolio Turnover Rate for
the Year Ended March 31,
1998
Portfolio Turnover Rate for
the Period Ended March 31,
1997
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
35
<PAGE>
HIGH YIELD BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value*................ $28,679,190
Cash.................................. 376
Interest receivable................... 362,104
Shares sold........................... 4,425,185
Due from advisor...................... 20,117
-----------
Total assets........................ 33,486,972
-----------
LIABILITIES
Investment securities purchased....... 3,714,571
Shares repurchased.................... 91
Accrued expenses...................... 37,532
-----------
Total liabilities................... 3,752,194
-----------
NET ASSETS $29,734,778
-----------
COMPOSITION OF NET ASSETS
Paid-in capital....................... $29,114,851
Accumulated net investment income..... 12,705
Accumulated net realized gain......... 250,079
Net unrealized appreciation on
investments and foreign exchange.... 357,143
-----------
NET ASSETS.............................. $29,734,778
-----------
*INVESTMENTS AT COST.................. $28,322,047
-----------
NET ASSETS
A shares.............................. $ 4,690,089
B shares.............................. 8,891,534
C shares.............................. 4,814,892
I shares.............................. 10,771,172
Q shares.............................. 567,091
-----------
Total............................... $29,734,778
-----------
SHARES OUTSTANDING (NO PAR VALUE,
UNLIMITED SHARES AUTHORIZED)
A shares.............................. 368,665
B shares.............................. 699,624
C shares.............................. 378,767
I shares.............................. 800,128
Q shares.............................. 44,587
-----------
Total............................... 2,291,771
-----------
NET ASSET VALUE
A shares (Maximum Offering Price of
$13.35)............................. $ 12.72
B shares.............................. $ 12.71
C shares.............................. $ 12.71
I shares.............................. $ 13.46
Q shares.............................. $ 12.72
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
36
<PAGE>
HIGH YIELD BOND FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividends............................. $ 23,168
Interest.............................. 523,889
-----------
Total income........................ 547,057
EXPENSES
Advisory fee.......................... 36,505
Accounting fee........................ 42,098
Administration fee.................... 6,119
Audit fee............................. 4,284
Co-Administration fee................. 5,938
Custodian fee......................... 24,725
Distribution fee...................... 1,090
Insurance fee......................... 566
Legal fee............................. 2,131
Miscellaneous......................... 2,566
Registration fee- Federal............. 1,200
Registration fee - State.............. 9,516
Shareholder reporting fee............. 1,456
Shareholder servicing fee............. 386
Transfer agent fee.................... 12,391
Trustees' fee......................... 7,686
-----------
Total expenses...................... 158,657
Reimbursement from advisor............ (105,541)
Co-Administration fee waiver.......... (5,938)
Line of credit commitment fee......... 401
-----------
Net expenses........................ 47,579
-----------
Net investment income............. 499,478
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN EXCHANGE
Net realized gain from security
transactions........................ 551,791
Change in net unrealized appreciation
of investments and foreign
exchange............................ 310,375
-----------
Net gain on investments........... 862,166
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $ 1,361,644
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
37
<PAGE>
HIGH YIELD BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31,
1998 1997+
<S> <C> <C>
-----------------------------
INCREASE IN NET ASSETS:
OPERATIONS
Net investment income............... $ 499,478 $ 248,226
Net realized gain from security
transactions....................... 551,791 329,760
Change in net unrealized
appreciation (depreciation) of
investments and foreign exchange... 310,375 (23,773)
-----------------------------
Increase in net assets from
operations...................... 1,361,644 554,213
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
I shares.......................... (516,768) (246,559)
Capital gains
I shares.......................... (551,174) (88,423)
-----------------------------
Change in net assets from
shareholder distributions....... (1,067,942) (334,982)
-----------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (See Note
F)................................. 27,096,275 4,551,209
Value of shares reinvested.......... 237,690 37,643
Cost of shares repurchased.......... (2,500,448) (201,524)
-----------------------------
Increase in net assets derived
from capital share
transactions..................... 24,833,517 4,387,328
-----------------------------
Total increase in net assets.... 25,127,219 4,606,559
NET ASSETS
BEGINNING OF THE PERIOD............... 4,607,559 1,000
-----------------------------
END OF THE PERIOD..................... $ 29,734,778 $ 4,607,559
-----------------------------
CHANGE IN SHARES OUTSTANDING
Beginning share balances.............. 349,046 80
Shares sold (See Note F).............. 2,118,195 361,395
Shares reinvested..................... 17,883 2,861
Shares repurchased.................... (193,353) (15,290)
-----------------------------
Ending share balances........... 2,291,771 349,046
-----------------------------
</TABLE>
- -------------
+ Commenced Operations on July 31, 1996.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
38
<PAGE>
HIGH YIELD BOND FUND
NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
High Yield Bond Fund (the "Fund") is a series of Nicholas-Applegate Mutual
Funds (the "Trust"), a diversified, open-end management investment company
organized as a Delaware business trust , and offers five classes of shares
namely, A, B, C, I and Q.
Prior to March 27, 1998, the Fund's capital consisted of only Institutional
class. On March 27, 1998, the Fund combined with a similar high yield bond fund
started on February 28, 1998, which was also a series of the Trust (the
"Acquiree"), whose capital consisted of classes A, B, C and Q. The shareholders
of the Acquiree effectively exchanged their shares in the Acquiree for equal
amounts of shares in the respective classes of the Fund in a tax-free exchange.
The Acquiree's net assets at that date, $16,364,513, including $70,541 of
unrealized appreciation, $28,328 of undistributed net investment income and
$8,125 of undistributed net realized gains from investment transactions, were
combined with those of the Fund. The aggregate net assets of the Fund and the
Acquiree immediately before the acquisition were $10,692,136 and $16,364,513,
respectively.
INVESTMENT OBJECTIVE
High Yield Bond Fund seeks a high level of current income and capital growth
through investments primarily in lower rated debt securities and convertible
securities rated below investment grade by a nationally recognized statistical
rating agency.
SECURITIES TRANSACTIONS
Equity securities are valued at the last sale price (for exchange-listed and
NASDAQ national market system securities) or the mean between the closing bid
and asked prices (if lacking any sales and for over-the counter securities).
Debt securities generally are valued at the quoted bid prices. Securities with
60 days or less remaining to maturity are valued on an amortized cost basis,
which approximates market value. Securities for which market quotations are not
readily available are valued at fair value determined in good faith by or under
the directions of the Trust's Board of Trustees.
Securities transactions are accounted for on the trade date. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend income is recognized on the ex-dividend date, except that
certain dividends from foreign securities are recorded as soon as the
information is available to the Fund. Interest income is recorded on the accrual
basis. Discounts and premiums on securities purchased are accreted and amortized
over the life of the respective securities.
FOREIGN CURRENCY TRANSLATION
Values of investments denominated in foreign currencies are converted into
U.S. dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such translations. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of their taxable income to their shareholders. Accordingly, no
federal income tax provisions are required if the Funds continue to comply with
such requirements.
Net investment income and net realized gains for the year (or period where
appropriate) differ for financial statement and tax purposes primarily because
of one or all of the following: deferral of wash-sale losses, passive foreign
investments, and capital loss carryforwards.
The character of distributions made during the year (or period where
appropriate) from net investment income or net realized gains may differ from
- --------------------------------------------------------------------------------
39
<PAGE>
HIGH YIELD BOND FUND
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
their ultimate characterization for federal income tax purposes due to book/tax
differences in the character of income and expense recognition. The prospectus
for the Nicholas-Applegate Mutual Funds describes each Fund's policies with
respect to declaration and payment of dividends and distribution of capital
gains.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
ALLOCATION OF EXPENSES
Expenses arising in connection with a specific class of shares are allocated
directly. All other expenses are allocated pro rata based on relative net
assets.
B. TRANSACTIONS WITH AFFILIATES
ADVISORY AGREEMENTS
The investment advisor to the Trust is Nicholas-Applegate Capital Management
("Nicholas-Applegate" or "Investment Advisor"). The advisory fee is computed
daily at an annual rate of 0.60% of average daily net assets of the Fund.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
The Trust has adopted a distribution plan whereby Nicholas-Applegate
Securities (the "Distributor"), an affiliate of Nicholas-Applegate Capital
Management, is compensated for distribution-related expenses at an annual rate,
payable monthly, of 0.25%, 0.75% and 0.75% of the average daily net assets of
the Fund's A, B and C shares, respectively.
Under a distribution agreement, the Distributor who is the principal
underwriter for the sale of shares of the Fund, retains a portion of any
contingent deferred sales load on redemptions for the Fund, and retains a
portion of the initial sales load imposed on purchases of shares of the Class A
Shares. This agreement may be terminated by either party upon 60 days' written
notice.
The Trust has adopted a shareholder service plan under which the Distributor
is also compensated for non-distribution related expenses at an annual rate, as
follows: 0.10%, 0.25% and 0.25% of the average daily net asset value of the A,
B, and C shares, respectively.
ADMINISTRATIVE SERVICES AGREEMENT
The Fund pays the Investment Advisor for co-administrative services at an
annual rate of 0.10% of average daily net assets of the Fund. These fees are in
addition to the administrative fees charged by Investment Company Administration
Corporation.
EXPENSE LIMITATIONS
Nicholas-Applegate and the Trust have undertaken to limit the Fund's expenses
to certain annual levels. Overall operating expenses for the Fund will not fall
below the percentage limitation until the Investment Adviser has been fully
reimbursed for fees foregone or expenses paid by the Investment Adviser under
this agreement. The Fund will reimburse the Investment Adviser in subsequent
years when operating expenses (before reimbursement) are less than the
applicable percentage limitation.
<TABLE>
<S> <C>
Class A 1.10%
Class B 1.75%
Class C 1.75%
Class I 0.75%
Class Q 1.00%
</TABLE>
For the year ended March 31, 1998, expense reimbursements recorded by the Fund
were related to expenses incurred by Class I prior to the acquisition discussed
in Note A.
These percentages are based on the average net assets of the Classes,
exclusive of interest, taxes brokerage commissions, and other costs incurred in
connection with portfolio securities transactions, capital expenditures, and
extraordinary expenses.
- --------------------------------------------------------------------------------
40
<PAGE>
HIGH YIELD BOND FUND
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
The cumulative unreimbursed amount paid by Nicholas-Applegate on behalf of
Class I, during the inception of the Fund to March 31, 1998 was $130,661.
Effective March 31, 1998, Nicholas-Applegate agreed to amend the expense
reimbursement agreement to limit the possible recoupment period of any expense
reimbursements to five years from the year of the reimbursement, and subject to
the Fund's ability to effect such reimbursement and remain in compliance with
applicable expense limitations.
RELATED PARTIES
Certain officers of the Trust are also officers of the Investment Adviser and
the Distributor.
C. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investment securities, other than
short-term obligations, were $54,671,555 and $33,566,349, respectively, for the
fiscal year ended March 31, 1998.
At March 31, 1998, the net unrealized appreciation (depreciation) based on the
cost of investments for Federal income tax purposes was as follows (in 000's):
<TABLE>
<CAPTION>
GROSS GROSS NET
TAX UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
- -------------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 28,322,047 $ 420,472 $ 63,329 $ 357,143
</TABLE>
D. OFF BALANCE SHEET RISKS AND DERIVATIVE INSTRUMENTS
The Fund's investments in foreign securities may entail risks due to the
potential of political and economic instability in the countries where the
securities are being offered. In addition, foreign exchange fluctuations could
affect the value of positions held. It is the policy of the Fund to continuously
monitor its exposure to these risks.
The Fund may utilize forward foreign currency exchange contracts as part of
its strategy of preserving capital. Upon entering into forward foreign currency
contracts, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to the amount of the contract. The daily changes in the
contract are recorded as unrealized gains or losses. The Fund recognizes a
realized gain or loss when the contract is sold. The forward value of amounts
due to the Fund netted against the forward value of the currency to be delivered
by the Fund and the remaining amount is shown as receivable (payable) for
unrealized gain (loss) on forward currency contracts open in the financial
statements. There were no open forward foreign currency contracts outstanding at
March 31, 1998.
E. CREDIT FACILITY
The Fund participates in a $75 million redemption credit facility ("Facility")
to be utilized for temporary or emergency purposes, including the financing of
redemptions. In connection therewith, the Fund has agreed to pay commitment fees
on its pro rata portion of the Facility. Interest is charged to the Fund at a
rate based on market rates in effect at the time of borrowings. At March 31,
1998, there were no outstanding borrowings under the Facility. The maximum
amount borrowed under this line of credit at any time during the period ended
March 31, 1998 was $0.
- --------------------------------------------------------------------------------
41
<PAGE>
HIGH YIELD BOND FUND
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
F. CAPITAL SHARE TRANSACTIONS
The Fund currently offers five classes of shares, namely, A, B, C, I and Q.
Transactions in capital shares for the year ended March 31, 1998 were as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I CLASS Q
-------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Capital share transactions:
Proceeds from shares sold............. $ 2,188,791 $ 1,136,299 $ 907,549 $ 6,471,123 $ 28,000
Proceeds from shares issued in
connection with acquisition (See
Note A)............................. 4,153,263 7,772,553 3,900,531 -- 538,166
Value of shares reinvested............ -- -- -- 237,690 --
Cost of shares repurchased............ (1,658,997) (30,039) (91) (811,321) --
-------------- ------------- ------------- ------------- -----------
Increase in net assets derived from
capital share transactions.......... $ 4,683,057 $ 8,878,813 $ 4,807,989 $ 5,897,492 $ 566,166
-------------- ------------- ------------- ------------- -----------
-------------- ------------- ------------- ------------- -----------
Change in Shares Outstanding
Beginning share balances.............. -- -- -- 349,046 --
Shares sold........................... 173,791 89,467 71,467 492,047 2,205
Shares issued in connection with
acquisition (See Note A)............ 326,993 612,536 307,307 -- 42,382
Shares reinvested..................... -- -- -- 17,883 --
Shares repurchased.................... (132,119) (2,379) (7) (58,848) --
-------------- ------------- ------------- ------------- -----------
Ending share balances................. 368,665 699,624 378,767 800,128 44,587
-------------- ------------- ------------- ------------- -----------
-------------- ------------- ------------- ------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------
ERNST & YOUNG LLP
515 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
PHONE: 213 977 3200
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NICHOLAS-APPLEGATE MUTUAL FUNDS
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of High Yield Bond Fund (the "Fund"), a
series of Nicholas-Applegate Mutual Funds, as of March 31, 1998, and the related
statement of operations for the fiscal year then ended, the statements of
changes in net assets and the financial highlights for each of the two fiscal
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.
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 March
31, 1998, by correspondence with the custodians 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 High
Yield Bond Fund as of March 31, 1998, the results of its operations for the
fiscal year then ended, and the changes in its net assets and the financial
highlights for each of the two fiscal years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
May 15, 1998
- --------------------------------------------------------------------------------
43
<PAGE>
TRUSTEES_ OF_ NICHOLAS-APPLEGATE_ MUTUAL_ FUNDS
Fred C. Applegate, CHAIRMAN
Dr. Arthur B. Laffer
Charles E. Young
OFFICERS
Arthur E. Nicholas, PRESIDENT
Peter J. Johnson, VICE PRESIDENT
Thomas Pindelski, TREASURER
E. Blake Moore, Jr., SECRETARY
TRUSTEES_ OF_ NICHOLAS-APPLEGATE_ INVESTMENT_ TRUST
Arthur E. Nicholas, CHAIRMAN
Dann V. Angeloff
Walter A. Auch
Theodore J. Coburn
Darlene T. DeRemer
George F. Keane
INVESTMENT_ MANAGER
Nicholas-Applegate Capital Management
DISTRIBUTOR
Nicholas-Applegate Securities
CUSTODIAN
PNC Bank
Chase Manhattan Bank
TRANSFER_ AGENT
State Street Bank & Trust Company
<PAGE>
[NICHOLAS APPLEGATE LOGO]
- -Registered Trademark-
MUTUAL FUNDS
600 West Broadway
San Diego, California 92101
800 - 551 - 8043
Nicholas-Applegate Securities, Distributor
www.nacm.com
March 31, 1998
ANN98IS
