<PAGE>
As filed with the Securities and Exchange Commission
on January 29, 1999
Registration No. 811-7384
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. ____ [ ]
POST-EFFECTIVE AMENDMENT NO. ___ [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 15
----------------------------
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
(Exact name of registrant as specified in its charter)
--------------------------
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Address, including zip code, of Principal Executive Offices)
---------------------------
ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(name and address of agent for service)
COPY TO:
CHARLES H. FIELD
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, SUITE 2900
SAN DIEGO, CALIFORNIA 92101
Approximate date of Proposed Public Offering: As soon as practicable after
this Registration Statement is declared effective.
Pursuant to Regulation 270.24f-2 under the Investment Company Act of 1940,
the Registrant hereby elects to register an indefinite number of shares of
beneficial interest.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 9(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
INSTITUTIONAL FUNDS PROSPECTUS
Institutional Shares
________, 1999
GLOBAL FUNDS
Global Blue Chip
International Core Growth
Worldwide Growth
International Small Cap Growth
Global Growth & Income
Emerging Countries
Pacific Rim
Greater China
[GRAPHIC] Latin America
Global Technology
US FUNDS
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
Mini Cap Growth
Convertible
FIXED INCOME FUNDS
Short-Intermediate
High Quality Bond
High Yield Bond
AS WITH ALL MUTUAL FUNDS, THE SECURITIES
AND EXCHANGE COMMISSION DOESN'T
GUARANTEE THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE, NOR
HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
<PAGE>
2
TABLE OF CONTENTS
OVERVIEW 3
- --------------------------------------------------------------------------------
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS, AND HISTORICAL
PERFORMANCE.
GLOBAL FUNDS
Global Blue Chip 4
International Core Growth 6
Worldwide Growth 8
International Small Cap Growth 10
Global Growth & Income 12
Emerging Countries 14
Pacific Rim 16
Greater China 18
Latin America 20
Global Technology 22
US FUNDS
Large Cap Growth 24
Mid Cap Growth 26
Value 28
Small Cap Growth 30
Mini Cap Growth 32
Convertible 34
FIXED INCOME FUNDS
Short Intermediate 36
High Quality Bond 38
High Yield Bond 40
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 42
Buying Shares 42
Selling Shares 43
Signature Guarantees 44
Exchanging Shares 44
YOUR ACCOUNT
Transaction Policies 45
Features and Account Policies 45
- --------------------------------------------------------------------------------
FURTHER INFORMATION THAT APPLIES
TO THE FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser 47
Investment Adviser Compensation 47
Portfolio Turnover 47
Portfolio Trades 47
Portfolio Teams 48
RISKS AND OTHER INFORMATION 51
FINANCIAL HIGHLIGHTS 58
PRIOR PERFORMANCE OF CERTAIN FUNDS 62
FOR MORE INFORMATION Back Cover
<PAGE>
3
OVERVIEW
[GRAPHIC]FUND INFORMATION
CONCISE FUND DESCRIPTIONS BEGIN ON THE NEXT PAGE. EACH DESCRIPTION PROVIDES THE
FOLLOWING INFORMATION:
[GRAPHIC]GOAL AND STRATEGY
The Fund's particular investment goal and the principal strategy the Fund
intends to use in pursuing its goal.
[GRAPHIC]INVESTMENTS
The primary types of securities in which the Fund invests. Additional
investments are described in "Risks and Other Information" at the end of the
prospectus and in the Statement of Additional Information.
[GRAPHIC]PORTFOLIO MANAGEMENT
The individuals who manage the Fund.
[GRAPHIC]PRIMARY RISKS
The primary risk factors associated with the Fund. Additional risks are also
described in "Risks and Other Information" at the end of the prospectus and in
the Statement of Additional Information.
[GRAPHIC]PAST PERFORMANCE
The Fund's year by year total returns and average returns over time.
[GRAPHIC]INVESTOR EXPENSES
The overall costs borne by an investor in a Fund, including annual expenses.
GOAL OF THE NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS
The Nicholas-Applegate Institutional Funds (the Trust) are designed to provide
investors with a well-rounded investment program by offering investors various
portfolios each with different investment goals and strategies (each a Fund).
Shares of each Fund represent interests in a portfolio of an open-end management
investment company (a mutual fund).
Each Fund has its own strategy and has its own profile. Because you could lose
money by investing in these Funds, be sure to read all risk disclosures
carefully before investing.
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS
/ / those investing for retirement or other long-term goals
/ / those who want higher potential for gain and are willing to accept higher
risks associated with investing in stocks of U.S and foreign companies
/ / those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE
EQUITY FUNDS
/ / those who are investing with a shorter time frame
/ / those who are uncomfortable with an investment that will go up and down in
value
/ / those who are unable to accept the special risks associated with foreign
investing
WHO MAY WANT TO INVEST IN THE FIXED
INCOME FUNDS
/ / those who are investing for retirement or other long-term goals
/ / those who desire current income
/ / those who want a high level of liquidity
/ / those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE FIXED
INCOME FUNDS
/ / those who are investing with a shorter time frame
/ / those who are uncomfortable with an investment that will go up and down in
value
RISKS OF MUTUAL FUNDS
The Funds cannot guarantee that they will meet their specific goals. Because you
could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
<PAGE>
4
GLOBAL BLUE CHIP FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal, it
invests globally in companies with large stock market capitalizations.
Generally, these companies have an established history of earnings, easy access
to credit, good industry position, and a reputation as a global leader in their
industry.
In managing its portfolio, the Fund's Investment Adviser uses a bottom-up
analysis that evaluates the financial conditions and competitiveness of
individual companies worldwide. It uses a blend of both traditional fundamental
research, calling on the expertise of many external analysts in different
countries throughout the world, and computer intensive systematic disciplines to
uncover signs of "change at the margin"--positive business developments which
are not yet fully reflected in a company's stock price. It gathers financial
data on 20,000 companies in over 50 countries, and searches for successful,
growing companies managing change advantageously and poised to exceed growth
expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 65% of its total assets in large companies
located in at least three different countries, one of which may be the U.S. The
Fund normally invests 75% of its assets in equity securities: common and
preferred stocks, warrants and bonds convertible into common stock. The Fund may
also invest in debt securities of any maturity of foreign companies and foreign
governments and their agencies and instrumentalities which are rated investment
grade.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 48.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. To the extent the fund invests in countries with emerging markets, the
risks are magnified since these countries may have unstable governments and less
established markets. See "Risks and Other Information" starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since its introduction on
September 30, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97
98 46.18%
BEST QUARTER: 04 '98 +25.89%
WORST QUARTER: 03 '98 -11.97%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (9/30/97)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 46.18 n/a 34.12
MSCI World Index 24.33 n/a 16.68
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE MSCI WORLD INDEX CONSISTS OF MORE THAN 1,400 SECURITIES
LISTED ON EXCHANGES IN THE U.S., EUROPE, CANADA, AUSTRALIA, NEW
ZEALAND, AND THE FAR EAST. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
5
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.80%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.42%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 2.22%
- ----------------------------------------------------------------------------
Waiver of fund expenses (1.02%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.20%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$225 $694 $1,190 $2,554
</TABLE>
<PAGE>
6
INTERNATIONAL CORE GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in larger capitalized companies located in over 50
countries worldwide. Generally, this means companies worldwide whose stock
market capitalizations are in the top 75% of publicly traded companies as
measured by stock market capitalization in each country.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout the world, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. In addition, the Fund spreads its investments among countries, with at
least 65% of its assets invested in companies located in at least three foreign
countries. The Fund may invest at least 35% of its assets in U.S. companies. The
Fund may also invest in debt securities of any maturity of foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade or of comparable quality if unrated.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. To the extent the Fund invests in countries with emerging markets, the
risks are magnified since these countries may have unstable governments and less
established markets. See "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 30.63%
98 21.54%
BEST QUARTER: 01 '98 +17.34%
WORST QUARTER: 03 '98 -14.76%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (12/27/96)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 21.54 n/a 26.44
MSCI EAFE 19.97 n/a 10.34
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR
EAST INDEX (MSCI EAFE) IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. IT IS A CAPITALIZATION-WEIGHTED INDEX REPRESENTATIVE OF THE
STOCK MARKET STRUCTURE OF EUROPE AND THE PACIFIC BASIN. THE INDEX IS
UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
7
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a
percentage of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.51%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.51%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.11%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$154 $477 $827 $1,802
</TABLE>
<PAGE>
8
WORLDWIDE GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in companies located throughout the world including the U.S.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout the world, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and convertible securities. The Fund may
also invest in debt securities of any maturity issued by foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade or of comparable quality if unrated. The Fund invests at least
65% of its total assets in securities of issuers located in at least three
different countries, one of which may be the U.S. The Fund may invest up to 50%
of its total assets in U.S. issuers.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. To the
extent the Fund invests in countries with emerging markets, the risks are
magnified since these countries may have unstable governments and less
established markets. The securities of small, less well-known companies may be
more volatile than those of larger companies. See "Risks and Other Information"
starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93
94 2.99%
95 15.35%
96 18.51%
97 17.93%
98 37.98%
BEST QUARTER: 04 '98 +28.34%
WORST QUARTER: 03 '98 -13.27%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 37.98% 18.03% 18.42%
MSCI World Index 24.33 15.62 15.38
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS AN
UNMANAGED TOTAL RETURN PERFORMANCE BENCHMARK. IT CONSISTS OF MORE THAN
1,400 SECURITIES LISTED ON EXCHANGES IN THE U.S., EUROPE, CANADA,
AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE DISTRIBUTOR AND INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
9
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.44%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.44%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.09%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.35%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$147 $456 $787 $1,724
</TABLE>
<PAGE>
10
INTERNATIONAL SMALL CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in smaller capitalized companies located in over 50
countries worldwide. Generally, this means companies worldwide whose stock
market capitalizations are in the bottom of publicly traded companies as
measured by stock market capitalizations in each country.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout the world, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests 75% of its assets in equity securities: common and
preferred stock, warrants and securities convertible into common stocks. Under
normal conditions, the Fund invests at least 65% of its total assets in small
cap securities of issuers located in at least three countries outside the U.S.
The Fund may invest up to 35% of its total assets in U.S. issuers. The Fund may
also invest in debt securities of any maturity issued by foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade or of comparable quality if unrated.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. These
risks are magnified in countries with emerging markets since these countries may
have unstable governments and less established markets.
In addition to the risks posed by foreign investing, the information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
Accordingly, the securities of the companies in which the Fund invests may be
more volatile and speculative than those of larger companies. In addition,
investing in small capitalization companies entails greater risk because these
companies may have unproven track records, limited product or service base,
limited access to capital and may be more likely to fail than larger, more
established companies. See "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 8.61%
95 6.00%
96 18.27%
97 14.09%
98 36.34%
BEST QUARTER: 01 '98 +25.17%
WORST QUARTER: 03 '98 -15.22%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (1/3/94)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 36.34 16.19 16.22
Salomon EPAC/
EMI 14.05 4.56 2.35
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: SOLOMON EPAC EMI IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. THE INDEX INCLUDES SHARES OF ABOUT 2,821 COMPANIES IN 22
COUNTRIES EXCLUDING CANADA AND THE U.S. COMPANIES WITHIN THE INDEX ARE
SMALLER CAPITALIZATION COMPANIES. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
11
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.57%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.57%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.17%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
<PAGE>
12
GLOBAL GROWTH & INCOME FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in the stocks and bonds of companies located throughout the
world.
The Fund's Investment Adviser actively manages a blended portfolio of U.S. and
foreign equity and fixed income securities. It spreads the Fund's investments
among countries. Normally at least 65% of its total assets are invested in at
least three countries, one of which may be the U.S.
For the stock portion, the Investment Adviser focuses on a "bottom-up" analysis
that evaluates the financial conditions and competitiveness of individual
companies worldwide. It uses a blend of both traditional fundamental research,
calling on the expertise of many external analysts in different countries
throughout the world, and computer intensive systematic disciplines to uncover
signs of "change at the margin"--positive business developments which are not
yet fully reflected in a company's stock price. It gathers financial data on
20,000 companies in over 50 countries, and searches for successful, growing
companies managing change advantageously and poised to exceed growth
expectations.
The Investment Adviser actively manages the fixed income portion to take
advantage of current interest rates and bond market trends. When evaluating any
bond, the Investment Adviser selects bonds based upon a "top down" analysis of
economic trends. Its investment philosophy emphasizes interest rate decisions
and shifts among sectors of the bond market. It also analyzes credit quality,
the yield to maturity of the security, and the effect the security will have on
the average yield to maturity of the Fund's bond portfolio. The Investment
Adviser seeks to add value by positioning portfolio securities among various
market sectors and maturities along the yield curve.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 60% of its assets in equity securities:
common and preferred stock, warrants and securities convertible into stock. The
Fund will invest the remainder in debt securities of any maturity issued by
foreign companies and foreign governments and their agencies and
instrumentalities, a portion of which (less than 35% of its net assets) may be
rated below investment grade or of comparable quality if unrated. For a
description of these ratings, see "Bond Quality" beginning on page .
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies in response to movements in the stock
and bond markets. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions. Stock prices
are unpredictable and may fall suddenly and may continue to fall for extended
periods. In addition, the securities in which the Fund invests are subject to
the risk that their intrinsic value may never be realized by the market or their
prices may go down. The value of bonds changes as interest rates fluctuate: if
rates rise, the prices of bonds fall; if rates fall, their prices rise. Lower
rated securities, while usually offering higher yields, generally have more risk
and volatility than higher-rated securities because of reduced creditworthiness
and greater chance of default. The Fund's performance also depends upon changing
foreign currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. To the
extent the Fund invests in emerging countries, the risks are magnified since
these countries may have unstable governments and less established markets. See
"Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since the Fund's
introduction on June 10, 1997. This information provides some indication of the
risks of investing in the Fund by showing how the Fund's average annual returns
compare with those of a broad measure of market performance. Average annual
return is determined by taking the Fund's performance over a given period and
expressing it as an average annual rate. All figures assume dividend
reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97
98 14.13%
BEST QUARTER: 03 '97 +27.28%
WORST QUARTER: 03 '98 -12.35%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (6/30/97)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 14.13 n/a 26.42
MSCI World Index 24.33 n/a 15.87
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS
AN UNMANAGED TOTAL-RETURN PERFORMANCE BENCHMARK. IT CONSISTS OF MORE
THAN 1,400 SECURITIES LISTED ON EXCHANGES IN THE U.S., EUROPE, CANADA,
AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
13
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.85%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 2.44%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 3.29%
- ----------------------------------------------------------------------------
Waiver of fund expenses (1.94%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.35%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$322 $1,013 $1,717 $3,585
</TABLE>
<PAGE>
14
EMERGING COUNTRIES FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in stocks of companies located in countries with
emerging securities markets--that is, countries with securities markets which
are, in the opinion of the Investment Adviser, emerging as investment markets.
These are markets which have yet to reach a level of maturity associated with
developed foreign stock markets, especially in terms of participation by foreign
investors.
The Investment Adviser seeks companies in the early stages of development,
growth companies, cyclical companies, or companies believed to be undergoing a
basic change in operations. The Investment Adviser currently selects portfolio
securities from an investment universe of approximately 6,000 foreign companies
in over 35 emerging markets.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. In addition, the Fund spreads its investment among countries. Normally,
at least 65% of its assets will be invested in companies located in at least
three foreign countries. The Fund may invest at least 35% of its assets in U.S.
companies. The Fund may also invest in debt securities of any maturity of
foreign companies and foreign governments and their agencies and
instrumentalities which are rated investment grade or of comparable quality if
unrated.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. Emerging
countries markets may present greater opportunity for gain, but also involve
greater risk than more developed markets. These countries tend to have less
stable governments and less established markets. The markets tend to be less
liquid and more volatile, and offer less regulatory protection for investors.
The economies of emerging countries may be predominantly based on only a few
industries or dependent on revenue from particular commodities, international
aid or other assistance. The securities of small, less well known companies may
be more volatile than those of larger companies. See "Risks and Other
Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95 6.96%
96 28.08%
97 10.12%
98 -21.22%
BEST QUARTER: 02 '95 +15.12%
WORST QUARTER: 03 '98 -25.93%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (11/28/94)
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Fund -21.22 n/a 2.96
MSCI EMF -25.33 n/a -10.98
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE
INDEX (MSCI EMF) IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE
MARKET STRUCTURE OF 22 EMERGING MARKET COUNTRIES IN EUROPE, LATIN
AMERICA, AND THE PACIFIC BASIN. THE INDEX EXCLUDES CLOSED MARKETS AND
THOSE SHARES IN OTHERWISE FREE MARKETS WHICH ARE NOT PURCHASABLE BY
FOREIGNERS. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
15
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.25%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.62%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.87%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.22%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.65%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$190 $588 $1,011 $2,190
</TABLE>
<PAGE>
16
PACIFIC RIM FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks long-term growth of capital. In pursuing this goal, the Fund
invests primarily in the stocks of companies located within the Pacific Rim
realm including Australia, China, Japan, India, Indonesia, South Korea,
Malaysia, New Zealand, the Phillippines, Singapore and Taiwan.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies within the
region. It uses a blend of both traditional fundamental research, calling on the
expertise of many external analysts in different countries throughout Asia and
the Pacific Rim, and computer intensive systematic disciplines to uncover signs
of "change at the margin"-- positive business developments which are not yet
fully reflected in a company's stock price.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity and debt
securities of any maturity of companies that satisfy at least one of the
following criteria: (i) they derive 50% or more of their total revenue from
goods produced, sales made or services provided in one or more Pacific Rim
countries; (ii) they are organized under the laws of, or have a principal office
in, a Pacific Rim country; (iii) they maintain 50% or more of their assets in
one or more Pacific Rim countries; or (iv) the principal trading market for a
class of their securities is in a Pacific Rim country.
The Fund intends to invest in securities of issuers located in at least three
Pacific Rim countries. The Fund may also invest in a combination of equity and
debt securities of any maturity of issuers located throughout the world.
Normally, the Fund invests no more than 25% of its total assets in issuers of
any one country. The Fund may invest up to 35% of its net assets in debt
securities rated below investment grade or of comparable quality if unrated. See
"Bond Quality" beginning on page .
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize their overall effectiveness. For a complete listing of the portfolio
team, see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. These risks are magnified in countries with emerging markets. The
Fund's performance is expected to be closely tied to the economic and political
conditions of the Pacific Rim area. Certain Asian and Pacific Rim countries may
have relatively unstable governments, economies based on only a few industries
or heavily dependent upon foreign trade, and securities markets that trade
infrequently or in low volumes. The securities of small, less well-known
companies may be more volatile than those of larger companies. Lower rated
securities in which the Fund invests are considered speculative and subject to
greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods. See "Risks and Other
Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since its introduction on
December 31, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's 1 year average annual return
compares with that of a broad measure of market performance. Average annual
return is determined by taking the Fund's performance over a given period and
expressing it as an average annual rate. All figures assume dividend
reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
98 -6.56%
BEST QUARTER: 04 '98 +21.54%
WORST QUARTER: 02 '98 -23.54%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (12/31/97)
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Fund -6.56 n/a -6.56
MSCI Pacific 1.85 n/a 1.85
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) PACIFIC INDEX
(MSCI PACIFIC) IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET
STRUCTURE OF 6 DEVELOPED MARKET COUNTRIES IN THE PACIFIC BASIN,
INCLUDING, AUSTRALIA, HONG KONG, JAPAN, MALAYSIA, NEW ZEALAND, AND
SINGAPORE. THE INDEX IS CALCULATED WITHOUT DIVIDENDS OR WITH GROSS
DIVIDENDS REINVESTED IN BOTH U.S DOLLARS AND LOCAL CURRENCY. THE
INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
17
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a
percentage of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of
original purchase price or redemption proceeds, as
applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested
dividends (and other Distributions) (as a percentage of
offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 7.38%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 8.38%
- ----------------------------------------------------------------------------
Waiver of fund expenses (6.98%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$824 $2,389 $3,850 $7,092
</TABLE>
<PAGE>
18
GREATER CHINA FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long term capital appreciation. In pursuing this goal,
the Fund invests primarily in stocks of companies in the Greater China region
including China, Hong Kong and Taiwan.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies within the
region. It uses a blend of both traditional research, calling on the expertise
of many external analysts in Asia, and computer intensive systematic disciplines
to uncover signs of "change at the margin"--positive business developments which
are not yet fully reflected in a company's stock price.
The Investment Adviser does not emphasize any particular company size but
instead considers investments which in its opinion offer the potential for
capital appreciation.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity and debt
securities of any maturity of companies that satisfy at least one of the
following criteria: (i) their securities are traded principally on stock
exchanges in China, Hong Kong or Taiwan, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in China,
Hong Kong or Taiwan, (iii) they maintain 50% or more of their assets in China,
Hong Kong or Taiwan, or (iv) they are organized under the laws of China, Hong
Kong or Taiwan.
The Fund may also invest in a combination of equity and debt securities of any
maturity of issuers located throughout the world. The Fund may invest up to 35%
of its net assets in bonds rated below investment grade or of comparable quality
if unrated. See "Bond Quality" beginning on page .
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize their overall effectiveness. For a complete listing of the portfolio
teams, see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. Because the Fund invests its assets primarily in securities of issuers
operating in the greater China area, its performance is expected to be closely
tied to economic and political conditions in the area and the Fund's performance
will be more volatile than more geographically diversified funds. The securities
of small, less well known companies may be more volatile than those of larger
companies. Lower rated securities in which the Fund invests are considered
speculative and subject to greater volatility and risk of loss than investment
grade securities, particularly in deteriorating economic periods. See "Risks and
Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's 1 year annual return since its introduction
on December 31, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's average annual return compares
with that of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
98 -14.36%
BEST QUARTER: 01 '98 +13.12%
WORST QUARTER: 02 '98 -24.89%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (12/31/97)
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Fund -14.36 n/a -14.36
C/L CHINA WORLD -50.33 n/a -50.33
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE CREDIT LYONNAISE (C/L) SA CHINA WORLD INDEX IS COMPOSED OF
FORTY-THREE COMPANIES REPRESENTING APPROXIMATELY 44 PERCENT OF THE
ENTIRE CHINA SHARE UNIVERSE AVAILABLE TO FOREIGN INVESTORS, AND IS A
REPRESENTATIVE BENCHMARK FOR GAUGING THE PERFORMANCE OF CHINA FUNDS
WHICH CAN INVEST IN ALL CLASSES OF CHINA SHARES AVAILABLE TO FOREIGN
INVESTORS. THE INDEX IS CALCULATED WITHOUT DIVIDENDS OR WITH GROSS
DIVIDENDS REINVESTED, IN BOTH U.S DOLLARS AND LOCAL CURRENCIES. THE
INDEX IS UNMANAGED
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
19
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a
percentage of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of
original purchase price or redemption proceeds, as
applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested
dividends (and other Distributions) (as a percentage of
offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 7.34%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 8.34%
- ----------------------------------------------------------------------------
Waiver of fund expenses (6.94%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$820 $2,379 $3,835 $7,072
</TABLE>
<PAGE>
20
LATIN AMERICA FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks long-term growth of capital. In pursuing this goal, the Fund
invests in the securities of companies located in Latin American countries such
as Mexico, Brazil, Argentina and Chile.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies within the
region. It uses a blend of both traditional and fundamental research, calling on
the expertise of many external analysts in different countries throughout Latin
America, and computer intensive systematic disciplines to uncover signs of
"change at the margin"--positive business developments which are not yet fully
reflected in a company's stock price. The Investment Adviser does not emphasize
any particular company size but instead considers investments which in its
opinion offer potential for capital appreciation.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity and debt
securities of any maturity of issuers that satisfy at least one of the following
criteria: (i) they derive 50% or more of their total revenue from goods
produced, sales made or services performed in one or more Latin American
countries, (ii) they are organized under the laws of, or have a principal office
in, a Latin American country; (iii) they maintain 50% or more of their assets in
one or more Latin American countries, or (iv) the principal trading market for a
class of their securities is in a Latin American country. The Fund may invest in
a combination of equity and debt securities of any maturity of issuers located
throughout the world. The Fund may invest without limitation in debt securities
rated below investment grade or of comparable quality if unrated. See "Bond
Quality" beginning on page .
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. These
risks are magnified in many Latin American countries, since these countries have
unstable governments, less established markets, and volatile currencies. The
securities of small, less well known companies may be more volatile than those
of larger companies. Lower rated securities in which the Fund invests are
considered speculative and subject to greater volatility and risk of loss than
investment grade securities, particularly in deteriorating economic periods. See
"Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since its introduction on
December 31, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's average annual return compares
with that of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97
98 -28.46%
BEST QUARTER: 04 '98 +11.12%
WORST QUARTER: 03 '98 -27.70%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (11/28/97)
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Fund -28.46 n/a -21.5
MSCI LATIN
AMERICA -35.11 n/a -28.81
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) LATIN AMERICA
INDEX IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET STRUCTURE
OF 7 EMERGING MARKET COUNTRIES IN LATIN AMERICA, INCLUDING ARGENTINA,
CHILE, COLUMBIA, BRAZIL, MEXICO FREE, PERU AND VENEZUELA. THE INDEX
IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
21
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.25%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 7.68%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 8.93%
- ----------------------------------------------------------------------------
Waiver of fund expenses (7.28%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.65%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$875 $2,524 $4,046 $7,358
</TABLE>
<PAGE>
22
GLOBAL TECHNOLOGY FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in the equity securities of U.S. and foreign
companies with business operations in science, technology and technology-related
industries.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
It uses a blend of both traditional fundamental research calling on the
expertise of many external analysts in different countries throughout the world,
and computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. Normally, at least 65% of its assets will be invested in companies
located in at least three different countries, one of which may be the United
States. The Fund may also invest in debt securities of any maturity issued by
foreign companies and foreign governments, and their agencies and
instrumentalities, a portion of which (less than 35% of its net assets) may be
rated below investment grade, or of comparable quality if unrated. For a
description of these ratings, see "Bond Quality" beginning on page .
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to
activities of individual companies, and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down.
The Fund's performance also depends upon changing currency values, different
political and regulatory environments, and overall economic factors in the
countries where the Fund invests. The risks are magnified in countries with
emerging markets, since these countries may have unstable governments and less
established markets. Lower rated securities in which the Fund invests are
considered speculative and subject to greater volatility and risk of loss than
investment grade securities, particularly in deteriorating economic periods.
Sector risk is the possibility that the technology sector may perform
differently than other sectors or as the market as a whole. The Fund's
performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
Information regarding smaller technology companies may be less available,
incomplete or inaccurate, and their securities may trade less frequently than
those of larger companies. Accordingly, the securities of companies in which the
Fund invests may be more volatile and speculative than those of larger
companies. For further explanation, see "Risks and Other Information" starting
on page .
[GRAPHIC]PAST PERFORMANCE
The Global Technology Fund was introduced on August 1, 1998. Since its
introduction the Fund has returned %. The Fund's average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
<PAGE>
23
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. The figures below
show the expected expenses for the Fund for its first year of operation. Actual
expenses may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 4.50%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 5.50%
- ----------------------------------------------------------------------------
Waiver of fund expenses (4.10%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$549 $1,638 $2,716 $5,364
</TABLE>
<PAGE>
24
LARGE CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks long-term capital appreciation. In pursuing this goal, the Fund
invests primarily in stocks from a universe of large U.S. companies.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of both traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin"--positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes equity securities of U.S. companies with market
capitalizations generally above $3 billion and companies whose earnings and
stock prices are expected to grow faster than Standard and Poor's 500 Stock
Index (the "S&P 500") ("large cap securities").
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity
securities, including common and preferred stocks, warrants, and convertible
securities of large U.S. companies. Generally, those companies are those with
market capitalizations corresponding to the upper 90% of the Russell 1000 Growth
Index at time of purchase. As of December 31, 1998, the bottom 10% of the Index
includes companies with capitalizations less than $3.9 billion. Capitalization
of companies in the Index will change with market conditions. It invests the
remainder primarily in corporate debt securities of any maturity which are rated
investment grade, or of comparable quality if unrated, U.S. Government
securities, and equity securities of foreign issuers.
[GRAPHIC]
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. To the extent the Fund is overweighted in
certain market sectors compared to the S&P 500, the Fund may be more volatile
than the S&P 500. For further explanation, see "Risks and Other Information"
starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 46.07%
98 60.80%
BEST QUARTER: 04 '98 +38.23%
WORST QUARTER: 03 '98 -8.31%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (12/27/96)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 60.80 n/a 52.04
Russell 1000 Growth 38.71 n/a 33.34
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE RUSSELL 1000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING THOSE
COMPANIES AMONG THE RUSSELL 1000 INDEX WITH HIGHER THAN AVERAGE
PRICE-TO-BOOK RATIOS AND FORECASTED GROWTH. THE RUSSELL 1000 INDEX CONTAINS
THE TOP 1,000 SECURITIES OF THE RUSSELL 3000 INDEX, WHICH IS COMPRISED OF
THE 3,000 LARGEST U.S. COMPANIES AS DETERMINED BY TOTAL MARKET
CAPITALIZATION. THE RUSSELL 1000 GROWTH INDEX IS CONSIDERED GENERALLY
REPRESENTATIVE OF THE MARKET FOR LARGE CAP STOCKS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
25
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(1)
Management fee 0.75%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.87%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.62%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.62%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$249 $767 $1,311 $2,796
</TABLE>
<PAGE>
26
MID CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell Midcap Growth
Index. As of December 31, 1998, the middle 90% includes companies with
capitalizations between $1.6 billion and $10.7 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin"--positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. It
may also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and securities issued by the U.S. Government and its agencies and
instrumentalities. In addition, the Fund may invest up to 20% of its assets in
foreign securities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies day to day in response to the
activities of individual companies and general market and economic conditions.
The companies in which the Fund invests may be more subject to volatile market
movements than securities of larger, more established companies. Stock prices
are unpredictable and may fall suddenly and may continue to fall for extended
periods. In addition, the securities in which the Fund invests are subject to
the risk that their intrinsic value may never be realized by the market or their
prices may go down.
To the extent the Fund invests in foreign securities, the risks and volatility
are magnified since the performance of foreign stocks also depends upon changes
in foreign currency values, different political and regulatory environments, and
the overall political and economic conditions in countries where the Fund
invests. See "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93 19.78%
94 -10.52%
95 38.57%
96 16.46%
97 16.16%
98 14.65%
BEST QUARTER: 04 '98 +25.33%
WORST QUARTER: 03 '98 -17.58%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 14.65 14.07 15.35
Russell Midcap
Growth 17.86 17.34 15.79
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE RUSSELL MID CAP GROWTH INDEX MEASURES THE PERFORMANCE OF
THOSE COMPANIES AMONG THE 800 SMALLEST IN THE RUSSELL 1000 INDEX WITH
HIGHER THAN AVERAGE PRICE-TO-BOOK RATIOS AND FORECASTED GROWTH. THE
RUSSELL MID CAP GROWTH INDEX IS CONSIDERED GENERALLY REPRESENTATIVE OF
THE U.S. MARKET FOR MID CAP STOCKS. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION".
</TABLE>
<PAGE>
27
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.75%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.30%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.05%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.05%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$107 $334 $579 $1,283
</TABLE>
<PAGE>
28
VALUE FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks long-term capital appreciation. In pursuing its goal, the Fund
invests primarily in large U.S. companies that, in the opinion of the Investment
Adviser, are undervalued in the market place relative to other financial
measurements. The Fund emphasizes equity securities of undervalued, large U.S.
companies with market capitalizations generally above $5 billion.
The Fund's Investment Adviser employs a disciplined, "bottom-up" approach that
evaluates stocks on an individual basis and focuses on company fundamentals. It
uses a blend of computer-intensive systematic disciplines and traditional
fundamental research to uncover stocks that meet three investment criteria:
attractive valuations, underlying financial strength, and prospects for business
improvement.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 80% of its total assets in common stocks. It
may also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and bonds issued by the U.S. Government and its agencies and instrumentalities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. Value investing is subject to the risk that the stocks
intrinsic value may never be realized by the market. See "Risks and Other
Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96
97 40.55%
98 20.13%
BEST QUARTER: 04 '98 +16.99%
WORST QUARTER: 03 '98 -12.43%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (4/30/96)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 20.13 n/a 31.97
S&P 500 28.58 n/a 29.00
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE STANDARD AND POOR'S 500 INDEX (S&P 500) IS AN UNMANAGED
INDEX COMPRISED OF 500 U.S. INDUSTRIAL, TRANSPORTATION, UTILITY AND
FINANCIAL COMPANIES AND IS CONSIDERED TO BE GENERALLY REPRESENTATIVE
OF THE U.S. STOCK MARKET.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
29
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.75%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.19%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.94%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.94%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$197 $609 $1,047 $2,264
</TABLE>
<PAGE>
30
SMALL CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal the
Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell 2000 Growth
Index. As of December 31, 1998, the middle 90% included companies with
capitalizations between $255 million and $1.4 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin"--positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. It
may also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and securities issued by the U.S. Government and its agencies and
instrumentalities. The Fund may invest up to 20% of its total assets in foreign
securities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. Although small-cap stocks have a history of
long-term growth, they tend to carry additional risks because their earnings
tend to be less predictable. The stock prices of smaller companies are more
volatile and their securities may be less liquid. In addition, investing in
small capitalization companies entails greater risk because these companies may
have unproven track records, limited product or service base, limited access to
capital and may be more likely to fail than larger, more established companies.
To the extent the Fund invests in foreign issuers, the investment risks and
volatility are magnified since the performance of foreign stocks depends on
changes in foreign currency values, different political and regulatory
environments, and the overall political and economic conditions in the foreign
countries where the Fund invests. See "Risks and Other Information" starting on
page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance, The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93
94 -3.51%
95 35.90%
96 18.88%
97 12.10%
98 4.37%
BEST QUARTER: 04 '98 +26.99%
WORST QUARTER: 03 '98 -23.46%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (10/1/93)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 4.37 12.77 12.12
Russell 2000 Growth 1.25 10.20 10.24
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING THOSE
SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE GROWTH
ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER PRICE-TO-BOOK
AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IN AN UNMANAGED INDEX AND
IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000 SMALLEST SECURITIES IN
THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000 LARGEST U.S. SECURITIES AS
DETERMINED BY TOTAL MARKET CAPITALIZATION.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
31
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.26%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.26%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.09%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.17%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$128 $400 $692 $1,523
</TABLE>
<PAGE>
32
MINI CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing its goal, the
Fund invests primarily in common stocks of U.S. companies with market
capitalizations generally below $300 million that offer superior growth
prospects.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of traditional fundamental research and computer intensive systematic
disciplines to uncover signs of "change at the margin"--positive business
developments which are not yet fully reflected in a company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. It
selects stocks with market capitalizations corresponding to the bottom 5% of the
Russell 2000 Growth Index at time of purchase. As of December 31, 1998, the
bottom 5% of the Index included companies with capitalizations less than $255
million. Capitalization of companies in the Index will change with market
conditions. It may also invest in preferred and convertible securities, debt
securities of any maturity which are rated investment grade, or of comparable
quality if unrated, and securities issued by the U.S. Government and its
agencies and instrumentalities. The Fund may invest up to 20% of its total
assets in foreign securities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize it overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. Although small-cap stocks have a history of
long-term growth, they tend to carry additional risks because their earnings
tend to be less predictable. The stock prices of smaller companies are more
volatile and may be less liquid. In addition, investing in small capitalization
companies entails greater risk because these companies may have unproven track
records, limited product or service base, limited access to capital and may be
more likely to fail than larger, more established companies. To the extent the
Fund invests in foreign securities, the risks and volatility are magnified since
the performance of foreign stocks depends upon changes in foreign currency
values, different political and regulatory environments, and the overall
political and economic conditions in countries where the Fund invests. For
further explanation, see "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95
96 28.73%
97 30.19%
98 8.43%
BEST QUARTER: 04 '98 +29.43%
WORST QUARTER: 03 '98 -25.67%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (7/12/95)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 8.43 n/a 23.59
Russell 2000 Growth 1.29 n/a 9.85
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
</TABLE>
<PAGE>
33
<TABLE>
<S> <C> <C> <C>
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING THOSE
SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE GROWTH
ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER PRICE-TO-BOOK
AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX AND
IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000 SMALLEST SECURITIES IN
THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000 LARGEST U.S. SECURITIES AS
DETERMINED BY TOTAL MARKET CAPITALIZATION.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
34
MINI CAP GROWTH FUND
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.25%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.46%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.71%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.15)%
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.56%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$174 $539 $928 $2,019
</TABLE>
<PAGE>
34
CONVERTIBLE FUND
(FORMERLY INCOME & GROWTH FUND)
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum total return, consisting of capital appreciation and
current income. In pursuing its goal, the Fund invests primarily in
income-producing equity securities of companies with market capitalizations
above $500 million.
The Investment Adviser evaluates each security's investment characteristics as a
fixed income instrument as well as its potential for capital appreciation. The
Investment Adviser seeks to capture approximately 70-80% of the upside
performance of the underlying equities with 50% or less of the downside
exposure. In evaluating convertibles, the Investment Adviser searches for what
it calls "change at the margin"--positive business developments which are not
yet fully reflected in the company's stock price. It searches for successful
growing companies that are managing change advantageously and poised to exceed
growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in income-producing
equity securities. Equity securities include common stocks, preferred stocks,
and securities (including debt securities) that are convertible into common
stock. It may also invest in securities issued by the U.S. Government and its
agencies and instrumentalities.
At all times, the Fund invests a minimum of 25% of its total assets in common
and preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its net assets in debt
securities rated below investment grade. For a description of these ratings, see
"Bond Quality" beginning on page .
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
Convertible securities have the investment characteristics of both equity and
debt securities. Accordingly, the value of the Fund's investments varies in
response to movements in the stock and bond markets. Stock prices are
unpredictable and may fall suddenly and may continue to fall for extended
periods. The value of the Fund's debt securities changes as interest rates
fluctuate: if rates rise, the prices of debt securities fall; if rates fall, the
prices of debt securities rise. Convertible securities are often rated below
investment grade or not rated because they fall below debt obligations and just
above common equity in order of preference or priority on the issuer's balance
sheet. Hence, an issuer with investment grade senior debt may issue convertible
securities with ratings less than investment grade or not rated. Convertible
securities rated below investment grade may be subject to some of the same risks
as those inherent in below investment grade debt. These lower-rated debt
securities are considered predominantly speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. See "Risks and Other Information" starting on
page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93 23.04%
94 -7.59%
95 22.26%
96 21.02%
97 23.30%
98 21.54%
BEST QUARTER: 04 '98 19.91%
WORST QUARTER: 03 '98 -8.98%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (4/19/93)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Fund 21.54 21.95 17.61
First Boston Convertible 6.55 10.83 11.28
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE FIRST BOSTON CONVERTIBLE INDEX IS AN UNMANAGED MARKET WEIGHTED
INDEX REPRESENTING THE UNIVERSE OF CONVERTIBLE SECURITIES WHETHER THEY ARE
CONVERTIBLE PREFERRED STOCKS OR CONVERTIBLE BONDS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
35
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.75%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.33%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.08%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.08%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$110 $343 $595 $1,317
</TABLE>
<PAGE>
36
SHORT INTERMEDIATE FIXED INCOME FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks to preserve principal and liquidity while seeking a relatively
high level of current income. In pursuing this goal, the Fund invests primarily
in a portfolio of short-to-intermediate-term bonds expected to generate a
greater return than the return on one-to three-year U.S. Treasury obligations
over a full market cycle.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes interest
rate decisions and shifts among sectors of the bond market. It also analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the average yield to maturity of the Fund. The Investment
Adviser seeks to add value by positioning portfolio securities among various
market sectors and maturities along the yield curve.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 90% of its total assets in an actively
managed portfolio of debt obligations issued by U.S. and foreign corporations,
U.S. and foreign governments, and their agencies and instrumentalities which are
rated investment grade, or of comparable quality if unrated. All such
obligations are payable in U.S. dollars or, if not payable in U.S. dollars, are
fully hedged.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. If rates rise, the prices of debt securities fall; if rates
fall, the prices of debt securities rise. However, the Investment Adviser
expects the Fund's fluctuations to be more moderate than those of a fund with a
longer average portfolio duration. To the extent the Fund invests in foreign
securities, different political, regulatory environments and other overall
economic factors in the countries where the Fund invests may affect performance.
See "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95
96 4.85%
97 6.67%
98 6.85%
BEST QUARTER: 03 '98 +2.62%
WORST QUARTER: 01 '96 +0.36%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (8/31/95)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 6.85 n/a 7.03
Merrill Lynch
1-3 Year Treasury 6.99 n/a 6.51
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE MERRILL LYNCH 1-3 YEAR TREASURY IS AN UNMANAGED INDEX CONSISTING
OF ALL PUBLIC U.S. TREASURY OBLIGATIONS HAVING MATURITIES FROM ONE TO 2.99
YEARS. THE INDEX IS UNMANAGED AND CONSIDERED GENERALLY REPRESENTATIVE OF
THE MARKET FOR INTERMEDIATE GOVERNMENT BOND SECURITIES
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
37
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.30%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.92%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.22%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.87%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.35%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$124 $387 $670 $1,477
</TABLE>
<PAGE>
38
HIGH QUALITY BOND FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum total return. In pursuing this goal, the Fund invests
primarily in bonds.
The Fund's Investment Adviser seeks to outperform the total return of an index
of either government/ corporate investment grade debt or
government/corporate/mortgage investment grade debt through an actively managed
diversified portfolio of debt securities.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes interest
rate decisions and shifts among sectors of the bond market. It also analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the Fund.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its net assets in bonds of U.S. and
foreign corporations and governments. These bonds are rated in the top two
investment grades, or are of comparable quality if unrated. They include bonds,
notes, mortgage-backed and asset-backed securities with rates that are fixed,
variable or floating. The average portfolio duration of the Fund will range from
two to eight years. The Fund may invest up to 30% of its total assets in
securities payable in foreign currencies.
The Fund may invest up to 20% of its total assets in debt securities rated below
investment grade. For a description of these ratings, see "Bond Quality"
beginning on page . The Fund may also use options, futures contracts and
interest rate and currency swaps as hedging techniques.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. If interest rates rise, the prices of debt securities fall; if
rates fall, the prices of debt securities rise. However, the Investment Adviser
expects the Fund's fluctuations to be more moderate than those of a fund with a
longer average duration. In addition, the lower-rated debt securities in which
the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. To the extent the Fund invests in foreign
securities, performance also depends upon changing currency values, different
political and economic environments, and other overall economic conditions in
countries where the Fund invests. See "Risks and Other Information" starting on
page .
[GRAPHIC]PAST PERFORMANCE
The two tables show the Fund's annual returns and its long-term performance. The
graph shows how the Fund's total return has varied from year to year, while the
table shows performance over time. This information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95 5.50%
96 2.29%
97 9.52%
98 8.54%
BEST QUARTER: 04 '95 +5.50%
WORST QUARTER: 01 '96 -3.04%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (8/31/95)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 8.54 n/a 8.76
Lehman Aggregate
Bond 8.67 n/a 8.19
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE LEHMAN BROTHERS AGGREGATE BOND INDEX (LEHMAN AGGREGATE
BOND) IS COMPOSED OF SECURITIES FROM LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX, MORTGAGE-BACKED SECURITIES INDEX, AND
ASSET-BACKED SECURITIES INDEX. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
39
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.45%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.54%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 0.99%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.53%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.46%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$101 $315 $547 $1,213
</TABLE>
<PAGE>
40
HIGH YIELD BOND FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks a high level of current income and capital growth. In pursuing
its goal, the Fund invests primarily in lower-rated debt securities commonly
referred to as "junk bonds".
When evaluating any bond, the Investment Adviser selects bonds based upon a
combination of both "top-down" analysis of economic trends and "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies. It also analyzes credit quality, the yield to maturity of
the security, and the effect the security will have on the average yield to
maturity of the Fund. The Investment Adviser believes it can lower the risks of
investing in lower-rated debt through these professional management techniques
and through diversification.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in debt and
convertible securities rated below investment grade, or of comparable quality if
unrated. There is no limit on either the portfolio maturity or the acceptable
rating of securities bought by the Fund. For a description of these ratings, see
"Bond Quality" beginning on page . Securities may bear rates that are fixed,
variable or floating. The Fund is not restricted to investments in companies of
any particular size, but currently intends to invest principally in companies
with market capitalizations above $100 million. The Fund may also invest up to
35% of its total assets in equity securities of U.S. and foreign companies.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. When rates rise, debt security prices fall; when rates fall,
debt security prices rise. Lower-rated securities, while usually offering higher
yields, generally have more risk and volatility than higher-rated securities
because of reduced creditworthiness and greater chance of default. Periods of
high interest rates and recession may adversely affect the issuer's ability to
pay interest and principal. To the extent the Fund invests in stocks, the value
of those investments will fluctuate day to day with movements in the stock
market as well as in response to the activities of individual companies. The
smaller companies in which the Fund invests may be more subject to volatile
market movements than larger, more established companies. To the extent the Fund
invests in foreign securities, performance also depends on changes in foreign
currency values different political and regulatory environments, and overall
economic factors in the countries where the Fund invests. For further
explanation, see "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables show the Fund's annual returns and its long-term performance. The
graph shows how the Fund's total return has varied from year to year, while the
table shows performance over time. This information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96
97 21.40%
98 4.52%
BEST QUARTER: 03 '97 +8.42%
WORST QUARTER: 03 '98 -6.95%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (7/31/96)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 4.52 n/a 15.35
First Boston High
Yield Bond 0.58 n/a 8.44
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE FIRST BOSTON HIGH YIELD BOND INDEX INCLUDES OVER 180 U.S.
DOMESTIC ISSUERS WITH AND AVERAGE MATURITY RANGE OF SEVEN TO TEN YEARS
AND WITH A MINIMUM ISSUE SIZE OF $100 MILLION. THE INDEX IS UNMANAGED
AND CONSIDERED GENERALLY REPRESENTATIVE OF THE U.S. MARKET FOR HIGH
YIELD BONDS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
41
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.60%
- ----------------------------------------------------------------------------
Shareholder services fee None
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.79%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.39%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.64%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.75%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$142 $440 $761 $1,669
</TABLE>
<PAGE>
42
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
OPENING AN ACCOUNT
<S> <C>
This is the minimum
initial investment $250,000
- -----------------------------------------------------------------------------------------------------------------------------------
Use this type of
application New Account Form or IRA Application
- -----------------------------------------------------------------------------------------------------------------------------------
Before completing Each Fund offers a variety of features, which are described in the "Your Account" section of this
the application prospectus. Please read this section before completing the application.
- -----------------------------------------------------------------------------------------------------------------------------------
Completing the
application If you need assistance, contact your financial representative, or call us at (800) 551-8043.
- -----------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and check, payable to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust will not accept third-party checks.
- -----------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below.
If you are sending money You will need to obtain an account number with the Trust by sending a completed application to:
by BANK WIRE or ACH NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
To receive your account number, contact your financial representative or call us at (800) 551-8043.
<CAPTION>
BUYING SHARES
<S> <C>
This is the minimum
subsequent investment $10,000
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is generally open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- -----------------------------------------------------------------------------------------------------------------------------------
Instruct your bank to wire the amount you wish to invest to:
STATE STREET BANK & TRUST CO.--ABA #011000028
If you are sending money DDA #9904-645-0
by BANK WIRE STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME], [YOUR NAME], [ACCOUNT NAME OR NUMBER]
- -----------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active on your bank
If you are sending money account. To establish this option, either complete the appropriate sections when opening an account,
by ACH contact your financial representative, or call us at (800) 551-8043 for further information.
To initiate an ACH purchase, call the Trust at (800) 551-8043.
</TABLE>
<PAGE>
43
<TABLE>
<CAPTION>
SELLING OR REDEEMING SHARES
<S> <C> <C>
IN WRITING BY PHONE
-------------------------------------------------------------------------------------------------
Selling shares by phone is a service option which
must be established on your account prior to
making a request. See the "Your Account" section,
or contact your financial representative, or call
Certain requests may require a SIGNATURE the Trust at (800) 551-8043 for further
Things you should know GUARANTEE. See the next section for further information. The maximum amount which may be
information. You may sell up to the full account requested by phone, regardless of account size, is
value. $50,000. Amounts greater than that must be
requested in writing. If you wish to receive your
monies by bank wire, the minimum request is
$5,000.
- ---------------------------------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan administrator/sponsor, you should
call them regarding the most efficient way to sell shares. If you bought shares recently by check,
payment may be delayed until the check clears, which may take up to 15 calendar days from the date of
purchase. Sales by a corporation, trust or fiduciary may have special requirements. Please contact
your financial representative, a plan administrator/sponsor or us for further information.
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- ---------------------------------------------------------------------------------------------------------------------------------
Please put your request in writing, including: the
name of the account owners, account number and
Fund you are redeeming from, and the share or
dollar amount you wish to sell, signed by all Contact your financial representative,
If you want to receive account owners. Mail this request to: or call us at (800) 551-8043.
your monies by BANK WIRE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, The proceeds will be sent to the existing bank
PO BOX 8326, BOSTON, MA 02266-8326. wire address listed on the account.
The check will be sent to the existing bank wire
address listed on the account.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative,
or call us at (800) 551-8043.
If you want to receive The proceeds will be sent in accordance with the
your monies by ACH Please call us at (800) 551-8043. existing ACH instructions on the account and will
generally be received at your bank two business
days after your request is received.
</TABLE>
<PAGE>
44
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
SIGNATURE GUARANTEES
<S> <C>
A signature guarantee from a financial institution is required to verify the authenticity of an
A definition individual's signature. It can usually be obtained from a broker, commercial or savings bank, or credit
union.
- -----------------------------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making a written request for the following reasons:
1. When selling more than $50,000 worth of shares;
2. When you want a check or bank wire sent to a name or address
When you need one that is not currently listed on the account;
3. To sell shares from an account controlled by a corporation,
partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
<CAPTION>
EXCHANGING SHARES
<S> <C>
This is the minimum
exchange amount to open a $250,000
new account
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- -----------------------------------------------------------------------------------------------------------------------------------
The exchange must be to an account with the same registration.
If you intend to keep money in the Fund you are exchanging from, make sure that you leave an amount
Things you should know equal to or greater than the Fund's minimum account size (see the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- -----------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us at (800) 551-8043.
How to request an The Trust will accept a request by phone if this feature was previously established on your account.
exchange by PHONE See the "Your Account" section for further information.
- -----------------------------------------------------------------------------------------------------------------------------------
Please put your exchange request in writing, including: the name on the account, the name of the Fund
How to request an and the account number you are exchanging from, the shares or dollar amount you wish to exchange,
exchange by MAIL and the Fund you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
<PAGE>
45
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales charge
to institutional investors and "wrap accounts." The minimum initial investment
is $250,000, and the minimum subsequent investment is $10,000. The Distributor
may waive these minimums from time to time.
PRICING OF SHARES. The net asset value per share ("NAV") of the Fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern time) by dividing the value of the Funds'
net assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York Stock Exchange
is open, usually Monday-Friday. Buy and sell requests are executed at the NAV
next calculated after your request is received in good order by the transfer
agent or another agent designated by the Trust. The Fund reserves the right to
refuse any purchase order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund reserves
the right to reject any purchase or to suspend or modify the continuous offering
of its shares. Your financial representative is responsible for forwarding
payment promptly to the transfer agent. The Trust reserves the right to cancel
any buy request if payment is not received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
[GRAPHIC]FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in each Fund through various retirement plans,
including IRAs, Roth IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information about any
of the plans, agreements, applications and annual fees, contact the Distributor,
your financial representative or plan sponsor. To determine which retirement
plan is appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. Shareholders will receive periodic statements reporting all
account activity, including systematic transactions, dividends and capital gains
paid.
MULTI CLASS STRUCTURE. Certain Funds also offer Class Q Shares, which have
different service charges and other expenses that may affect their performance.
You can obtain more information about these other share classes from the
Distributor.
<PAGE>
46
YOUR ACCOUNT
DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends of net investment income as
follows:
<TABLE>
<CAPTION>
ANNUALLY QUARTERLY MONTHLY
<S> <C> <C>
Global Blue Chip Global Growth & Income Short Intermediate
International Core Growth Convertible High Quality Bond
Worldwide Growth High Yield Bond
International Small Cap
Emerging Countries
Global Technology
Greater China
Pacific Rim
Latin America
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
Mini Cap Growth
</TABLE>
Any net capital gains are distributed annually.
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.
TAXABILITY OF DIVIDENDS. Dividends you receive from a Fund, whether reinvested
or taken as cash, are generally taxable. Dividends from a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than the Fund minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Fund may
close out your account and mail you the proceeds. Your account will not be
closed if its drop in value is due to Fund performance.
AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of $250 or
more on a monthly or quarterly basis if you have an account of $15,000 or more
in the Fund. Withdrawal proceeds will normally be received prior to the end of
the month or quarter. See the account application for further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in each Fund through automatic withdrawals of specified amounts from your bank
account once an automatic investment plan is established. See the account
application for further details about this service or call the Transfer Agent at
1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into another Fund, subject to conditions
outlined in the Statement of Additional Information and the applicable
provisions of the qualified retirement plan.
SHAREHOLDER SERVICES. The Investment Adviser may make payments from its own
resources to brokers, consultants and financial institutions for performing
certain services for shareholders and for the maintenance of shareholder
accounts.
<PAGE>
47
ORGANIZATION AND MANAGEMENT
THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
Investment Adviser to the Funds. Arthur E. Nicholas and 22 other partners with a
staff of approximately 480 employees currently manage over $30 billion of
discretionary assets for numerous clients, including employee benefit plans of
corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals.
INVESTMENT ADVISER COMPENSATION
Each Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement dated ____________, 1999. Each of the following Funds pays an
advisory fee monthly at the following annual rates of their average net assets:
Value Fund 0.75%
Global Technology Fund 1.00%
Mini Cap Growth Fund 1.25%
Pacific Rim Fund 1.00%
Greater China Fund 1.00%
Small Cap Growth Fund 1.00%
Global Growth & Income Fund 0.85%
Global Blue Chip Fund 0.80%
Emerging Countries Fund 1.25%
Latin America Fund 1.25%
High Yield Bond Fund 0.60%
The Worldwide Growth, International Core Growth and International Small Cap
Growth Funds each pays monthly at the following annual rates:
1.00% on the first $500 million
0.90% on the next $500 million
0.85% on net assets in excess of $1 billion
The Short Intermediate Fund pays monthly at the following annual rates:
0.30% on the first $250 million
0.25% on net assets in excess of $750 million
The High Quality Bond Fund pays monthly at the following annual rates:
0.45% on the first $500 million
0.40% on the next $250 million
0.35% on net assets in excess of $750 million
The Large Cap Growth, Mid Cap Growth, and Convertible Funds each pays monthly at
the following annual rates:
0.75% of the first $500 million
0.675% on the next $500 million
0.65% on net assets in excess of $1 billion
PORTFOLIO TURNOVER
The Investment Adviser may actively trade a Fund's portfolio securities in an
attempt to achieve the Fund's investment goal. Active trading will cause the
Fund to have an increased portfolio turnover rate of 200% or more, which is
likely to generate shorter-term gains (losses) for its shareholders, which are
taxed at a higher rate than longer-term gains (losses). Actively trading
portfolio securities increases the Fund's trading costs and may have an adverse
impact on the Fund's performance.
PORTFOLIO TRADES
The Investment Adviser is responsible for the Fund's portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
provide research services to the Fund, or that sell shares of the Fund but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (e.g., timeliness and completeness) and favorable price.
<PAGE>
48
ORGANIZATION AND MANAGEMENT
[GRAPHIC]PORTFOLIO TEAMS
EQUITY MANAGEMENT--INTERNATIONAL/GLOBAL
ARTHUR E. NICHOLAS, MANAGING PARTNER
Chief Investment Officer
Founded firm in 1984; prior investment management experience with Pacific
Century Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer--Global Equity Management
Joined firm in 1987; prior investment management experience with Professional
Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, GLOBAL GROWTH & INCOME, GLOBAL TECHNOLOGY, GLOBAL BLUE CHIP,
LATIN AMERICA, PACIFIC RIM, AND GREATER CHINA
ANDREW B. GALLAGHER, PARTNER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with Pacific
Century Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
WORLDWIDE GROWTH
JOHN J. KANE, PARTNER
Portfolio Manager
Joined firm in 1994; 25 years prior investment management/economics experience
with ARCO Investment Management Company and General Electric Company
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
GLOBAL TECHNOLOGY
PEDRO V. MARCAL, PARTNER
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with A.B.
Laffer, V.A. Canto & Associates, and A-Mark Precious Metals
B.A.--University of California, San Diego
EMERGING COUNTRIES
LORETTA J. MORRIS, PARTNER
Portfolio Manager
Joined firm in 1990; 10 years prior investment management experience with
Collins Associates. Attended California State University, Long Beach; CFA
Level II candidate
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL TECHNOLOGY, GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, GLOBAL GROWTH & INCOME,
INTERNATIONAL SMALL CAP GROWTH, EMERGING COUNTRIES, GLOBAL BLUE CHIP, LATIN
AMERICA, PACIFIC RIM AND GREATER CHINA
JON BORCHARDT
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with Union
Bank
B.S--University of San Francisco
EMERGING COUNTRIES AND LATIN AMERICA
MELISA A. GRIGOLITE
Portfolio Manager
Joined firm in 1991; prior experience with SGPA Architecture and Planning
M.S.--San Diego State University; B.S. Southwest Missouri State University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
JESSICA HILINSKI
Portfolio Manager
Joined firm in 1996; 3 years prior experience with Eaton Vance Management and
Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
ESWAR MENON
Portfolio Manager
Joined firm in 1995; 5 years prior investment management experience with
Koeneman Capital Management and Integrated Device Technology
M.B.A., summa cum laude--University of Chicago; M.S.--University of California,
Santa Barbara; B.S.--Indian Institute of Technology, Madras
EMERGING COUNTRIES, GLOBAL TECHNOLOGY, AND PACIFIC RIM
<PAGE>
49
ALEX MUROMCEW
Portfolio Manager
Joined firm in 1996; 6 years prior investment management experience with Jardine
Fleming Securities (Japan); Emerging Markets Investors Corporation; Teton
Partners LP
M.B.A.--Stanford University; B.A.--Dartmouth College
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL BLUE CHIP, GLOBAL TECHNOLOGY, AND GLOBAL GROWTH & INCOME
ERNESTO RAMOS, PH.D.
Senior Portfolio Manager
Joined firm in 1994; 14 years prior investment management and quantitative
research experience with Batterymarch Financial Management; Bolt Beranek &
Newman Inc.; and Harvard University
Ph.D.--Harvard University; B.S.--Massachusetts Institute of Technology
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, AND LATIN AMERICA
JOHN TRIBOLET
Portfolio Manager
Joined firm in 1997; 5 years prior experience with Kemper Securities, Inc. and
PaineWebber;
M.B.A.--University of Chicago; B.A.--Columbia University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
AYLIN UCKUNKAYA
Investment Analyst
Joined firm in 1997; 4 years investment management experience with Global
Securities
B.A. Istanbul University
EMERGING COUNTRIES
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS, MANAGING PARTNER
Chief Investment Officer
Founded firm in 1984; prior investment management experience with Pacific
Century Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer--Global Equity Management
Joined firm in 1987; prior investment management experience with Professional
Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
LARGE CAP GROWTH, LARGE CAP VALUE, VALUE, SMALL CAP GROWTH, MINI CAP GROWTH,
CONVERTIBLE AND MID CAP GROWTH
THOMAS BLEAKLEY, PARTNER
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Twentieth Century Investors and Dell Computer Corporation
M.B.A.--University of Texas--Boston University
SMALL CAP GROWTH AND MINI CAP GROWTH
WILLIAM H. CHENOWETH, PARTNER, CFA
Portfolio Manager
Joined firm in 1998; 12 years prior investment experience with Turner Investment
Partners, Inc., and Jefferson-Pilot Corporation
M.B.A. and B.B.A.--Emory University
MID CAP GROWTH AND LARGE CAP GROWTH
ANDREW B. GALLAGHER, PARTNER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with Pacific
Century Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE, PARTNER
Senior Portfolio Manager--U.S. Systematic
Joined firm in 1994; 25 years prior investment management/economics experience
with ARCO Investment Management Company and General Electric Company
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
VALUE
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
VALUE
PAUL E. CLUSKEY
Investment Analyst
Joined firm in 1998; 4 years prior investment experience at SEI Investments and
Piper Jaffray, Inc.
B.S.--New York University
MINI CAP GROWTH AND SMALL CAP GROWTH
<PAGE>
50
ORGANIZATION AND MANAGEMENT
SANDRA DURN
Portfolio Manager
Joined firm in 1994; prior experience at Science Solutions, Inc. and San Diego
State University Economics Department (instructor)
M.A.--San Diego State University; B.A.--University of Maryland
CONVERTIBLE, HIGH YIELD BOND AND GLOBAL GROWTH & INCOME
AARON HARRIS
Portfolio Manager
Joined firm in 1995; 1 year prior investment management experience at Chemical
Bank
B.A.--Princeton University
SMALL CAP GROWTH, MINI CAP GROWTH AND GLOBAL TECHNOLOGY
JOHN C. MCCRAW
Portfolio Manager
Joined firm in 1992; prior investment management experience with Nations Bank
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH AND MINI CAP GROWTH
EMMY SOBIESKI, CFA
Portfolio Manager
Joined firm in 1998; 4 years prior investment experience with Farmers Insurance
Investment Division and EEN Business Network
M.B.A.--University of Southern California; B.A.--University of San Diego
MID CAP GROWTH AND LARGE CAP GROWTH
MARK STUCKELMAN
Portfolio Manager, U.S. Systematic
Joined firm in 1995; 5 years experience with Wells Fargo Bank Investment
Management Group; Fidelity Management Trust Co.; and BARRA
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkeley
VALUE
THOMAS J. SULLIVAN
Portfolio Manager
Joined firm in 1994; 2 years prior investment experience with Donaldson, Lufkin
& Jenrette Securities Corp.
B.S.--Rochester Institute of Technology
MID CAP GROWTH AND LARGE CAP GROWTH
FIXED INCOME
FRED S. ROBERTSON, III, PARTNER
Chief Investment Officer--Fixed Income
Joined firm in 1995; 22 years prior investment management experience with
Criterion Investment Management Company and DuPont Chemical Pension Fund
M.B.A.--College of William and Mary; B.S.--Cornell University
HIGH QUALITY BOND, SHORT-INTERMEDIATE AND HIGH YIELD BOND
JAMES E. KELLERMAN, PARTNER
Portfolio Manager
Joined firm in 1995; 20 years prior investment management experience with
Criterion Investment Management Company and Brown Brothers Harriman and
Equitable Life Insurance Co.
M.B.A.--St. John's University; B.B.A.--Susquehanna University
HIGH QUALITY BOND AND SHORT-INTERMEDIATE
MALCOM S. DAY, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with Payden
& Rygel
M.B.A.--University of California, Los Angeles; B.S.-- Northern University
HIGH QUALITY BOND AND SHORT-INTERMEDIATE
DOUGLAS FORSYTH, CFA
Portfolio Manager
Joined firm in 1994; 3 years prior investment management experience with AEGON
USA
B.B.A.--University of Iowa
HIGH YIELD BOND
JAN FRIEDLI
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with Stone
Capital Management, PIMCO, and the Vanguard Group, Inc.
M.B.A.--University of Chicago, B.S. Villanova University
GLOBAL GROWTH AND INCOME
SUSAN MALONE
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with BEA
Associates
M.B.A.--New York University; B.S.--Carnegie Mellon University
HIGH YIELD BOND
<PAGE>
51
RISKS AND OTHER INFORMATION
INVESTMENT RISKS
In pursuing their investment strategy, the Funds' portfolio securities may be
subject to the following risks.
CALL RISKS. Is the possibility that an issuer may redeem a fixed income security
before maturity (a "call") at a price below it's current market price. An
increase in the likelihood of a call may reduce the security's price. If a fixed
income security is called, the Fund may have to reinvest the proceeds in other
fixed income securities with lower interest rates, higher credit risks, or other
less favorable characteristics.
CREDIT RISK is the possibility that an issuer will default (the issuer fails to
repay interest and principal when due). If an issuer defaults, the Fund will
lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating service's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. In the case of unrated securities, the Fund must rely entirely
upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of the security and
the yield of a U.S. Treasury security with a comparable maturity (the "spread")
measures the additional interest received for taking risk. Spreads may increase
generally in response to adverse economic or market conditions. A security's
spread may also increase if the security's rating is lowered, or the security is
perceived to have an increased credit risk. An increase in the spread will cause
the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or disrupt management of the Fund's portfolio.
CURRENCY RISKS. Exchange rates for currency fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in foreign
markets more volatile than securities traded exclusively in the U.S.
LIQUIDITY RISKS. Fixed income securities that have non investment grade credit
ratings, have not been rated or that are not widely held may trade less
frequently than more widely held securities. This limits trading opportunities,
making it more difficult to sell or buy the security at a favorable price or
time. In response, the Fund may have to lower the price, sell other securities,
or give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility. Liquidity risk [also] refers to the possibility that the Fund may
not be able to sell a security or close out a derivative contract when it wants
to. If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
MARKET RISK. Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest rates
rise, prices of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations. Duration measures the price sensitivity of a fixed income
security to changes in interest rates.
RISKS RELATED TO COMPANY SIZE. Generally, the smaller the market capitalization
of a company, the fewer the number of shares traded daily, the less liquid its
stock and the more volatile its price. Market capitalization is determined by
multiplying the number of outstanding shares by the current market price per
share.
In addition, investing in small capitalization companies entails greater risk
because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
larger, more established companies.
SECTOR RISKS. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a whole.
As the Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio will
go up and down. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
<PAGE>
52
RISKS AND OTHER INFORMATION
The Fund's Adviser attempts to manage market risk of investing in individual
securities by limiting the amount the Fund invests in each stock.
INTERNATIONAL INVESTING CONSIDERATIONS
FOREIGN SECURITIES. All of the Funds may invest in foreign securities, including
money market instruments and other fixed-income securities, stock and other
equity-related securities. For purposes of this limitation, the Funds do not
consider ADRs and other similar receipts or shares to be foreign securities.
CURRENCY FLUCTUATIONS. When a Fund invests in instruments issued by foreign
companies, the principal, income and sales proceeds may be paid to the Fund in
local foreign currencies. A reduction in the value of local currencies relative
to the U.S. dollar could mean a corresponding reduction in the value of a Funds'
investments. Also, a Fund may incur costs when converting from one currency to
another.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ significantly from the economy of
the United States as to, for example, the rate of growth of gross domestic
product, rate of inflation. Governments of many foreign countries continue to
exercise substantial control over private enterprise and own or control many
companies. Government actions could have a significant impact on economic
conditions in certain countries which could affect the value of the securities
of the Funds.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets. The unsettled
condition of several Asian financial markets has also affected emerging markets
in other countries and regions. These conditions could continue or deteriorate
further in the future.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In addition, securities settlements and clearance
procedures may be less developed and less reliable than those in the United
States. Delays in settlement could result in temporary periods in which the
assets of the Funds are not fully invested, or could result in a Fund being
unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are in many respects less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
<PAGE>
53
LOWER RATED SECURITIES CONSIDERATIONS. The Funds may invest in debt and
convertible securities rated below investment grade. These securities usually
offer higher yields than higher rated securities but are also subject to more
risk than higher rated securities.
Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks than are more high-rated securities, which
react primarily to movements in interest rates. In the past, economic downturns
or increases in interest rates caused a higher incidence of default by issuers
of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.
THE FUNDS' INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements--that is
the purchase by the Fund of a security that seller has agreed to buy back,
usually within one to seven days. The seller's promise to repurchase the
security is fully collateralized by securities equal in value to 102% of the
purchase price, including accrued interest. If the seller defaults and the
collateral value declines, the Fund might incur a loss. If the seller declares
bankruptcy, the Fund may not be able to sell the collateral at the desired time.
The Funds enter into these agreements only with brokers, dealers, or banks that
meet credit quality standards established by the Board of Trustees.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has been
borrowed from a third party on the expectation that the market price will drop.
If the price of the security drops, the Fund will make a profit by purchasing
the security in the open market at a lower price than at which it sold the
security. If the price of the security rises, the Fund may have to cover its
short position at a higher price than the short sale price, resulting in a loss.
A short sale can be covered or uncovered. In a covered short sale, the Fund
either (1) borrows and sells securities it already owns (also known as a short
sale "against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
TEMPORARY INVESTMENTS. Each Fund may, from time to time, invest all of its
assets in short-term instruments to maintain liquidity or when the Investment
Adviser determines that market conditions call for a temporary defensive
posture. At such times a Fund would not be seeking its primary investment goal.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to 30% of a Fund's total assets to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
HEDGING TRANSACTIONS
Each of the Funds may trade in derivative contracts to hedge portfolio holdings.
Hedging activities are intended to reduce various kinds of risks. For example,
in order to protect against certain events that might cause the value of its
portfolio securities to decline, the Fund can buy or sell a derivative contract
(or a combination of derivative contracts) intended to rise in value under the
same circumstances. Hedging activities will not eliminate risk, even if they
work as they are intended to. In addition, these strategies are not always
successful, and could result in increased expenses and losses to the Fund. The
Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
<PAGE>
54
RISKS AND OTHER INFORMATION
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts." Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts. The Fund can buy or sell futures contracts on portfolio securities or
indexes and engage in foreign currency forward contracts.
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period of time. A call
option gives the holder (buyer) the right to purchase the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the option
receives a payment, or "premium," from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the portfolio manager to predict market
conditions based upon certain economic analysis and factors. There is a risk
that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
manager could be incorrect in its expectations about the direction or extent of
market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
THE YEAR 2000
Information technology is critical to the Funds' operations. Many existing
information technology products and systems containing embedded processor
technology were originally programmed to represent any date by using six digits
(e.g., 12/31/99), as opposed to eight digits (e.g., 12/31/1999). Accordingly
such products and systems may experience malfunctions, miscalculations or
disruptions when attempting to process information containing dates that fall
after December 31, 1999 or when attempting to recognize the year 2000 as a leap
year. These potential problems are collectively referred to as the "Y2K"
problem.
There is a risk that outside service agents, such as transfer agents, portfolio
accountants, stock brokers, and custodians who perform certain mission critical
processing may not have remedied all of their Y2K problems. Additionally, a
portion of the Funds' business involves international investments, thereby
exposing the Funds to operations, custody and settlement processes outside the
United States where Y2K risks may not be readily understood. Accordingly, if not
addressed, Y2K issues could result in the Funds' inability to perform its
mission critical functions, including trading and settling tades of portfolio
securities and processing shareholder transactions.
The Investment Adviser has established an enterprise-wide project to address the
issue. This includes testing, assessing, and remedying its own internal systems
as well as monitoring the progress of outside service providers, international
custodians and foreign brokers in addressing Y2K issues. Despite these
precautions, no guarantee can be made that Y2K-related disruptions will not
occur.
EURO
On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Funds will treat the
euro as a separate currency from that of any participating state.
The conversion may adversely affect a Fund if the euro does not take effect as
planned; if a participating state withdraws from the European Monetary Union; or
if the computing, accounting and trading systems used by the Funds' service
providers, or by entities with which the Fund or its service providers do
business, are not capable of recognizing the euro as a distinct currency at the
time of, and following, euro conversion. In addition, the conversion could cause
markets to become more volatile.
The overall effect of the transition of member states' currencies to the euro is
not known at this time. It is likely that more general short- and long-term
ramifications can be expected, such as changes in the economic environment and
change in the behavior of investors, which would affect a Fund's investments and
its net asset value. In addition, although
<PAGE>
55
U.S. Treasury regulations generally provide that the euro conversion will not,
in itself, cause a U.S. taxpayer to realize gain or loss, other changes that may
occur at the time of the conversion, such as accrual periods, holiday
conventions, indices, and other features may require the realization of a gain
or loss by a Fund as determined under existing tax law.
The Investment Adviser has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Trust and its service providers to
process transactions accurately and completely with minimal disruption to
business activities; and (2) obtain reasonable assurances that appropriate steps
have been taken by the Fund's other service providers to address the conversion.
The Trust has not borne any expense relating to these actions.
BOND QUALITY
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet
<PAGE>
56
RISKS AND OTHER INFORMATION
timely interest and principal payments. The BB rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BBB
rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B-
Rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
<PAGE>
57
(This page has been left blank intentionally.)
<PAGE>
Financial Highlights
The financial highlights tables are intended to help you understand the Funds'
financial performance for the period since commencement of operations. Certain
information reflects financial results for a share of the predecessor
Institutional Portfolio outstanding throughout each period indicated. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The figures have been audited by Ernst & Young L.L.P. with
respect to the fiscal year ended March 31, 1998 and the prior two fiscal years,
if any, and by another independent auditor with respect to commencement of
operations through March 31, 1995. Please read in conjunction with the Trust's
1998 Semi Annual and Annual Reports which are available upon request.
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS FROM:
INCOME FROM ----------------------------
INVESTMENT OPERATIONS DIVIDENDS
-------------------------------- FROM
NET ASSET NET NET REALIZED TOTAL FROM NET NET
VALUE INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED
BEGINNING INCOME (LOSS) GAINS (LOSSES) OPERATIONS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
US EQUITY FUNDS
LARGE CAP GROWTH
For the period ended
9/30/98 $16.50 (0.01) (0.15) (0.16) -- (0.15)
For the year ended
3/31/98 13.00 (0.02) 7.55 7.53 -- (4.03)
12/27/96 (commenced) to
3/31/97 12.50 -- 0.50 0.50 -- --
VALUE
For the period ended
9/30/98 $21.90 0.11 (2.24) 2.13 -- (0.93)
For the year ended
3/31/98 15.06 -- 8.27 8.27 -- (1.43)
4/30/96 (commenced) to
3/31/97 12.50 1.50 3.11 4.61 (1.44) (0.61)
MID CAP GROWTH
For the period ended
9/30/98 $17.16 (0.05) (3.00) (3.05) -- (0.65)
For the year ended
3/31/98 15.39 (0.07) 6.00 5.93 -- (4.16)
For the year ended
3/31/97 16.26 (0.08) 0.49 0.41 -- (1.28)
For the year ended
3/31/96 12.62 (0.03) 4.47 4.44 -- (0.80)
For the year ended
3/31/95 12.68 (0.01) 0.38 0.37 -- (0.43)
4/19/93 (commenced) to
3/31/94 12.50 (0.01) 0.92 0.91 -- (0.73)
SMALL CAP GROWTH
For the period ended
9/30/98 $14.17 0.70 (4.45) (3.75) -- (0.25)
For the year ended
3/31/98 11.06 (0.03) 5.10 5.07 -- (1.96)
For the year ended
3/31/97 15.10 (0.08) (0.31) (0.39) -- (3.65)
For the year ended
3/31/96 11.58 (0.11) 4.45 4.34 -- (0.82)
For the year ended
3/31/95 11.38 (0.05) 0.95 0.90 -- (0.70)
10/1/93 (commenced) to
3/31/94 12.50 (0.04) (0.69) (0.73) -- (0.39)
MINI CAP GROWTH
For the period ended
9/30/98 $25.05 (0.18) (6.62) (6.80) -- (0.42)
For the year ended
3/31/98 15.94 (0.17) 10.93 10.76 -- (1.65)
For the year ended
3/31/97 15.85 (0.17) 0.84 0.67 -- (0.58)
7/12/95 (commenced) to
3/31/96 12.50 (0.05) 3.40 3.35 -- --
BALANCED GROWTH
For the period ended
9/30/98 $17.66 0.24 (0.06) 0.18 (0.29) (1.89)
For the year ended
3/31/98 13.94 0.34 5.14 5.48 (0.37) (1.39)
For the year ended
3/31/97 14.20 0.36 0.75 1.11 (0.33) (1.04)
For the year ended
3/31/96 12.01 0.37 2.19 2.56 (0.37) --
For the year ended
3/31/95 11.71 0.22 0.30 0.52 (0.22) --
10/1/93 (commenced) to
3/31/94 12.50 0.08 (0.79) (0.71) (0.08) --
CONVERTIBLE
For the period ended
9/30/98 $18.64 0.25 (1.42) (1.17) (0.29) (0.18)
For the year ended
3/31/98 14.97 0.47 4.20 4.67 (0.47) (0.53)
For the year ended
3/31/97 14.45 0.51 1.51 2.02 (0.52) (0.98)
For the year ended
3/31/96 11.86 0.53 2.59 3.12 (0.53) --
For the year ended
3/31/95 13.39 0.54 (0.85) (0.31) (0.54) (0.68)
4/19/93 (commenced) to
3/31/94 12.50 0.42 2.12 2.63 (0.42) (1.23)
US FIXED INCOME FUNDS
HIGH QUALITY BOND
For the period ended
9/30/98 $13.10 0.44 0.17 0.61 (0.38) (0.28)
For the year ended
3/31/98 12.54 0.84 0.70 1.54 (0.84) (0.14)
For the year ended
3/31/97 12.72 0.79 (0.17) 0.62 (0.80) --
8/31/95 (commenced) to
3/31/96 12.50 0.45 0.47 0.92 (0.44) (0.26)
HIGH YIELD BOND
For the period ended
9/30/98 $13.46 0.60 (1.29) (0.69) (0.65) --
For the year ended
3/31/98 13.20 1.11 2.02 3.13 (1.15) (1.72)
7/31/96 (commenced) to
3/31/97 12.50 0.74 0.95 1.69 (0.73) (0.26)
STRATEGIC INCOME
For the period ended
9/30/98 $13.44 0.56 (1.86) (1.13) (0.54) --
For the year ended
3/31/98 13.06 0.95 1.53 2.48 (0.95) (1.15)
7/31/96 (commenced) to
3/31/97 12.50 0.61 0.76 1.37 (0.61) (0.20)
SHORT INTERMEDIATE
For the period ended
9/30/98 $12.76 0.42 0.14 0.56 (0.42) --
For the year ended
3/31/98 12.66 0.83 0.10 0.93 (0.83) --
For the year ended
3/31/97 12.79 0.79 (0.13) 0.66 (0.79) --
8/31/95 (commenced) to
3/31/96 12.50 0.37 0.29 0.66 (0.37) --
</TABLE>
- ----------------------------------------
(a) Ratios are annualized for periods of less than one year. Expense
reimbursements reflect voluntary reductions to total expenses, as discussed
in the notes to financial statements. Net investment income ratios would
have been lower had such reductions not occurred.
- --------------------------------------------------------------------------------
58
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (a)
---------------------------------------------
NET
INVESTMENT
NET ASSET INCOME
VALUE NET ASSETS, BEFORE AFTER PORTFOLIO
END OF TOTAL ENDING EXPENSE TOTAL EXPENSE EXPENSE TURNOVER
PERIOD RETURN (IN 000s) REIMBURSEMENTS EXPENSES REIMBURSEMENTS REIMBURSEMENTS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
US EQUITY FUNDS
LARGE CAP GROWTH
For the period ended
9/30/98 $16.19 (1.09%) $ 2,490 (0.11%) 1.62% (0.64%) 0.98% 125%
For the year ended
3/31/98 16.50 63.32% 2,556 (0.17%) 3.67% (2.66%) 1.01% 306%
12/27/96 (commenced) to
3/31/97 13.00 4.00% 1,293 (0.06%) 4.99% (3.99%) 1.00% 321%
VALUE
For the period ended
9/30/98 $18.84 (10.35%) $ 6,847 0.84% 1.94% (0.94%) 1.00% 52%
For the year ended
3/31/98 21.90 57.78% 10,260 2.33% 2.46% (1.45%) 1.01% 55%
4/30/96 (commenced) to
3/31/97 15.06 26.77% 3,062 1.64% 3.34% (2.34%) 1.00% 139%
MID CAP GROWTH
For the period ended
9/30/98 $13.46 (18.49%) $122,822 (0.41%) 1.05% (0.12%) 0.93% 67%
For the year ended
3/31/98 17.16 42.49% 169,412 (0.72%) 1.19% (0.22%) 0.97% 200%
For the year ended
3/31/97 15.39 1.74% 156,443 (0.45%) 1.02% (0.02%) 1.00% 153%
For the year ended
3/31/96 16.26 35.81% 149,969 (0.32%) 1.06% (0.08%) 0.98% 114%
For the year ended
3/31/95 12.62 3.30% 72,826 (0.06%) 1.07% (0.08%) 0.99% 98%
4/19/93 (commenced) to
3/31/94 12.68 6.84% 77,947 (0.07%) 1.14% (0.17%) 0.97% 85%
SMALL CAP GROWTH
For the period ended
9/30/98 $10.17 (26.86%) $162,157 (0.55%) 1.26% (0.10%) 1.16% 42%
For the year ended
3/31/98 14.17 47.38% 257,599 (1.16%) 1.44% (0.25%) 1.19% 92%
For the year ended
3/31/97 11.06 (5.66%) 167,230 (0.72%) 1.26% (0.09%) 1.17% 113%
For the year ended
3/31/96 15.10 38.27% 224,077 (0.62%) 1.20% (0.04%) 1.16% 130%
For the year ended
3/31/95 11.58 8.69% 206,696 (0.58%) 1.24% (0.06%) 1.18% 100%
10/1/93 (commenced) to
3/31/94 11.38 (6.06%) 165,940 (0.83%) 1.18% (0.01%) 1.17% 51%
MINI CAP GROWTH
For the period ended
9/30/98 $17.83 (27.58%) $52,708 (1.12%) 1.71% (0.16%) 1.55% 48%
For the year ended
3/31/98 25.05 68.89% 82,122 (2.51%) 1.83% (0.26%) 1.57% 113%
For the year ended
3/31/97 15.94 3.90% 28,712 (1.08%) 1.99% (0.43%) 1.56% 164%
7/12/95 (commenced) to
3/31/96 15.85 26.80% 25,237 (0.98%) 2.46% (0.91%) 1.55% 107%
BALANCED GROWTH
For the period ended
9/30/98 $15.66 (1.25%) $ 989 2.76% 1.26% (0.27%) 0.99% 98%
For the year ended
3/31/98 17.66 40.38% 992 4.21% 3.44% (2.43%) 1.01% 260%
For the year ended
3/31/97 13.94 7.46% 710 2.49% 7.37% (6.37%) 1.00% 213%
For the year ended
3/31/96 14.20 21.45% 625 2.74% 9.90% (8.90%) 1.00% 197%
For the year ended
3/31/95 12.01 4.56% 284 2.06% 20.66% (19.66%) 1.00% 110%
10/1/93 (commenced) to
3/31/94 11.71 (5.66%) 143 1.59% 43.16% (42.17%) 0.99% 85%
CONVERTIBLE
For the period ended
9/30/98 $17.00 (6.49%) $70,316 2.71% 1.08% (0.15%) 0.93% 71%
For the year ended
3/31/98 18.64 31.78% 80,084 6.25% 1.20% (0.23%) 0.97% 160%
For the year ended
3/31/97 14.97 14.37% 18,344 3.43% 1.37% (0.37%) 1.00% 167%
For the year ended
3/31/96 14.45 26.69% 17,239 3.88% 1.53% (0.53%) 1.00% 145%
For the year ended
3/31/95 11.86 (2.02%) 12,506 4.28% 1.48% (0.48%) 1.00% 126%
4/19/93 (commenced) to
3/31/94 13.39 20.18% 18,332 3.36% 1.50% (0.51%) 0.99% 178%
US FIXED INCOME FUNDS
HIGH QUALITY BOND
For the period ended
9/30/98 $13.05 4.72% $15,413 6.59% 0.99% (0.53%) 0.46% 170%
For the year ended
3/31/98 13.10 12.60% 15,759 12.80% 1.64% (1.18%) 0.46% 407%
For the year ended
3/31/97 12.54 4.98% 15,865 6.12% 3.74% (3.29%) 0.45% 190%
8/31/95 (commenced) to
3/31/96 12.72 5.49% 4,413 6.39% 6.45% (6.00%) 0.45% 60%
HIGH YIELD BOND
For the period ended
9/30/98 $12.12 (5.35%) $ 9,380 9.24% 1.39% (0.64%) 0.75% 133%
For the year ended
3/31/98 13.46 25.49% 10,771 8.28% 2.66% (1.90%) 0.76% 484%
7/31/96 (commenced) to
3/31/97 13.20 13.90% 4,608 8.47% 1.95% (1.20%) 0.75% 465%
STRATEGIC INCOME
For the period ended
9/30/98 $11.60 (9.87%) $ 3,807 8.68% 2.78% (2.04%) 0.74% 143%
For the year ended
3/31/98 13.44 20.06% 4,241 14.04% 3.62% (2.86%) 0.76% 326%
7/31/96 (commenced) to
3/31/97 13.06 11.07% 4,206 6.97% 2.33% (1.56%) 0.77% 212%
SHORT INTERMEDIATE
For the period ended
9/30/98 $12.90 4.43% $13,594 6.36% 1.22% (0.89%) 0.33% 49%
For the year ended
3/31/98 12.76 7.50% 13,535 13.03% 1.51% (1.15%) 0.36% 197%
For the year ended
3/31/97 12.66 5.30% 5,364 6.18% 2.86% (2.51%) 0.35% 132%
8/31/95 (commenced) to
3/31/96 12.79 5.33% 4,726 5.81% 3.17% (2.82%) 0.35% 114%
</TABLE>
- ----------------------------------------
(a) Ratios are annualized for periods of less than one year. Expense
reimbursements reflect voluntary reductions to total expenses, as discussed
in the notes to financial statements. Net investment income ratios would
have been lower had such reductions not occurred.
- --------------------------------------------------------------------------------
59
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS FROM:
INCOME FROM ----------------------------
INVESTMENT OPERATIONS DIVIDENDS
-------------------------------- FROM
NET ASSET NET NET REALIZED TOTAL FROM NET NET
VALUE INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED
BEGINNING INCOME (LOSS) GAINS (LOSSES) OPERATIONS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
For the period ended
9/30/98 $18.55 0.03 (1.72) (1.69) -- --
For the year ended
3/31/98 14.13 (0.02) 5.12 5.10 -- (0.68)
12/27/96 (commenced) to
3/31/97 12.50 -- 1.63 1.63 -- --
INTERNATIONAL SMALL CAP
GROWTH
For the period ended
9/30/98 $18.45 0.09 (1.54) (1.45) -- (0.39)
For the year ended
3/31/98 17.02 (0.13) 5.50 5.37 -- (3.94)
For the year ended
3/31/97 15.05 -- 2.28 2.28 (0.08) (0.23)
For the year ended
3/31/96 13.09 0.06 2.02 2.08 (0.12) --
For the year ended
3/31/95 13.47 0.02 (0.22) (0.20) (0.06) (0.12)
12/31/93 (commenced) to
3/31/94 12.50 0.01 0.96 0.97 -- --
EMERGING COUNTRIES
For the period ended
9/30/98 $17.15 0.03 (6.22) (6.19) -- (0.07)
For the year ended
3/31/98 17.45 0.09 1.23 1.32 -- (1.62)
For the year ended
3/31/97 14.02 (0.06) 3.67 3.61 (0.05) (0.13)
For the year ended
3/31/96 10.91 -- 3.16 3.16 (0.05) --
11/28/94 (commenced) to
3/31/95 12.50 0.08 (1.66) (1.58) (0.01) --
GREATER CHINA
For the period ended
9/30/98 $14.14 0.09 (4.06) (3.97) -- --
12/31/97 (commenced) to
3/31/98 12.50 0.02 1.62 1.68 -- --
LATIN AMERICA
For the period ended
9/30/98 $13.92 0.08 (5.36) (5.28) -- --
11/28/97 (commenced) to
3/31/98 12.50 0.15 1.27 1.42 -- --
PACIFIC RIM
For the period ended
9/30/98 $12.66 (0.02) (3.03) (3.05) -- --
12/31/97 (commenced) to
3/31/98 12.50 0.02 0.14 0.16 -- --
GLOBAL EQUITY FUNDS
WORLDWIDE GROWTH
For the period ended
9/30/98 $17.90 (0.22) (0.86) (1.08) (0.64) (0.62)
For the year ended
3/31/98 14.21 0.25 4.56 4.81 -- (1.12)
For the year ended
3/31/97 15.42 (0.12) 2.08 1.96 -- (3.17)
For the year ended
3/31/96 13.06 0.06 2.58 2.64 (0.28) --
For the year ended
3/31/95 13.15 (0.01) (0.04) (0.05) (0.04) --
10/1/93 (commenced) to
3/31/94 12.50 -- 0.65 0.65 -- --
GLOBAL BLUE CHIP
For the period ended
9/30/98 $14.81 0.01 (0.48) (0.47) -- --
9/30/97 (commenced) to
3/31/98 12.50 -- 2.31 2.31 -- --
GLOBAL GROWTH & INCOME
For the period ended
9/30/98 $14.25 0.16 (1.32) (1.16) (0.07) (0.66)
6/30/97 (commenced) to
3/31/98 12.50 0.09 3.86 3.95 (0.09) (2.11)
GLOBAL TECHNOLOGY
7/31/98 (commenced) to
9/30/98 $12.50 (0.01) (0.69) (0.70) -- --
GLOBAL FIXED INCOME FUND
EMERGING MARKETS BOND
For the period ended
9/30/98 $12.19 0.69 (4.97) (4.28) (0.69) --
9/30/97 (commenced) to
3/31/98 12.50 0.59 (0.28) (0.31) (0.59) (0.03)
</TABLE>
- ----------------------------------------
(a) Ratios are annualized for periods of less than one year. Expense
reimbursements reflect voluntary reductions to total expenses, as discussed
in the notes to financial statements. Net investment income ratios would
have been lower had such reductions not occurred.
- --------------------------------------------------------------------------------
60
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (a)
---------------------------------------------
NET
INVESTMENT
NET ASSET INCOME
VALUE NET ASSETS, BEFORE AFTER PORTFOLIO
END OF TOTAL ENDING EXPENSE TOTAL EXPENSE EXPENSE TURNOVER
PERIOD RETURN (IN 000s) REIMBURSEMENTS EXPENSES REIMBURSEMENTS REIMBURSEMENTS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
For the period ended
9/30/98 $16.86 (9.06%) $56,561 0.44% 1.51% (0.23%) 1.28% 101%
For the year ended
3/31/98 18.55 36.91% 32,305 (0.12%) 1.92% (0.51%) 1.41% 274%
12/27/96 (commenced) to
3/31/97 14.13 13.04% 4,593 0.43% 3.14% (1.74%) 1.40% 76%
INTERNATIONAL SMALL CAP
GROWTH
For the period ended
9/30/98 $16.61 (8.23%) $53,646 0.12% 1.57% (0.19%) 1.38% 82%
For the year ended
3/31/98 18.45 37.02% 42,851 (0.91%) 1.94% (0.53%) 1.41% 198%
For the year ended
3/31/97 17.02 15.25% 48,505 (0.38%) 1.68% (0.28%) 1.40% 206%
For the year ended
3/31/96 15.05 15.99% 20,245 0.34% 2.44% (1.04%) 1.40% 141%
For the year ended
3/31/95 13.09 (1.54%) 16,924 0.19% 1.92% (0.52%) 1.40% 75%
12/31/93 (commenced) to
3/31/94 13.47 7.60% 3,668 0.36% 2.35% (0.95%) 1.40% 24%
EMERGING COUNTRIES
For the period ended
9/30/98 $10.89 (36.21%) $96,708 0.88% 1.87% (0.24%) 1.63% 117%
For the year ended
3/31/98 17.15 8.77% 88,063 1.15% 2.02% (0.36%) 1.66% 243%
For the year ended
3/31/97 17.45 25.48% 56,918 (0.52%) 1.87% (0.22%) 1.65% 176%
For the year ended
3/31/96 14.02 29.06% 6,878 0.29% 3.59% (1.94%) 1.65% 118%
11/28/94 (commenced) to
3/31/95 10.91 (12.64%) 2,021 1.73% 2.14% (0.49%) 1.65% 61%
GREATER CHINA
For the period ended
9/30/98 $10.17 (28.08%) $ 850 1.63% 8.34% (6.96%) 1.38% 89%
12/31/97 (commenced) to
3/31/98 14.14 13.12% 1,192 0.57% 4.70% (3.30%) 1.40% 34%
LATIN AMERICA
For the period ended
9/30/98 $ 8.64 (37.93%) $ 764 1.48% 8.93% (7.30%) 1.63% 306%
11/28/97 (commenced) to
3/31/98 13.92 11.14% 1,184 3.33% 5.20% (3.55%) 1.65% 188%
PACIFIC RIM
For the period ended
9/30/98 $ 9.61 (24.10%) $ 896 (0.32%) 8.38% (7.00%) 1.38% 313%
12/31/97 (commenced) to
3/31/98 12.66 1.28% 1,197 0.74% 4.50% (3.10%) 1.40% 86%
GLOBAL EQUITY FUNDS
WORLDWIDE GROWTH
For the period ended
9/30/98 $15.56 (7.27%) $ 6,427 0.11% 1.44% (0.10%) 1.34% 122%
For the year ended
3/31/98 17.90 35.08% 11,686 (0.31%) 1.87% (0.51%) 1.36% 202%
For the year ended
3/31/97 14.21 13.18% 2,656 (0.43%) 3.05% (1.70%) 1.35% 182%
For the year ended
3/31/96 15.42 20.37% 3,613 0.20% 2.60% (1.25%) 1.35% 132%
For the year ended
3/31/95 13.06 (0.34%) 4,087 0.05% 2.50% (1.15%) 1.35% 99%
10/1/93 (commenced) to
3/31/94 13.15 5.20% 2,982 0.05% 3.58% (2.24%) 1.34% 95%
GLOBAL BLUE CHIP
For the period ended
9/30/98 $14.34 (3.17%) $ 6,440 0.12% 2.22% (1.00%) 1.22% 155%
9/30/97 (commenced) to
3/31/98 14.81 (8.67%) 7,320 (0.06%) 2.14% (0.94%) 1.20% 238%
GLOBAL GROWTH & INCOME
For the period ended
9/30/98 $12.36 (8.67%) $ 5,000 2.36% 3.29% (1.95%) 1.34% 173%
6/30/97 (commenced) to
3/31/98 14.25 36.25% 6,065 7.13% 2.45% (1.09%) 1.36% 100%
GLOBAL TECHNOLOGY
7/31/98 (commenced) to
9/30/98 $11.80 (5.60%) $ 1,696 (0.54%) 5.50% (4.26%) 1.24% 85%
GLOBAL FIXED INCOME FUND
EMERGING MARKETS BOND
For the period ended
9/30/98 $ 7.22 (36.05%) $ 728 12.95% 5.04% (4.11%) 0.93% 239%
9/30/97 (commenced) to
3/31/98 12.19 2.67% 2,244 9.79% 3.31% (2.36%) 0.95% 221%
</TABLE>
- ----------------------------------------
(a) Ratios are annualized for periods of less than one year. Expense
reimbursements reflect voluntary reductions to total expenses, as discussed
in the notes to financial statements. Net investment income ratios would
have been lower had such reductions not occurred.
- --------------------------------------------------------------------------------
61
<PAGE>
62
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following table sets forth historical performance information for shares
of the Mid Cap Growth, Convertible and International Small Cap Growth Funds. It
includes historical performance information for the Institutional Portfolios
which preceded the Funds prior to the reorganization of the Trust in March 1998
and for the following investment partnerships which preceded such Institutional
Portfolios: Mid Cap Growth Fund-- includes performance information for Whitehall
Partners, a California limited partnership the assets of which were transferred
to the predecessor of the Mid Cap Growth Fund in April 1993; Convertible
Fund--includes performance information for Coventry Partners, a California
limited partnership the assets of which were transferred to the predecessor of
the Convertible Fund in April 1993; International Small Cap Growth Fund--
includes performance information for Huntington Partners, a California limited
partnership the assets of which were transferred to the predecessor of the
International Small Cap Growth Fund in January 1994.
All information set forth in the table relies on data supplied by the
Investment Adviser or from statistical services, reports or other sources
believed by the Investment Adviser to be reliable. However, such information has
not been verified and is unaudited. See "Performance Information" in the
Statement of Additional Information for information about calculation of total
return.
The Investment Adviser has advised the Trust that such partnerships were
operated with materially equivalent investment objectives, policies, strategies
and restrictions, as such Institutional Portfolios, and their assets were
transferred to such Portfolios prior to the effective date of the Portfolios'
registration statement. It has indicated that such results for the prior
partnerships have been adjusted to reflect the deduction of the fees and
expenses of the Portfolios (including Rule 12b-1 fees) and, for the period
preceding the reorganization of the Trust, the proportionate shares of the
operating expenses of the corresponding master funds of the Master Trust
(including advisory fees), and give effect to transaction costs (such as sales
loads) as well as reinvestment of income and gains. However, the prior
investment partnerships were not registered under the 1940 Act and were not
subject to certain investment restrictions imposed by such Act; if they had been
so registered, their performance might have been adversely affected.
The results presented on the following pages may not necessarily equate with
the return experienced by any particular shareholder or partner as a result of
the timing of investments and redemptions. In addition, the effect of taxes on
any shareholder, partner or trust beneficiary will depend on such person's tax
status, and the results have not been reduced to reflect any income tax which
may have been payable.
<PAGE>
63
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
MID CAP GROWTH CONVERTIBLE CAP GROWTH PERFORMANCE
PERFORMANCE PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
RUSSELL CS FIRST INTERNATIONAL SALOMON
MID CAP MID CAP BOSTON SMALL CAP EPAC/
GROWTH GROWTH CONVERTIBLE CONVERTIBLE GROWTH EMI
YEAR FUND INDEX(1) FUND INDEX(2) FUND INDEX(3)
1985(4) 24.74% n/a n/a n/a n/a n/a
1986(4) 32.85 17.55% n/a n/a n/a n/a
1987 3.59 2.76 (3.12)% (0.22)% n/a n/a
1988 12.67 12.92 19.88 13.41 n/a n/a
1989 33.92 31.48 28.39 13.76 n/a n/a
1990(4) 0.73 (5.13) 1.84 (6.89) (17.48)% (16.96)%
1991 55.52 47.02 38.36 29.11 11.78 6.66
1992 13.55 8.71 9.84 17.58 (12.36) (15.42)
1993 19.77 (11.19) 27.08 18.55 26.03 30.34
1994 (10.52) (2.17) (7.59) (4.72) 8.61 9.44
1995(4) 38.67 33.99 22.26 23.72 6.00 4.79
1996 16.46 17.48 21.02 13.84 18.27 6.47
1997 16.66 22.58 23.30 16.92 14.09 (10.27)
1998 14.65 17.86 21.54 6.55 36.34 14.05
Last year(5) 14.65 17.86 21.54 6.55 36.34 14.05
Last 5 years(5) 14.07 17.34 15.43 10.83 16.19 4.56
Last 10 years(5) 18.62 17.30 15.43 12.29 n/a n/a
Since inception(5) 19.54 15.79 16.11 11.28 9.39 2.35
</TABLE>
1 The Russell Midcap Growth Index measures the performance of those companies
among the 800 smallest companies in the Russell 1000 Index with higher than
average price-to-book ratios and forecasted growth. The Russell 1000 Index
contains the top 1,000 securities of the Russell 3000 Index, which
comprises the 3,000 largest U.S. securities as determined by total market
capitalization. The Russell Midcap Growth Index is considered generally
representative of the U.S. market for midcap stocks. The average market
capitalization is approximately $4 billion, the median market
capitalization is approximately $2.5 billion, and the largest company in
the Index had an approximate market capitalization of $8.7 billion. This
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing. The Index was not available until 1986.
2 The CS First Boston Convertible Index is an unmanaged market weighted index
representing the universe of convertible securities, whether they are
convertible preferred stocks or convertible bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or markups, or other
expenses of investing.
3 The Salomon EPAC Extended Market Index ("EMI") is an unmanaged index that
includes shares of approximately 2,800 companies in 22 countries excluding
Canada and the United States. Companies included in the Index are smaller
capitalization companies with available float market capitalizations
greater than U.S. $100 million. Only issuers that are legally and
practically available to outside investors are included in the Index. Index
returns reflect the reinvestment of income dividends and capital gains
distributions, if any, but do not reflect fees, brokerage commissions, or
other expenses of investing.
4 Inception dates are as follows: Core Growth Institutional Portfolio
(predecessor to the Class I shares of the Mid Cap Growth Fund)--September
30, 1985 (registration statement effective June 30, 1994); Income & Growth
Institutional Portfolio (predecessor Series to the Class I shares of the
Convertible Fund)--December 31, 1986 (registration statement effective
April 19, 1993); International Small Cap Growth Institutional Portfolio
(predecessor to the Class I shares of the International Small Cap Growth
Fund)--June 7, 1990 (registration statement effective January 3, 1994).
5 Through December 31, 1998.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8043.
N I C H O L A S-A P P L E G A T E-REGISTERED TRADEMARK-
MAIL TO:
Nicholas-Applegate Institutional Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551-8043
1. YOUR ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
PLEASE PRINT. COMPLETE ONE SECTION ONLY. Joint account owners will be registered
joint tenants with the right of survivorship unless otherwise indicated. It is
the shareholder(s) responsibility to specify ownership designations which comply
with applicable state law.
<TABLE>
<S> <C> <C> <C> <C>
/ / INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
First Name Middle Initial Last Name Social Security Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Tenant (IF ANY) Middle Initial Last Name Social Security Number
/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Custodian's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Minor's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ - _ _ - _ _ _ _
_ _ - _ _ - _ _
Minor's State of Residence Minor's Date of Birth Minor's Social Security
Number
</TABLE>
<TABLE>
<S> <C> <C>
/ / TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY (CORPORATE RESOLUTION REQUIRED)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Trust, Corporation or Other Entity
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Trustee Name(s) or Type of Entity Date of Trust Agreement
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _
Name of Beneficiary (OPTIONAL) Taxpayer Identification Number
</TABLE>
2. YOUR ADDRESS
- --------------------------------------------------------------------------------
Do you have any other identically registered Nicholas-Applegate accounts?
/ / Yes / / No
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Street Address or PO Box Number Apartment Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
City State Zip
_ _ _ - _ _ _ - _ _ _ _
Area Code Home Phone
_ _ _ - _ _ _ - _ _ _ _
Area Code Business Phone
CITIZENSHIP:/ / U.S.
/ / Resident Alien
/ / Non-resident Alien
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Specify Country (if not U.S.)
3. YOUR INVESTMENT
- --------------------------------------------------------------------------------
Please select your fund. See prospectus for investment minimums.
<TABLE>
<CAPTION>
CLASS AMOUNT
<S> <C> <C>
- ---------------------------------------------------------
Emerging Countries I(179) / / $
- ---------------------------------------------------------
International Small Cap Growth I(356) / / $
- ---------------------------------------------------------
International Core Growth I(180) / / $
- ---------------------------------------------------------
Worldwide Growth I(374) / / $
- ---------------------------------------------------------
Global Growth & Income I(970) / / $
- ---------------------------------------------------------
Global Blue Chip I(943) / / $
- ---------------------------------------------------------
Pacific Rim I(789) / / $
- ---------------------------------------------------------
Greater China I(788) / / $
- ---------------------------------------------------------
Latin America I(787) / / $
- ---------------------------------------------------------
Mini Cap Growth I(753) / / $
- ---------------------------------------------------------
Small Cap Growth I(359) / / $
- ---------------------------------------------------------
Mid Cap Growth I(371) / / $
- ---------------------------------------------------------
Large Cap Growth I(181) / / $
- ---------------------------------------------------------
Convertible I(372) / / $
- ---------------------------------------------------------
Value I(378) / / $
- ---------------------------------------------------------
Short Intermediate I(182) / / $
- ---------------------------------------------------------
High Quality Bond I(183) / / $
- ---------------------------------------------------------
High Yield Bond I(377) / / $
- ---------------------------------------------------------
Global Technology I(437) / / $
- ---------------------------------------------------------
Other $
- ---------------------------------------------------------
TOTAL $
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
4. YOUR METHOD OF PAYMENT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
/ / BY CHECK: Payable to NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS / / BY EXCHANGE: Fund name from which
(Third party checks will NOT be accepted.) you are exchanging _ _ _ _ _ _ _ _ _ _ _ _ _
/ / BY WIRE: Please call 1-800-551-8043 for your
account number / / BY CONFIRM TRADE ORDER: Trade Order # _ _ _ _ _ _ _ _ _ _ _ _ _
</TABLE>
<PAGE>
5. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS
- --------------------------------------------------------------------------------
Distributions will automatically be reinvested in additional shares of your
Fund(s) unless you check the box(es) below.
DIVIDENDS (CHECK ONE) / / Reinvest / / Cash CAPITAL GAINS (CHECK
ONE) / / Reinvest / / Cash
/ / CROSS FUND REINVESTMENT+ (OPTIONAL)--Reinvest all dividends and capital
gains into an existing account in another Nicholas-Applegate Fund.
<TABLE>
<S> <C> <C> <C>
From _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Fund Name Fund Name
</TABLE>
+MUST BE SAME ACCOUNT TYPE AND CLASS OF SHARES. MUST BE A $5,000 MINIMUM ACCOUNT
VALUE FOR THIS SERVICE.
SERVICE OPTIONS
- --------------------------------------------------------------------------------
6. TELEPHONE REDEMPTIONS AND EXCHANGES
- --------------------------------------------------------------------------------
This allows you to use the telephone to redeem or exchange shares, unless you
check the box below. Redemptions will be made payable to the registered owner(s)
and mailed to the address of record. Maximum redemption by telephone is $50,000.
/ / I do not want telephone redemption privilege. / / I do not want telephone
exchange privilege.
7. SYSTEMATIC INVESTMENT--TO MY MUTUAL FUND ACCOUNT VIA ACH
- --------------------------------------------------------------------------------
/ / Check this box to invest on a regular basis from your bank account. Please
complete "Checking Account Information" (SECTION 10).
<TABLE>
<S> <C> <C> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
8. SYSTEMATIC EXCHANGES--FROM ONE NICHOLAS-APPLEGATE MUTUAL FUND ACCOUNT TO
ANOTHER
- --------------------------------------------------------------------------------
/ / Check this box to exchange on a regular basis from one Nicholas-Applegate
account to another.
<TABLE>
<S> <C> <C> <C> <C> <C>
FROM:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
TO:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
<PAGE>
9. SYSTEMATIC WITHDRAWAL--FROM MY MUTUAL FUND ACCOUNT VIA ACH OR CHECK
- --------------------------------------------------------------------------------
/ / Check this box to withdraw on a regular basis from my mutual fund account.
Please complete "Checking Account Information" below (SECTION 10):
<TABLE>
<S> <C> <C> <C> <C> <C>
BY ACH TO MY BANK ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
BY CHECK (DO NOT NEED TO COMPLETE
SECTION 10)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
1 5
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
</TABLE>
SEND PROCEEDS TO:
/ / Address of record
/ / Special Payee (LIST BELOW)
<TABLE>
<S> <C> <C> <C> <C>
INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
First Name Middle Initial Last Name
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
10. CHECKING ACCOUNT INFORMATION--FOR ACH OR REDEMPTIONS BY WIRE
- --------------------------------------------------------------------------------
Must be completed for Sections 7 and 9. PLEASE ATTACH A VOIDED CHECK OR DEPOSIT
SLIP.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Institution
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Bank ABA Routing Number Bank Account Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Any joint owner of your bank account who is NOT a joint owner of your fund
account(s) must sign above.
11. DUPLICATE STATEMENTS
- --------------------------------------------------------------------------------
/ / I wish to have a duplicate statement sent to the interested party listed
below.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Interested Party
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
(SEE REVERSE)
<PAGE>
12. SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
/ / I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand
that the prospectus terms are incorporated into this New Account Form by
reference.
/ / I authorize Nicholas-Applegate Institutional Funds, their affiliates and
agents to act on any instructions believed to be genuine for any service
authorized on this form. I agree they will not be liable for any resulting
loss or expense.
/ / I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
/ / I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
/ / I understand that mutual funds involve risks, including possible loss of
principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form,
Nicholas-Applegate Institutional Funds may reject or redeem my investment. I
may also be subject to any applicable IRS Backup Withholding for all
distributions and redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Trust, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Shareowner, Custodian, Trustee or Authorized Officer Date
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Owner, Custodian, Trustee or Authorized Officer Date
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
Nicholas-Applegate Institutional Funds
SEC file number: 811-7384
More information on these Funds is available
free upon request, including the following:
ANNUAL/SEMIANNUAL REPORT
Describes the Funds' performance, lists portfolio
holdings and contains a letter from the Funds'
Investment Adviser discussing recent market
conditions, and investment strategies that
significantly affected the Funds' performance
during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
Provides more details about the Funds and their
policies. A current SAI is on file with the
Securities and Exchange Commission (SEC) and
is incorporated by reference (is legally considered
part of this prospectus).
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-551-8643
BY MAIL Write to:
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, CA 92101
BY E-MAIL Send your request to nacm.com
ON THE INTERNET Text versions of the Fund
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
NACM
http://www.nacm.com
You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC
(phone 1-800-SEC-0330) or sending your request
and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
600 West Broadway
San Diego, California 92101
800-551-8045
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
ITPRO399
<PAGE>
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
INSTITUTIONAL FUNDS PROSPECTUS
QUALIFIED SHARES
________, 1999
GLOBAL FUNDS
International Core Growth
[GRAPHIC] Emerging Countries
US FUNDS
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
FIXED INCOME FUNDS
High Quality Bond
AS WITH ALL MUTUAL FUNDS, THE SECURITIES
AND EXCHANGE COMMISSION DOESN'T
GUARANTEE THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE, NOR
HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
<PAGE>
2
TABLE OF CONTENTS
OVERVIEW 3
- --------------------------------------------------------------------------------
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS, AND HISTORICAL
PERFORMANCE.
GLOBAL FUNDS
International Core Growth 4
Emerging Countries 6
US FUNDS
Large Cap Growth
Mid Cap Growth 8
Value 10
Small Cap Growth 12
FIXED INCOME FUNDS
High Quality Bond 14
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 16
Buying Shares 16
Selling Shares 17
Signature Guarantees 18
Exchanging Shares 18
YOUR ACCOUNT
Transaction Policies 19
Features and Account Policies 19
- --------------------------------------------------------------------------------
FURTHER INFORMATION THAT APPLIES
TO THE FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser 21
Investment Adviser Compensation 21
Multi Class Structure 21
Distribution Plan and Shareholder
Services 21
Portfolio Turnover 21
Portfolio Trades 21
Portfolio Teams 22
RISKS AND OTHER INFORMATION 25
PRIOR PERFORMANCE OF CERTAIN FUNDS 31
FOR MORE INFORMATION Back Cover
<PAGE>
3
OVERVIEW
[GRAPHIC]FUND INFORMATION
CONCISE FUND DESCRIPTIONS BEGIN ON THE NEXT PAGE. EACH DESCRIPTION PROVIDES THE
FOLLOWING INFORMATION:
[GRAPHIC]GOAL AND STRATEGY
The Fund's particular investment goal and the principal strategy the Fund
intends to use in pursuing its goal.
[GRAPHIC]INVESTMENTS
The primary types of securities in which the Fund invests. Additional
investments are described in "Risks and Other Information" at the end of the
prospectus and in the Statement of Additional Information.
[GRAPHIC]PORTFOLIO MANAGEMENT
The individuals who manage the Fund.
[GRAPHIC]PRIMARY RISKS
The primary risk factors associated with the Fund. Additional risks are also
described in "Risks and Other Information" at the end of the prospectus and in
the Statement of Additional Information.
[GRAPHIC]PAST PERFORMANCE
The Fund's year by year total returns and average returns over time.
[GRAPHIC]INVESTOR EXPENSES
The overall costs borne by an investor in a Fund, including annual expenses.
GOAL OF THE NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS
The Nicholas-Applegate Institutional Funds (the Trust) are designed to provide
investors with a well-rounded investment program by offering investors various
portfolios each with different investment goals and strategies (each a Fund).
Shares of each Fund represent interests in a portfolio of an open-end management
investment company (a mutual fund).
Each Fund has its own strategy and has its own profile. Because you could lose
money by investing in these Funds, be sure to read all risk disclosures
carefully before investing.
WHO MAY WANT TO INVEST IN THE EQUITY FUNDS
/ / those investing for retirement or other long-term goals
/ / those who want higher potential for gain and are willing to accept higher
risks associated with investing in stocks of U.S and foreign companies
/ / those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE
EQUITY FUNDS
/ / those who are investing with a shorter time frame
/ / those who are uncomfortable with an investment that will go up and down in
value
/ / those who are unable to accept the special risks associated with foreign
investing
WHO MAY WANT TO INVEST IN THE FIXED
INCOME FUNDS
/ / those who are investing for retirement or other long-term goals
/ / those who desire current income
/ / those who want a high level of liquidity
/ / those who want professional portfolio management
WHO MAY NOT WANT TO INVEST IN THE FIXED
INCOME FUNDS
/ / those who are investing with a shorter time frame
/ / those who are uncomfortable with an investment that will go up and down in
value
RISKS OF MUTUAL FUNDS
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
<PAGE>
4
INTERNATIONAL CORE GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in larger capitalized companies located in over 50
countries worldwide. Generally, this means companies worldwide whose stock
market capitalizations are in the top 75% of publicly traded companies as
measured by stock market capitalization in each country.
The Investment Adviser focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout the world, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. Normally, at least 75% of the Fund's total assets will be invested in
these securities. In addition, the Fund spreads its investment among countries,
with at least 65% of its assets invested in companies located in at least three
foreign countries. The Fund may invest at least 35% of its assets in U.S.
companies. The Fund may also invest in debt securities of any maturity of
foreign companies and foreign governments and their agencies and
instrumentalities which are rated investment grade or of comparable quality if
unrated.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. To the extent the Fund invests in countries with emerging markets, the
risks are magnified since these countries may have unstable governments and less
established markets. See "Risks and Other Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96 0.98%
97 30.38%
98 21.22%
BEST QUARTER: 01 '98 +17.31
WORST QUARTER: 03 '98 -14.84%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (12/27/96)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 21.22 n/a 26.16
MSCI EAFE 19.97 n/a 10.34
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR
EAST INDEX (MSCI EAFE) IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. IT IS A CAPITALIZATION-WEIGHTED INDEX REPRESENTATIVE OF THE
STOCK MARKET STRUCTURE OF EUROPE AND THE PACIFIC BASIN.
CLASS Q SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED
UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES BUT NOT DIFFERENCES IN 12b-1 FEES. AVERAGE ANNUAL
TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS. SHARE PRICE, YIELD AND RETURN WILL
FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
5
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a
percentage of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee 0.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.61%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.86%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.11%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.75%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$183 $566 $975 $2,116
</TABLE>
<PAGE>
6
EMERGING COUNTRIES FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in stocks of companies located in countries with
emerging securities markets--that is, countries with securities markets which
are, in the opinion of the Investment Adviser, emerging as investment markets.
These are markets which have yet to reach a level of maturity associated with
developed foreign stock markets, especially in terms of participation by foreign
investors.
The Investment Adviser seeks companies in the early stages of development,
growth companies, cyclical companies, or companies believed to be undergoing a
basic change in operations. The Investment Adviser currently selects portfolio
securities from an investment universe of approximately 6,000 foreign companies
in over 35 emerging markets.
[GRAPHIC]INVESTMENTS
The Fund normally invests 75% of its assets in equity securities: common and
preferred stocks, warrants and securities convertible into common stock.
Normally, at least 65% of its assets will be invested in companies located in at
least three foreign countries. The Fund may invest at least 35% of its assets in
U.S. companies. The Fund may also invest in debt securities of any maturity of
foreign companies and foreign governments and their agencies and
instrumentalities which are rated investment grade or of comparable quality if
unrated.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. Emerging
countries markets may present greater opportunity for gain, but also involve
greater risk than more developed markets. These countries tend to have less
stable governments and less established markets. The markets tend to be less
liquid and more volatile, and offer less regulatory protection for investors.
The economies of emerging countries may be predominantly based on only a few
industries or dependent on revenue from particular commodities, international
aid or other assistance. The securities of small, less well known companies may
be more volatile than those of larger companies. See "Risks and Other
Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 -4.47%
95 6.84%
96 27.72%
97 10.03%
98 -21.46%
BEST QUARTER: 02 '97 +15.06%
WORST QUARTER: 03 '98 -25.99%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (11/28/94)
<S> <C> <C> <C>
- --------------------------------------------------------------------
Fund -21.46 n/a 2.96
MSCI EMF -25.33 n/a -10.98
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
FREE INDEX (MSCI EMF) IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE
MARKET STRUCTURE OF 22 EMERGING MARKET COUNTRIES IN EUROPE, LATIN
AMERICA, AND THE PACIFIC BASIN. THE INDEX EXCLUDES CLOSED MARKETS
AND THOSE SHARES IN OTHERWISE FREE MARKETS WHICH ARE NOT PURCHASABLE
BY FOREIGNERS. THE INDEX IS UNMANAGED.
CLASS Q SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE
BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES
(FUND) OF NICHOLAS-APPLEGATE INVESTMENT TRUST ADJUSTED TO REFLECT
SHARE CLASS OPERATING EXPENSES BUT NOT DIFFERENCES IN 12b-1 FEES.
AVEAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. SHARE PRICE, YIELD AND
RETURN WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL
YOUR SHARES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
7
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.25%
- ----------------------------------------------------------------------------
Shareholder services fee 0.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.72%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 2.22%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.22%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 2.00%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$217 $670 $1,149 $2,472
</TABLE>
<PAGE>
8
MID CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell Midcap Growth
Index. As of December 31, 1998, the middle 90% includes companies with
capitalizations between $1.6 billion and $10.7 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin"--positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. It
may also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and securities issued by the U.S. Government and its agencies and
instrumentalities. The Fund may invest up to 20% of its assets in foreign
securities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies day to day in response to the
activities of individual companies and general market and economic conditions.
The companies in which the Fund invests may be more subject to volatile market
movements than securities of larger, more established companies. Stock prices
are unpredictable and may fall suddenly and may continue to fall for extended
periods. In addition, the securities in which the Fund invests are subject to
the risk that their intrinsic value may never be realized by the market or their
prices may go down. To the extent the Fund invests in foreign securities, the
risks and volatility are magnified since the performance of foreign stocks also
depends upon changes in foreign currency values, different political and
regulatory environments, and the overall political and economic conditions in
countries where the Fund invests. See "Risks and Other Information" starting on
page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93 20.03%
94 -10.89%
95 38.24%
96 16.07%
97 16.19%
98 14.37%
BEST QUARTER: 03 '98 +25.95%
WORST QUARTER: 09 '98 -17.67%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (4/19/93)
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Fund 14.33 13.69 19.26
Russ Midcap Growth 17.86 17.34 15.79
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE RUSSELL MID CAP GROWTH INDEX MEASURES THE PERFORMANCE OF
THOSE COMPANIES AMONG THE 800 SMALLEST IN THE RUSSELL 1000 INDEX WITH
HIGHER THAN AVERAGE PRICE-TO-BOOK RATIOS AND FORECASTED GROWTH. THE
RUSSELL MID CAP GROWTH INDEX IS CONSIDERED GENERALLY REPRESENTATIVE OF
THE U.S. MARKET FOR MID CAP STOCKS. THE INDEX IS UNMANAGED.
CLASS Q SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED
UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES BUT NOT DIFFERENCES IN 12b-1 FEES. AVERAGE ANNUAL
TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS
AND CAPITAL GAINS. SHARE PRICE, YIELD AND RETURN WILL FLUCTUATE, AND
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE PERFORMANCE.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION".
</TABLE>
<PAGE>
9
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.75%
- ----------------------------------------------------------------------------
Shareholder services fee 0.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.40%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.40%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.05%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.35%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$135 $421 $729 $1,601
</TABLE>
<PAGE>
10
VALUE FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks long-term capital appreciation. In pursuing its goal, the Fund
invests primarily in large U.S. companies that, in the opinion of the Investment
Adviser, are undervalued in the market place relative to other financial
measurements. The Fund emphasizes equity securities of undervalued, large U.S.
companies with market capitalizations generally above $5 billion.
The Fund's Investment Adviser employs a disciplined, "bottom-up" approach that
evaluates stocks on an individual basis and focuses on company fundamentals. It
uses a blend of computer-intensive systematic disciplines and traditional
fundamental research to uncover stocks that meet three investment criteria:
attractive valuations, underlying financial strength, and prospects for business
improvement.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 80% of its total assets in common stocks. It
may also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and bonds issued by the U.S. Government and its agencies and instrumentalities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. Value investing is subject to the risk that the stocks
intrinsic value may never be realized by the market. See "Risks and Other
Information" starting on page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96 37.98%
97 40.15%
98 19.74%
BEST QUARTER: 04 '98 +16.95%
WORST QUARTER: 03 '98 -12.55%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (4/30/96)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 19.74 n/a 31.61
S&P 500 28.58 n/a 29.00
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE STANDARD AND POOR'S 500 INDEX (S&P 500) IS AN UNMANAGED
INDEX COMPRISED OF 500 U.S. INDUSTRIAL, TRANSPORTATION, UTILITY AND
FINANCIAL COMPANIES AND IS CONSIDERED TO BE GENERALLY REPRESENTATIVE
OF THE U.S. STOCK MARKET.
CLASS Q SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED
UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES BUT NOT DIFFERENCES IN 12b-1 FEES. AVERAGE ANNUAL
TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS. SHARE PRICE, YIELD AND RETURN WILL
FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
11
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.75%
- ----------------------------------------------------------------------------
Shareholder services fee 0.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.29%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 2.29%
- ----------------------------------------------------------------------------
Waiver of fund expenses (.94%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.35%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$417 $1,261 $2,120 $4,331
</TABLE>
<PAGE>
12
SMALL CAP GROWTH FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal the
Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell 2000 Growth
Index. As of December 31, 1998, the middle 90% included companies with
capitalizations between $255 million and $1.4 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial condition and competitiveness of individual companies. It uses a
blend of both traditional fundamental research and computer intensive systematic
disciplines to uncover what it calls "change at the margin"--positive business
developments which are not yet fully reflected in the company's stock price. It
searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. It
may also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and securities issued by the U.S. Government and its agencies and
instrumentalities. The Fund may invest up to 20% of its total assets in foreign
securities.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. Although small-cap stocks have a history of
long-term growth, they tend to carry additional risks because their earnings
tend to be less predictable. The stock prices of smaller companies are more
volatile and their securities may be less liquid. In addition, investing in
small capitalization companies entails greater risk because these companies may
have unproven track records, limited product or service base, limited access to
capital and may be more likely to fail than larger, more established companies.
To the extent the Fund invests in foreign issuers, the investment risks and
volatility are magnified since the performance of foreign stocks depends on
changes in foreign currency values, different political and regulatory
environments, and the overall political and economic conditions in the foreign
countries where the Fund invests. See "Risks and Other Information" starting on
page .
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance, The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
<PAGE>
13
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93 -0.11%
94 -3.83%
95 35.53%
96 19.46%
97 11.54%
98 4.26%
BEST QUARTER: 04 '98 +27.03%
WORST QUARTER: 01 '97 -14.85%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (10/1/93)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 4.26 12.61 11.95
Russell 2000 Growth 1.25 10.20 10.24
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING THOSE
SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE GROWTH
ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER PRICE-TO-BOOK
AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IN AN UNMANAGED INDEX AND
IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000 SMALLEST SECURITIES IN
THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000 LARGEST U.S. SECURITIES AS
DETERMINED BY TOTAL MARKET CAPITALIZATION.
CLASS Q SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED UPON
THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES BUT NOT DIFFERENCES IN 12b-1 FEES. AVERAGE ANNUAL TOTAL
RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. SHARE PRICE, YIELD AND RETURN WILL FLUCTUATE, AND YOU MAY
HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE PERFORMANCE.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
14
SMALL CAP GROWTH FUND
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 1.00%
- ----------------------------------------------------------------------------
Shareholder services fee 0.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.36%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.61%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.09%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.52%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$161 $499 $860 $1,878
</TABLE>
<PAGE>
14
HIGH QUALITY BOND FUND
[GRAPHIC]GOAL AND STRATEGY
The Fund seeks maximum total return. In pursuing this goal, the Fund invests
primarily in bonds.
The Fund's Investment Adviser seeks to outperform the total return of an index
of either government/ corporate investment grade debt or
government/corporate/mortgage investment grade debt through an actively managed
diversified portfolio of debt securities.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes interest
rate decisions and shifts among sectors of the bond market. It also analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the Fund.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its net assets in bonds of U.S. and
foreign corporations and governments. These bonds are rated in the top two
investment grades, or are of comparable quality if unrated. They include bonds,
notes, mortgage-backed and asset-backed securities with rates that are fixed,
variable or floating. The average portfolio duration of the Fund will range from
two to eight years. The Fund may invest up to 30% of its total assets in
securities payable in foreign currencies.
The Fund may invest up to 20% of its total assets in debt securities rated below
investment grade. For a description of these ratings, see "Bond Quality"
beginning on page . The Fund may also use options, futures contracts and
interest rate and currency swaps as hedging techniques.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page .
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. If interest rates rise, the prices of debt securities fall; if
rates fall, the prices of debt securities rise. However, the Investment Adviser
expects the Fund's fluctuations to be more moderate than those of a fund with a
longer average duration. In addition, the lower-rated debt securities in which
the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. To the extent the Fund invests in foreign
securities, performance also depends upon changing currency values, different
political and economic environments, and other overall economic conditions in
countries where the Fund invests. See "Risks and Other Information" starting on
page .
[GRAPHIC]PAST PERFORMANCE
The two tables show the Fund's annual returns and its long-term performance. The
graph shows how the Fund's total return has varied from year to year, while the
table shows performance over time. This information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95 5.39%
96 1.77%
97 8.96%
98 8.18%
BEST QUARTER: 04 '95 +5.39%
WORST QUARTER: 01 '96 -3.16%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years ITD (8/31/95)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 8.18 n/a 8.25
Lehman Aggregate
Bond 8.67 n/a 8.19
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS %.
INDEX: THE LEHMAN BROTHERS AGGREGATE BOND INDEX (LEHMAN AGGREGATE
BOND) IS COMPOSED OF SECURITIES FROM LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX, MORTGAGE-BACKED SECURITIES INDEX, AND
ASSET-BACKED SECURITIES INDEX. THE INDEX IS UNMANAGED.
CLASS Q SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED
UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES BUT NOT DIFFERENCES IN 12b-1 FEES. AVERAGE ANNUAL
TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS. SHARE PRICE, YIELD AND RETURN WILL
FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
15
[GRAPHIC]INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum sales charge (Load) imposed on purchases (as a percentage
of offering price) None
- ----------------------------------------------------------------------------
Maximum deferred sales charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
- ----------------------------------------------------------------------------
Maximum sales charge (Load) imposed on reinvested dividends (and
other distributions) (as a percentage of offering price) None
- ----------------------------------------------------------------------------
Redemption fee (as a percentage of amount redeemed, if
applicable) None
- ----------------------------------------------------------------------------
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fee 0.45%
- ----------------------------------------------------------------------------
Shareholder services fee 0.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.64%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.34%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.53%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.81%
EXPENSE WAIVERS: For the fiscal year ending March 31, 1999, the Investment
Adviser has agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE BEFORE WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$219 $676 $1,159 $2,493
</TABLE>
<PAGE>
16
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
OPENING AN ACCOUNT
<S> <C>
This is the minimum
initial investment $
- -----------------------------------------------------------------------------------------------------------------------------------
Use this type of
application New Account Form or IRA Application
- -----------------------------------------------------------------------------------------------------------------------------------
Before completing Each Fund offers a variety of features, which are described in the "Your Account" section of this
the application prospectus. Please read this section before completing the application.
- -----------------------------------------------------------------------------------------------------------------------------------
Completing the
application If you need assistance, contact your financial representative, or call us at (800) 551-8043.
- -----------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and check, payable to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust will not accept third-party checks.
- -----------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below.
If you are sending money You will need to obtain an account number with the Trust by sending a completed application to:
by BANK WIRE or ACH NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
To receive your account number, contact your financial representative or call us at (800) 551-8043.
<CAPTION>
BUYING SHARES
<S> <C>
This is the minimum
subsequent investment $
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is generally open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- -----------------------------------------------------------------------------------------------------------------------------------
Instruct your bank to wire the amount you wish to invest to:
STATE STREET BANK & TRUST CO.--ABA #011000028
If you are sending money DDA #9904-645-0
by BANK WIRE STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME], [YOUR NAME], [ACCOUNT NAME OR NUMBER]
- -----------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active on your bank
If you are sending money account. To establish this option, either complete the appropriate sections when opening an account,
by ACH contact your financial representative, or call us at (800) 551-8043 for further information.
To initiate an ACH purchase, call the Trust at (800) 551-8043.
</TABLE>
<PAGE>
17
<TABLE>
<CAPTION>
SELLING OR REDEEMING SHARES
<S> <C> <C>
IN WRITING BY PHONE
-------------------------------------------------------------------------------------------------
Selling shares by phone is a service option which
must be established on your account prior to
making a request. See the "Your Account" section,
or contact your financial representative, or call
Certain requests may require a SIGNATURE the Trust at (800) 551-8043 for further
Things you should know GUARANTEE. See the next section for further information. The maximum amount which may be
information. You may sell up to the full account requested by phone, regardless of account size, is
value. $50,000. Amounts greater than that must be
requested in writing. If you wish to receive your
monies by bank wire, the minimum request is
$5,000.
- ---------------------------------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan administrator/sponsor, you should
call them regarding the most efficient way to sell shares. If you bought shares recently by check,
payment may be delayed until the check clears, which may take up to 15 calendar days from the date of
purchase. Sales by a corporation, trust or fiduciary may have special requirements. Please contact
your financial representative, a plan administrator/sponsor or us for further information.
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- ---------------------------------------------------------------------------------------------------------------------------------
Please put your request in writing, including: the
name of the account owners, account number and
Fund you are redeeming from, and the share or
dollar amount you wish to sell, signed by all Contact your financial representative,
If you want to receive account owners. Mail this request to: or call us at (800) 551-8043.
your monies by BANK WIRE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, The proceeds will be sent to the existing bank
PO BOX 8326, BOSTON, MA 02266-8326. wire address listed on the account.
The check will be sent to the existing bank wire
address listed on the account.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative,
or call us at (800) 551-8043.
If you want to receive The proceeds will be sent in accordance with the
your monies by ACH Please call us at (800) 551-8043. existing ACH instructions on the account and will
generally be received at your bank two business
days after your request is received.
</TABLE>
<PAGE>
18
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
SIGNATURE GUARANTEES
<S> <C>
A signature guarantee from a financial institution is required to verify the authenticity of an
A definition individual's signature. It can usually be obtained from a broker, commercial or savings bank, or credit
union.
- -----------------------------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making a written request for the following reasons:
1. When selling more than $50,000 worth of shares;
2. When you want a check or bank wire sent to a name or address
When you need one that is not currently listed on the account;
3. To sell shares from an account controlled by a corporation,
partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
<CAPTION>
EXCHANGING SHARES
<S> <C>
This is the minimum
exchange amount to open a $
new account
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- -----------------------------------------------------------------------------------------------------------------------------------
The exchange must be to an account with the same registration.
If you intend to keep money in the Fund you are exchanging from, make sure that you leave an amount
Things you should know equal to or greater than the Fund's minimum account size (see the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- -----------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us at (800) 551-8043.
How to request an The Trust will accept a request by phone if this feature was previously established on your account.
exchange by PHONE See the "Your Account" section for further information.
- -----------------------------------------------------------------------------------------------------------------------------------
Please put your exchange request in writing, including: the name on the account, the name of the Fund
How to request an and the account number you are exchanging from, the shares or dollar amount you wish to exchange,
exchange by MAIL and the Fund you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
<PAGE>
19
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales charge
to qualified retirement plans, financial and other institutions and "wrap
accounts." The minimum initial investment is $250,000, and the minimum
subsequent investment is $10,000. The Distributor may waive these minimums from
time to time.
PRICING OF SHARES. The net asset value per share ("NAV") of the Fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern time) by dividing the value of the Funds'
net assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York Stock Exchange
is open, usually Monday-Friday. Buy and sell requests are executed at the NAV
next calculated after your request is received in good order by the transfer
agent or another agent designated by the Trust. The Fund has the right to refuse
any purchase order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund reserves
the right to reject any purchase or to suspend or modify the continuous offering
of its shares. Your financial representative is responsible for forwarding
payment promptly to the transfer agent. The Trust reserves the right to cancel
any buy request if payment is not received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
[GRAPHIC]FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in each Fund through various retirement plans,
including IRAs, Roth IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information about any
of the plans, agreements, applications and annual fees, contact the Distributor,
your financial representative or plan sponsor. To determine which retirement
plan is appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. Shareholders will receive periodic statements reporting all
account activity, including systematic transactions, dividends and capital gains
paid.
MULTI CLASS STRUCTURE. The Funds also offer Class I shares, which have different
service charges and other expenses that may affect their performance. You can
obtain more information about these other share classes from the Distributor.
<PAGE>
20
YOUR ACCOUNT
DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends of net investment income as
follows:
<TABLE>
<CAPTION>
ANNUALLY MONTHLY
<S> <C>
International Core Growth High Quality Bond
Emerging Countries
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
</TABLE>
Any net capital gains are distributed annually.
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.
TAXABILITY OF DIVIDENDS. Dividends you receive from a Fund, whether reinvested
or taken as cash, are generally taxable. Dividends from a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than the Fund minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Fund may
close out your account and mail you the proceeds. Your account will not be
closed if its drop in value is due to Fund performance.
AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of $250 or
more on a monthly or quarterly basis if you have an account of $15,000 or more
in the Fund. Withdrawal proceeds will normally be received prior to the end of
the month or quarter. See the account application for further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in each Fund through automatic withdrawals of specified amounts from your bank
account once an automatic investment plan is established. See the account
application for further details about this service or call the Transfer Agent at
1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into another Fund, subject to conditions
outlined in the Statement of Additional Information and the applicable
provisions of the qualified retirement plan.
SHAREHOLDER SERVICES. The Investment Adviser may make payments from its own
resources to brokers, consultants and financial institutions for performing
certain services for shareholders and for the maintenance of shareholder
accounts.
<PAGE>
21
ORGANIZATION AND MANAGEMENT
THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
Investment Adviser to the Funds. Arthur E. Nicholas and 22 other partners with a
staff of approximately 480 employees currently manage over $30 billion of
discretionary assets for numerous clients, including employee benefit plans of
corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals.
INVESTMENT ADVISER COMPENSATION
Each Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement. Each of the following Funds pays an advisory fee monthly at
the following annual rates of their average net assets:
Value Fund 0.75%
Small Cap Growth Fund 1.00%
Emerging Countries Fund 1.25%
The International Core Growth Fund pays monthly at the following annual rates:
1.00% on the first $500 million
0.90% on the next $500 million
0.85% on net assets in excess of $1 billion
The High Quality Bond Fund pays monthly at the following annual rates:
0.45% on the first $500 million
0.40% on the next $250 million
0.35% on net assets in excess of $750 million
The Large Cap Growth and Mid Cap Growth Funds each pays monthly at the following
annual rates:
0.75% of the first $500 million
0.675% on the next $500 million
0.65% on net assets in excess of $1 billion
MULTI CLASS STRUCTURE
The Funds also offer Class I Shares, which have different sales charges and
other expenses that may affect their performance. You can obtain more
information about these other share classes from the Distributor.
SHAREHOLDER SERVICES AND DISTRIBUTION PLANS
Each of the Funds has entered into a Shareholder Services Agreement with the
Distributor under which each Fund will reimburse the Distributor up to 0.25% of
the average daily assets of each of the Funds to pay financial institutions for
certain personal services for shareholders and for the maintenance of
shareholder accounts.
Each Fund has adopted a distribution plan in accordance with Rule 12b-1 under
the Investment Company Act. Class Q Shares may pay a fee to the Distributor in
an amount computed at an annual rate of up to 0.25% of the average daily net
assets to finance any activity which is principally intended to result in the
sale of shares. The schedule of such fees and the basis upon which such fees
will be determined from time to time by the Distributor. The Funds have no
current intention to activate the 12b-1 Plan. Shareholders will be given a 60
day notice upon the Funds' determination to activate the Plan.
PORTFOLIO TURNOVER
The Investment Adviser may actively trade a Fund's portfolio securities in an
attempt to achieve the Fund's investment goal. Active trading will cause the
Fund to have an increased portfolio turnover rate of 200% or more, which is
likely to generate shorter-term gains (losses) for its shareholders, which are
taxed at a higher rate than longer-term gains (losses). Actively trading
portfolio securities increases the Fund's trading costs and may have an adverse
impact on the Fund's performance.
PORTFOLIO TRADES
The Investment Adviser is responsible for the Fund's portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
provide research services to the Fund, or that sell shares of the Fund but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (e.g., timeliness and completeness) and favorable price.
<PAGE>
22
ORGANIZATION AND MANAGEMENT
[GRAPHIC]PORTFOLIO TEAMS
EQUITY MANAGEMENT--INTERNATIONAL/GLOBAL
ARTHUR E. NICHOLAS, MANAGING PARTNER
Chief Investment Officer
Founded firm in 1984; prior investment management experience with Pacific
Century Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer--Global Equity Management
Joined firm in 1987; prior investment management experience with Professional
Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
PEDRO V. MARCAL, PARTNER
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with A.B.
Laffer, V.A. Canto & Associates, and A-Mark Precious Metals
B.A.--University of California, San Diego
EMERGING COUNTRIES
LORETTA J. MORRIS, PARTNER
Portfolio Manager
Joined firm in 1990; 10 years prior investment management experience with
Collins Associates. Attended California State University, Long Beach; CFA
Level II candidate
INTERNATIONAL CORE GROWTH
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
JON BORCHARDT
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with Union
Bank
B.S--University of San Francisco
EMERGING COUNTRIES
MELISA A. GRIGOLITE
Portfolio Manager
Joined firm in 1991; prior experience with SGPA Architecture and Planning
M.S.--San Diego State University; B.S. Southwest Missouri State University
INTERNATIONAL CORE GROWTH
JESSICA HILINSKI
Portfolio Manager
Joined firm in 1996; 3 years prior experience with Eaton Vance Management and
Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
ESWAR MENON
Portfolio Manager
Joined firm in 1995; 5 years prior investment management experience with
Koeneman Capital Management and Integrated Device Technology
M.B.A., summa cum laude--University of Chicago; M.S.--University of California,
Santa Barbara; B.S.--Indian Institute of Technology, Madras
EMERGING COUNTRIES
ALEX MUROMCEW
Portfolio Manager
Joined firm in 1996; 6 years prior investment management experience with Jardine
Fleming Securities (Japan); Emerging Markets Investors Corporation; Teton
Partners LP
M.B.A.--Stanford University; B.A.--Dartmouth College
INTERNATIONAL CORE GROWTH
ERNESTO RAMOS, PH.D.
Senior Portfolio Manager
Joined firm in 1994; 14 years prior investment management and quantitative
research experience with Batterymarch Financial Management; Bolt Beranek &
Newman Inc.; and Harvard University
Ph.D.--Harvard University; B.S.--Massachusetts Institute of Technology
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
JOHN TRIBOLET
Portfolio Manager
Joined firm in 1997; 5 years prior experience with Kemper Securities, Inc. and
PaineWebber;
M.B.A.--University of Chicago; B.A.--Columbia University
INTERNATIONAL CORE GROWTH
<PAGE>
23
AYLIN UCKUNKAYA
Investment Analyst
Joined firm in 1997; 4 years investment management experience with Global
Securities
B.A. Istanbul University
EMERGING COUNTRIES
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS, MANAGING PARTNER
Chief Investment Officer
Founded firm in 1984; prior investment management experience with Pacific
Century Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer--Global Equity Management
Joined firm in 1987; prior investment management experience with Professional
Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
LARGE CAP GROWTH, VALUE, SMALL CAP GROWTH AND MID CAP GROWTH
ORGANIZATION AND MANAGEMENT
THOMAS BLEAKLEY, PARTNER
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Twentieth Century Investors and Dell Computer Corporation
M.B.A.--University of Texas--Boston University
SMALL CAP GROWTH
WILLIAM H. CHENOWETH, PARTNER, CFA
Portfolio Manager
Joined firm in 1998; 12 years prior investment experience with Turner Investment
Partners, Inc., and Jefferson-Pilot Corporation
M.B.A. and B.B.A.--Emory University
MID CAP GROWTH AND LARGE CAP GROWTH
ANDREW B. GALLAGHER, PARTNER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with Pacific
Century Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE, PARTNER
Senior Portfolio Manager--U.S. Systematic
Joined firm in 1994; 25 years prior investment management/economics experience
with ARCO Investment Management Company and General Electric Company
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
VALUE
LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
VALUE
PAUL E. CLUSKEY
Investment Analyst
Joined firm in 1998; 4 years prior investment experience at SEI Investments and
Piper Jaffray, Inc.
B.S.--New York University
SMALL CAP GROWTH
AARON HARRIS
Portfolio Manager
Joined firm in 1995; 1 year prior investment management experience at Chemical
Bank
B.A.--Princeton University
SMALL CAP GROWTH
JOHN C. MCCRAW
Portfolio Manager
Joined firm in 1992; prior investment management experience with Nations Bank
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH
EMMY SOBIESKI, CFA
Portfolio Manager
Joined firm in 1998; 4 years prior investment experience with Farmers Insurance
Investment Division and EEN Business Network
M.B.A.--University of Southern California; B.A.--University of San Diego
MID CAP GROWTH AND LARGE CAP GROWTH
<PAGE>
24
ORGANIZATION AND MANAGEMENT
MARK STUCKELMAN
Portfolio Manager, U.S. Systematic
Joined firm in 1995; 5 years experience with Wells Fargo Bank Investment
Management Group; Fidelity Management Trust Co.; and BARRA
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkeley
VALUE
THOMAS J. SULLIVAN
Portfolio Manager
Joined firm in 1994; 2 years prior investment experience with Donaldson, Lufkin
& Jenrette Securities Corp.
B.S.--Rochester Institute of Technology
MID CAP GROWTH AND LARGE CAP GROWTH
FIXED INCOME
FRED S. ROBERTSON, III, PARTNER
Chief Investment Officer--Fixed Income
Joined firm in 1995; 22 years prior investment management experience with
Criterion Investment Management Company and DuPont Chemical Pension Fund
M.B.A.--College of William and Mary; B.S.--Cornell University
HIGH QUALITY BOND
JAMES E. KELLERMAN, PARTNER
Portfolio Manager
Joined firm in 1995; 20 years prior investment management experience with
Criterion Investment Management Company and Brown Brothers Harriman and
Equitable Life Insurance Co.
M.B.A.--St. John's University; B.B.A.--Susquehanna University
HIGH QUALITY BOND
MALCOM S. DAY, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with Payden
& Rygel
M.B.A.--University of California, Los Angeles; B.S.-- Northern University
HIGH QUALITY BOND
<PAGE>
25
RISKS AND OTHER INFORMATION
INVESTMENT RISKS
In pursuing their investment strategy, the Funds' portfolio securities may be
subject to the following risks.
CALL RISKS. Is the possibility that an issuer may redeem a fixed income security
before maturity (a "call") at a price below it's current market price. An
increase in the likelihood of a call may reduce the security's price. If a fixed
income security is called, the Fund may have to reinvest the proceeds in other
fixed income securities with lower interest rates, higher credit risks, or other
less favorable characteristics.
CREDIT RISK is the possibility that an issuer will default (the issuer fails to
repay interest and principal when due). If an issuer defaults, the Fund will
lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating service's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. In the case of unrated securities, the Fund must rely entirely
upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of the security and
the yield of a U.S. Treasury security with a comparable maturity (the "spread")
measures the additional interest received for taking risk. Spreads may increase
generally in response to adverse economic or market conditions. A security's
spread may also increase if the security's rating is lowered, or the security is
perceived to have an increased credit risk. An increase in the spread will cause
the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or disrupt management of the Fund's portfolio.
CURRENCY RISKS. Exchange rates for currency fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in foreign
markets more volatile than securities traded exclusively in the U.S.
LIQUIDITY RISKS. Fixed income securities that have non investment grade credit
ratings, have not been rated or that are not widely held may trade less
frequently than more widely held securities. This limits trading opportunities,
making it more difficult to sell or buy the security at a favorable price or
time. In response, the Fund may have to lower the price, sell other securities,
or give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility. Liquidity risk [also] refers to the possibility that the Fund may
not be able to sell a security or close out a derivative contract when it wants
to. If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
MARKET RISK. Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest rates
rise, prices of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations. Duration measures the price sensitivity of a fixed income
security to changes in interest rates.
RISKS RELATED TO COMPANY SIZE. Generally, the smaller the market capitalization
of a company, the fewer the number of shares traded daily, the less liquid its
stock and the more volatile its price. Market capitalization is determined by
multiplying the number of outstanding shares by the current market price per
share.
In addition, investing in small capitalization companies entails greater risk
because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
larger, more established companies.
SECTOR RISKS. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a whole.
As the Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio will
go up and down. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
<PAGE>
26
RISKS AND OTHER INFORMATION
The Fund's Adviser attempts to manage market risk of investing in individual
securities by limiting the amount the Fund invests in each stock.
INTERNATIONAL INVESTING CONSIDERATIONS
FOREIGN SECURITIES. All of the Funds may invest in foreign securities, including
money market instruments and other fixed-income securities, stock and other
equity-related securities. For purposes of this limitation, the Funds do not
consider ADRs and other similar receipts or shares to be foreign securities.
CURRENCY FLUCTUATIONS. When a Fund invests in instruments issued by foreign
companies, the principal, income and sales proceeds may be paid to the Fund in
local foreign currencies. A reduction in the value of local currencies relative
to the U.S. dollar could mean a corresponding reduction in the value of a Funds'
investments. Also, a Fund may incur costs when converting from one currency to
another.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ significantly from the economy of
the United States as to, for example, the rate of growth of gross domestic
product, rate of inflation. Governments of many foreign countries continue to
exercise substantial control over private enterprise and own or control many
companies. Government actions could have a significant impact on economic
conditions in certain countries which could affect the value of the securities
of the Funds.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets. The unsettled
condition of several Asian financial markets has also affected emerging markets
in other countries and regions. These conditions could continue or deteriorate
further in the future.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In addition, securities settlements and clearance
procedures may be less developed and less reliable than those in the United
States. Delays in settlement could result in temporary periods in which the
assets of the Funds are not fully invested, or could result in a Fund being
unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are in many respects less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
<PAGE>
27
LOWER RATED SECURITIES CONSIDERATIONS. The Funds may invest in debt and
convertible securities rated below investment grade. These securities usually
offer higher yields than higher rated securities but are also subject to more
risk than higher rated securities.
RISKS AND OTHER INFORMATION
Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks than are more high-rated securites, which
react primarily to movements in interest rates. In the past, economic downturns
or increases in interest rates caused a higher incidence of default by issuers
of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.
THE FUNDS' INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements--that is
the purchase by the Fund of a security that seller has agreed to buy back,
usually within one to seven days. The seller's promise to repurchase the
security is fully collateralized by securities equal in value to 102% of the
purchase price, including accrued interest. If the seller defaults and the
collateral value declines, the Fund might incur a loss. If the seller declares
bankruptcy, the Fund may not be able to sell the collateral at the desired time.
The Funds enter into these agreements only with brokers, dealers, or banks that
meet credit quality standards established by the Board of Trustees.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has been
borrowed from a third party on the expectation that the market price will drop.
If the price of the security drops, the Fund will make a profit by purchasing
the security in the open market at a lower price than at which it sold the
security. If the price of the security rises, the Fund may have to cover its
short position at a higher price than the short sale price, resulting in a loss.
A short sale can be covered or uncovered. In a covered short sale, the Fund
either (1) borrows and sells securities it already owns (also known as a short
sale "against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
TEMPORARY INVESTMENTS. Each Fund may, from time to time, invest all of its
assets in short-term instruments to maintain liquidity or when the Investment
Adviser determines that market conditions call for a temporary defensive
posture. At such times a Fund would not be seeking its primary investment goal.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to 30% of a Fund's total assets to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
HEDGING TRANSACTIONS
Each of the Funds may trade in derivative contracts to hedge portfolio holdings.
Hedging activities are intended to reduce various kinds of risks. For example,
in order to protect against certain events that might cause the value of its
portfolio securities to decline, the Fund can buy or sell a derivative contract
(or a combination of derivative contracts) intended to rise in value under the
same circumstances. Hedging activities will not eliminate risk, even if they
work as they are intended to. In addition, these strategies are not always
successful, and could result in increased expenses and losses to the Fund. The
Fund may trade in the following types of derivative contracts.
<PAGE>
28
RISKS AND OTHER INFORMATION
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts." Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts. The Fund can buy or sell futures contracts on portfolio securities or
indexes and engage in foreign currency forward contracts.
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period of time. A call
option gives the holder (buyer) the right to purchase the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the option
receives a payment, or "premium," from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the portfolio manager to predict market
conditions based upon certain economic analysis and factors. There is a risk
that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
manager could be incorrect in its expectations about the direction or extent of
market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
THE YEAR 2000
Information technology is critical to the Funds' operations. Many existing
information technology products and systems containing embedded processor
technology were originally programmed to represent any date by using six digits
(e.g., 12/31/99), as opposed to eight digits (e.g., 12/31/1999). Accordingly
such products and systems may experience malfunctions, miscalculations or
disruptions when attempting to process information containing dates that fall
after December 31, 1999 or when attempting to recognize the year 2000 as a leap
year. These potential problems are collectively referred to as the "Y2K"
problem.
There is a risk that outside service agents, such as transfer agents, portfolio
accountants, stock brokers, and custodians who perform certain mission critical
processing may not have remedied all of their Y2K problems. Additionally, a
portion of the Funds' business involves international investments, thereby
exposing the Funds to operations, custody and settlement processes outside the
United States where Y2K risks may not be readily understood. Accordingly, if not
addressed, Y2K issues could result in the Funds' inability to perform its
mission critical functions, including trading and settling tades of portfolio
securities and processing shareholder transactions.
The Investment Adviser has established an enterprise-wide project to address the
issue. This includes testing, assessing, and remedying its own internal systems
as well as monitoring the progress of outside service providers, international
custodians and foreign brokers in addressing Y2K issues. Despite these
precautions, no guarantee can be made that Y2K-related disruptions will not
occur.
EURO
On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Funds will treat the
euro as a separate currency from that of any participating state.
The conversion may adversely affect a Fund if the euro does not take effect as
planned; if a participating state withdraws from the European Monetary Union; or
if the computing, accounting and trading systems used by the Funds' service
providers, or by entities with which the Fund or its service providers do
business, are not capable of recognizing the euro as a distinct currency at the
time of, and following, euro conversion. In addition, the conversion could cause
markets to become more volatile.
The overall effect of the transition of member states' currencies to the euro is
not known at this time. It is
<PAGE>
29
likely that more general short- and long-term ramifications can be expected,
such as changes in the economic environment and change in the behavior of
investors, which would affect a Fund's investments and its net asset value. In
addition, although U.S. Treasury regulations generally provide that the euro
conversion will not, in itself, cause a U.S. taxpayer to realize gain or loss,
other changes that may occur at the time of the conversion, such as accrual
periods, holiday conventions, indices, and other features may require the
realization of a gain or loss by a Fund as determined under existing tax law.
The Investment Adviser has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Trust and its service providers to
process transactions accurately and completely with minimal disruption to
business activities; and (2) obtain reasonable assurances that appropriate steps
have been taken by the Fund's other service providers to address the conversion.
The Trust has not borne any expense relating to these actions.
BOND QUALITY
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
<PAGE>
30
RISKS AND OTHER INFORMATION
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B-
Rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
<PAGE>
31
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following table sets forth historical performance information for shares
of the Mid Cap Growth Fund. It includes historical performance information for
the Institutional Portfolio which preceded the Fund prior to the reorganization
of the Trust in March 1998 and for the following investment partnerships which
preceded such Institutional Portfolio. The Mid Cap Growth Fund includes
performance information for Whitehall Partners, a California limited partnership
the assets of which were transferred to the predecessor of the Mid Cap Growth
Fund in April 1993.
All information set forth in the table relies on data supplied by the
Investment Adviser or from statistical services, reports or other sources
believed by the Investment Adviser to be reliable. However, such information has
not been verified and is unaudited. See "Performance Information" in the
Statement of Additional Information for information about calculation of total
return.
The Investment Adviser has advised the Trust that the Whitehall partnership
was operated with materially equivalent investment objectives, policies,
strategies and restrictions, as such Institutional Portfolio, and its assets
were transferred to such Portfolio prior to the effective date of the
Portfolio's registration statement. It has indicated that such results for the
prior partnership has been adjusted to reflect the deduction of the fees and
expenses of the Portfolios (including Rule 12b-1 fees) and, for the period
preceding the reorganization of the Trust, the proportionate shares of the
operating expenses of the corresponding master fund of the Master Trust
(including advisory fees), and give effect to transaction costs (such as sales
loads) as well as reinvestment of income and gains. However, the prior
investment partnership was not registered under the 1940 Act and was not subject
to certain investment restrictions imposed by such Act; if it had been so
registered, its performance might have been adversely affected.
The results presented on the following page may not necessarily equate with
the return experienced by any particular shareholder or partner as a result of
the timing of investments and redemptions. In addition, the effect of taxes on
any shareholder, partner or trust beneficiary will depend on such person's tax
status, and the results have not been reduced to reflect any income tax which
may have been payable.
<PAGE>
32
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
<TABLE>
<CAPTION>
MID CAP GROWTH
PERFORMANCE
RUSSELL
MID CAP MID CAP
GROWTH GROWTH
YEAR FUND INDEX(1)
<S> <C> <C>
1985(2) 24.74% n/a
1986 32.85 17.55%
1987 3.59 2.76
1988 12.67 12.92
1989 33.92 31.48
1990 0.73 (5.13)
1991 55.52 47.02
1992 13.55 8.71
1993 19.77 (11.19)
1994 (10.52) (2.17)
1995 38.67 33.99
1996 16.46 17.48
1997 16.66 22.58
1998 14.33 17.86
Last year(3) 14.33 17.86
Last 5 years(3) 13.69 17.34
Last 10 years(3) 18.32 17.30
Since inception(3) 19.26 15.79
</TABLE>
1 The Russell Midcap Growth Index measures the performance of those companies
among the 800 smallest companies in the Russell 1000 Index with higher than
average price-to-book ratios and forecasted growth. The Russell 1000 Index
contains the top 1,000 securities of the Russell 3000 Index, which
comprises the 3,000 largest U.S. securities as determined by total market
capitalization. The Russell Midcap Growth Index is considered generally
representative of the U.S. market for midcap stocks. The average market
capitalization is approximately $4 billion, the median market
capitalization is approximately $2.5 billion, and the largest company in
the Index had an approximate market capitalization of $8.7 billion. This
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing. The Index was not available until 1986.
2 Inception dates are as follows: (The Class I shares of the Mid Cap Growth
Fund)--September 30, 1985 (registration statement effective June 30, 1994).
3 Through December 31, 1998.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
QUALIFIED CLASS SHARES
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8043.
N I C H O L A S-A P P L E G A T E-REGISTERED TRADEMARK-
MAIL TO:
Nicholas-Applegate Institutional Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551-8043
1. YOUR ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
PLEASE PRINT. COMPLETE ONE SECTION ONLY. Joint account owners will be registered
joint tenants with the right of survivorship unless otherwise indicated. It is
the shareholder(s) responsibility to specify ownership designations which comply
with applicable state law.
<TABLE>
<S> <C> <C> <C> <C>
/ / INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
First Name Middle Initial Last Name Social Security Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Tenant (IF ANY) Middle Initial Last Name Social Security Number
/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Custodian's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Minor's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ - _ _ - _ _ _ _
_ _ - _ _ - _ _
Minor's State of Residence Minor's Date of Birth Minor's Social Security
Number
</TABLE>
<TABLE>
<S> <C> <C>
/ / TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY (CORPORATE RESOLUTION REQUIRED)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Trust, Corporation or Other Entity
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Trustee Name(s) or Type of Entity Date of Trust Agreement
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _
Name of Beneficiary (OPTIONAL) Taxpayer Identification Number
</TABLE>
2. YOUR ADDRESS
- --------------------------------------------------------------------------------
Do you have any other identically registered Nicholas-Applegate accounts?
/ / Yes / / No
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Street Address or PO Box Number Apartment Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
City State Zip
_ _ _ - _ _ _ - _ _ _ _
Area Code Home Phone
_ _ _ - _ _ _ - _ _ _ _
Area Code Business Phone
CITIZENSHIP:/ / U.S.
/ / Resident Alien
/ / Non-resident Alien
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Specify Country (if not U.S.)
3. YOUR INVESTMENT
- --------------------------------------------------------------------------------
Please select your fund. See prospectus for investment minimums.
<TABLE>
<CAPTION>
CLASS AMOUNT
<S> <C> <C>
- ---------------------------------------------------------
Emerging Countries Q(576) / / $
- ---------------------------------------------------------
International Core Growth Q(676) / / $
- ---------------------------------------------------------
Small Cap Growth Q(375) / / $
- ---------------------------------------------------------
Mid Cap Growth Q(171) / / $
- ---------------------------------------------------------
Large Cap Growth Q(969) / / $
- ---------------------------------------------------------
Value q(997) / / $
- ---------------------------------------------------------
High Quality Bond q(175) / / $
- ---------------------------------------------------------
TOTAL $
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
4. YOUR METHOD OF PAYMENT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
/ / BY CHECK: Payable to NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS
(Third party checks will NOT be / / BY EXCHANGE: Fund name from which
accepted.) you are exchanging _ _ _ _ _ _ _ _ _ _ _ _ _
/ / BY WIRE: Please call 1-800-551-8043 for your
account number / / BY CONFIRM TRADE ORDER: Trade Order # _ _ _ _ _ _ _ _ _ _ _ _ _
</TABLE>
<PAGE>
5. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS
- --------------------------------------------------------------------------------
Distributions will automatically be reinvested in additional shares of your
Fund(s) unless you check the box(es) below.
DIVIDENDS (CHECK ONE) / / Reinvest / / Cash CAPITAL GAINS (CHECK
ONE) / / Reinvest / / Cash
/ / CROSS FUND REINVESTMENT+ (OPTIONAL)--Reinvest all dividends and capital
gains into an existing account in another Nicholas-Applegate Fund.
<TABLE>
<S> <C> <C> <C>
From _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Fund Name Fund Name
</TABLE>
+MUST BE SAME ACCOUNT TYPE AND CLASS OF SHARES. MUST BE A $5,000 MINIMUM ACCOUNT
VALUE FOR THIS SERVICE.
SERVICE OPTIONS
- --------------------------------------------------------------------------------
6. TELEPHONE REDEMPTIONS AND EXCHANGES
- --------------------------------------------------------------------------------
This allows you to use the telephone to redeem or exchange shares, unless you
check the box below. Redemptions will be made payable to the registered owner(s)
and mailed to the address of record. Maximum redemption by telephone is $50,000.
/ / I do not want telephone redemption privilege. / / I do not want telephone
exchange privilege.
7. SYSTEMATIC INVESTMENT--TO MY MUTUAL FUND ACCOUNT VIA ACH
- --------------------------------------------------------------------------------
/ / Check this box to invest on a regular basis from your bank account. Please
complete "Checking Account Information" (SECTION 10).
<TABLE>
<S> <C> <C> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
8. SYSTEMATIC EXCHANGES--FROM ONE NICHOLAS-APPLEGATE MUTUAL FUND ACCOUNT TO
ANOTHER
- --------------------------------------------------------------------------------
/ / Check this box to exchange on a regular basis from one Nicholas-Applegate
account to another (must be same share class and registration).
<TABLE>
<S> <C> <C> <C> <C> <C>
FROM:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
TO:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
<PAGE>
9. SYSTEMATIC WITHDRAWAL--FROM MY MUTUAL FUND ACCOUNT VIA ACH OR CHECK
- --------------------------------------------------------------------------------
/ / Check this box to withdraw on a regular basis from my mutual fund account.
Please complete "Checking Account Information" below (SECTION 10):
<TABLE>
<S> <C> <C> <C> <C> <C>
BY ACH TO MY BANK ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
BY CHECK (DO NOT NEED TO COMPLETE
SECTION 10)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
1 5
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
</TABLE>
SEND PROCEEDS TO:
/ / Address of record
/ / Special Payee (LIST BELOW)
<TABLE>
<S> <C> <C> <C> <C>
INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
First Name Middle Initial Last Name
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
10. CHECKING ACCOUNT INFORMATION--FOR ACH OR REDEMPTIONS BY WIRE
- --------------------------------------------------------------------------------
Must be completed for Sections 7 and 9. PLEASE ATTACH A VOIDED CHECK OR DEPOSIT
SLIP.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Institution
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Bank ABA Routing Number Bank Account Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Any joint owner of your bank account who is NOT a joint owner of your fund
account(s) must sign above.
11. DUPLICATE STATEMENTS
- --------------------------------------------------------------------------------
/ / I wish to have a duplicate statement sent to the interested party listed
below.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Interested Party
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
(SEE REVERSE)
<PAGE>
12. DEALER INFORMATION
- --------------------------------------------------------------------------------
HOME OFFICE INFORMATION (TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _
Dealer Name and Number (IF
KNOWN) Area Code Phone
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Home Office Address City State Zip
</TABLE>
BRANCH OFFICE INFORMATION
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _
Branch Office Number Area Code Phone
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Branch Office Address City State Zip
</TABLE>
REPRESENTATIVE INFORMATION
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Representative's Name Representative's Number
</TABLE>
13. SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
/ / I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand
that the prospectus terms are incorporated into this New Account Form by
reference.
/ / I authorize Nicholas-Applegate Institutional Funds, their affiliates and
agents to act on any instructions believed to be genuine for any service
authorized on this form. I agree they will not be liable for any resulting
loss or expense.
/ / I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
/ / I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
/ / I understand that mutual funds involve risks, including possible loss of
principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form,
Nicholas-Applegate Institutional Funds may reject or redeem my investment. I
may also be subject to any applicable IRS Backup Withholding for all
distributions and redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Trust, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Shareowner, Custodian, Trustee or Authorized Officer Date
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Owner, Custodian, Trustee or Authorized Officer Date
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
Nicholas-Applegate Institutional Funds
SEC file number: 811-7384
More information on these Funds is available
free upon request, including the following:
ANNUAL/SEMIANNUAL REPORT
Describes the Funds' performance, lists portfolio
holdings and contains a letter from the Funds'
Investment Adviser discussing recent market
conditions, and investment strategies that
significantly affected the Funds' performance
during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
Provides more details about the Funds and their
policies. A current SAI is on file with the
Securities and Exchange Commission (SEC) and
is incorporated by reference (is legally considered
part of this prospectus).
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-551-8643
BY MAIL Write to:
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, CA 92101
BY E-MAIL Send your request to nacm.com
ON THE INTERNET Text versions of the Fund
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
NACM
http://www.nacm.com
You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC
(phone 1-800-SEC-0330) or sending your request
and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
600 West Broadway
San Diego, California 92101
800-551-8045
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
ITPRO399
<PAGE>
NICHOLAS-APPLEGATE INSTITUTIONAL AND QUALIFIED SHARES-Registered Trademark-
INSTITUTIONAL FUNDS
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8043
STATEMENT OF ADDITIONAL INFORMATION
------------ , 1999
<TABLE>
<S> <C> <C>
Global Blue Chip Fund International Core Growth Fund Worldwide Growth Fund
Global Growth & Income Fund Emerging Countries Fund Global Technology Fund
Convertible Fund Pacific Rim Fund Greater China Fund
Latin America Fund Large Cap Growth Fund Mid Cap Growth Fund
Mini Cap Growth Fund Value Fund Small Cap Growth Fund
High Yield Bond Fund High Quality Bond Fund
Short Intermediate Fund
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the Funds' prospectuses dated -----, 1999. This SAI
incorporates by reference the Funds' Annual Report. Obtain the prospectus or
the Annual Report without charge by calling 800-551-8043.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Securities Descriptions and Techniques . . . . . . . . . . . . . . . . B-4
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . B-22
Trustees and Principal Officers . . . . . . . . . . . . . . . . . . . . B-24
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . B-32
Purchase and Redemption of Fund Shares . . . . . . . . . . . . . . . . B-34
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-36
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . B-37
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . B-41
Custodian, Transfer and Dividend Disbursing Agent and,
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . B-51
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-51
Appendix A - Description of Securities Ratings . . . . . . . . . . . . A-54
</TABLE>
B-2
<PAGE>
ORGANIZATION
Nicholas-Applegate Institutional Funds (the "Trust") is an open-end
management investment company currently offering a number of separate
portfolios (each a "Fund" and collectively the "Funds"). This Statement of
Additional Information contains information regarding the Institutional and
Qualified shares of these Funds. The Trust was organized in December 1992 as
a business trust under the laws of Delaware.
Prior to July 24, 1998, the Nicholas-Applegate mutual fund complex was
organized in a "master-feeder" investment structure. Under that structure,
the Nicholas-Applegate Mutual Funds invested all of their assets in
corresponding portfolios, or series, of the Nicholas-Applegate Institutional
Funds. On July 24, 1998, the shareholders of the Nicholas-Applegate Mutual
Funds approved a plan that reorganized the "master-feeder" arrangement into
multi-class structure in which the Nicholas-Applegate Mutual Funds invested
in securities directly and offered various classes of shares through multiple
distribution channels. At the same time the Trust was liquidated.
In 1999, the Trust was reactivated to be the successor entity to the
assets a of the "Institutional" series and the I class of shares of the
Nicholas-Applegate Mutual Funds. On March 31, 1999, substantially all of
those "Institutional" assets transferred to the Trust. The investment
objectives, policies and limitations of the portfolios of the Trust are
identical in every respect to the corresponding portfolios of the
Nicholas-Applegate Mutual funds. The investment management fees and expense
limitations are also identical. Since both the Trust and the
Nicholas-Applegate Mutual Funds are organized as Delaware business trusts
under substantially similar trust instruments, shareholder rights in the two
funds are substantially identical. Both funds are authorized to issue an
unlimited number of shares.
B-3
<PAGE>
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES:
The following describes the types of equity securities in which the
Funds invest.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock.
WARRANTS give the Funds the option to buy the issuer's stock or other
equity securities at a specified price. The Funds may buy the designated
shares by paying the exercise price before the warrant expires. Warrants may
become worthless if the price of the stock does not rise above the exercise
price by the expiration date. Rights are the same as warrants, except they
are typically issued to existing stockholders.
CONVERTIBLE SECURITIES are fixed income securities that a Fund has the
option to exchange for equity securities at a specified conversion price. The
option allows the Fund to realize additional returns if the market price of
the equity securities exceeds the conversion price.
Convertible securities have lower yields than comparable fixed income
securities to compensate for the value of the conversion option. In addition,
the conversion price exceeds the market value of the underlying equity
securities at the time a convertible security is issued. Thus, convertible
securities may provide lower returns than non-convertible fixed income
securities or
B-4
<PAGE>
equity securities depending upon changes in the price of the underlying
equity securities. However, convertible securities permit a Fund to realize
some of the potential appreciation of the underlying equity securities with
less risk of losing its initial investment.
The Funds treat convertible securities as equity securities for purposes of
its investment policies and limitations, because of their unique
characteristics.
FIXED INCOME SECURITIES
The following describes the types of fixed income securities in which
the Funds invest.
CORPORATE DEBT SECURITIES are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt security. The Credit Risks of corporate
debt securities vary widely among issuers.
ZERO COUPON SECURITIES do not pay interest or principal until final
maturity. Most debt securities provide periodic payments of interest
(referred to as a "coupon payment"). In contrast, investors buy zero coupon
securities at a price below the amount payable at maturity. The difference
between the price and the amount paid at maturity represents interest on the
zero coupon security. This increases the market and credit risk of a zero
coupon security, because an investor must wait until maturity before
realizing any return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or
"capital appreciation" bonds. Others are created by separating the right to
receive coupon payments from the principal due at maturity, a process known
as "coupon stripping." Treasury STRIPs, IOs and POs are the most common forms
of "stripped" zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are
referred to as "pay-in-kind" or "PIK" securities.
COMMERCIAL PAPER is an issuer's draft or note with a maturity of less
than nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the market and credit
risk as compared to other debt securities of the same issuer.
BANK INSTRUMENTS are unsecured interest bearing deposits with banks.
Bank instruments include bank accounts, time deposits, certificates of
deposit and banker's acceptances. Instruments denominated in U.S.
dollars and issued by Non-U.S. branches of U.S. or foreign banks are
commonly referred to as Eurodollar instruments. Instruments denominated
in U.S. dollars and issued by U.S. branches of foreign banks are referred to
as Yankee instruments.
DEMAND INSTRUMENTS are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such as a
dealer or bank, to repurchase the security for its face value upon demand.
The Funds treats demand instruments as short-term
B-5
<PAGE>
securities, even though their stated maturity may extend beyond one year.
Insurance contracts include guaranteed investment contracts, funding
agreements and annuities.
GOVERNMENT OBLIGATIONS Each Fund may make short-term investments in U.S.
Government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association ("GNMA"), Export-Import Bank of
the United States, Tennessee Valley Authority, Resolution Funding
Corporation, Farmers Home Administration, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Farm Credit Banks, Federal Land Banks,
Federal Housing Administration, Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. No assurance can be given that the U.S. Government
would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
PARTICIPATION INTERESTS. Each Fund may invest in participation
interests, subject to the limitation on investments by the Funds in illiquid
investments. Participation interests represent an undivided interest in or
assignment of a loan made by an issuing financial institution. Participation
interests are primarily dependent upon the financial strength of the
borrowing corporation, which is obligated to make payments of principal and
interest on the loan, and there is a risk that such borrowers may have
difficulty making payments. In the event the borrower fails to pay scheduled
interest or principal payments, a Fund could experience a reduction in its
income and might experience a decline in the net asset value of its shares.
In the event of a failure by the financial institution to perform its
obligation in connection with the participation, a Fund might incur certain
costs and delays in realizing payment or may suffer a loss of principal
and/or interest. The Investment Adviser has set certain creditworthiness
standards for issuers of loan participations and monitors their
creditworthiness.
VARIABLE AND FLOATING RATE INSTRUMENTS Each Fund may acquire variable
and floating rate instruments. Credit rating agencies frequently do not rate
such instruments; however, the Investment Adviser under guidelines
established by the Trust's Board of Trustees will determine what unrated and
variable and floating rate instruments are of comparable quality at the time
of the purchase to rated instruments eligible for purchase by the Fund. In
making such determinations, the Investment Adviser considers the earning
power, cash flow and other liquidity ratios of the issuers of such
instruments (such issuers include financial, merchandising, bank holding and
other companies) and will monitor their financial condition. An active
secondary market may not exist with respect to particular variable or
floating rate instruments purchased by a Fund. The absence of such an active
secondary market could make it difficult for the Fund to dispose of the
variable or floating rate instrument involved in the event of the issuer of
the instrument defaulting on its payment obligation or during periods in
which the Fund is not entitled to exercise its demand rights, and the Fund
could, for these or other reasons, suffer a loss to the extent of the
default. Variable and floating rate instruments may be secured by bank
letters of credit.
FOREIGN SECURITIES
Foreign securities are securiites of issuers based outside the U.S. They
are primarily denominated in foreign currencies and traded outside of the
U.S. In addition to the risks normally
B-6
<PAGE>
associated with equity and fixed income securities, foreign securities are
subject to Country Risk and Currency Risk. Trading in certain foreign markets
is also subject to Liquidity Risks.
The following describes the types of foreign securities in which the
Funds invest.
FOREIGN EXCHANGE CONTRACTS. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, a Fund may
enter into "spot" currency trades. A Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.
FOREIGN GOVERNMENT SECURITIES generally consist of fixed income
securities supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, such as international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
DEPOSITORY RECEIPTS. Each of the Funds may invest in American Depository
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuers. ADRs, in registered form, are designed for use in U.S. securities
markets. Such depository receipts may be sponsored by the foreign issuer or
may be unsponsored. The Funds may also invest in European and Global
Depository Receipts ("EDRs" and "GDRs"), which, in bearer form, are designed
for use in European securities markets, and in other instruments representing
securities of foreign companies. Such depository receipts may be sponsored by
the foreign issuer or may be unsponsored. Unsponsored depository receipts are
organized independently and without the cooperation of the foreign issuer of
the underlying securities; as a result, available information regarding the
issuer may not be as current as for sponsored depository receipts, and the
prices of unsponsored depository receipts may be more volatile than if they
were sponsored by the issuer of the underlying securities. ADRs may be listed
on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in United States dollars; the underlying
security may be denominated in a foreign currency, although the underlying
security may be subject to foreign government taxes which would reduce the
yield on such securities.
EURODOLLAR CONVERTIBLE SECURITIES are fixed-income securities of a U.S.
issuer or a foreign issuer that are issued outside the United States and are
convertible into equity securities of the same or a different issuer.
Interest and dividends on Eurodollar securities are payable in U.S.
B-7
<PAGE>
dollars outside of the United States. Each Fund may invest without
limitation in Eurodollar convertible securities that are convertible into
foreign equity securities listed, or represented by ADRs listed, on the New
York Stock Exchange or the American Stock Exchange or convertible into
publicly traded common stock of U.S. companies.
EURODOLLAR AND YANKEE DOLLAR. Eurodollar instruments are bonds that pay
interest and principal in U.S. dollars held in banks outside the United
States, primarily in Europe. Eurodollar instruments are usually issued on
behalf of multinational companies and foreign governments by large
underwriting groups composed of banks and issuing houses from many countries.
Yankee Dollar instruments are U.S. dollar denominated bonds issued in the
U.S. by foreign banks and corporations.
DERIVATIVES
The Funds may trade in the following types of derivative contracts.
INDEX AND CURRENCY-LINKED SECURITIES are debt securities of companies
that call for interest payments and/or payment at maturity in different terms
than the typical note where the borrower agrees to make fixed interest
payments and to pay a fixed sum at maturity. Principal and/or interest
payments on an index-linked note depend on the performance of one or more
market indices, such as the S&P 500 Index or a weighted index of commodity
futures such as crude oil, gasoline and natural gas. The Funds may also
invest in "equity linked" and "currency-linked" debt securities. At
maturity, the principal amount of an equity-linked debt security is exchanged
for common stock of the issuer or is payable in an amount based on the
issuer's common stock price at the time of maturity. Currency-linked debt
securities are short-term or intermediate term instruments having a value at
maturity, and/or an interest rate, determined by reference to one or more
foreign currencies. Payment of principal or periodic interest may be
calculated as a multiple of the movement of one currency against another
currency, or against an index.
Index and currency-linked securities are derivative instruments which
may entail substantial risks. Such instruments may be subject to significant
price volatility. The company issuing the instrument may fail to pay the
amount due on maturity. The underlying investment or security may not perform
as expected by the Investment Adviser. Markets, underlying securities and
indexes may move in a direction that was not anticipated by the Investment
Adviser. Performance of the derivatives may be influenced by interest rate
and other market changes in the U.S. and abroad. Certain derivative
instruments may be illiquid. See "Illiquid Securities" below.
MORTGAGE-RELATED SECURITIES are derivative interests in pools of
mortgage loans made to U.S. residential home buyers, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private
organizations.
U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In
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effect, these payments are a "pass-through" of the monthly payments made by
the individual borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs which
may be incurred. Some mortgage-related securities (such as securities issued
by the Government National Mortgage Association) are described as "modified
pass-throughs." These securities entitle the holder to receive all interest
and principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The principal governmental guarantor of U.S. mortgage-related securities
is the Government National Mortgage Association ("GNMA"). GNMA is a wholly
owned United States Government corporation within the Department of Housing
and Urban Development. GNMA is authorized to guarantee, with the full faith
and credit of the United States Government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA (such as
savings and loan institutions, commercial banks and mortgage bankers) and
backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.
Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders and subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional residential
mortgages not insured or guaranteed by any government agency from a list of
approved seller/services which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. FHLMC is a government-sponsored corporation
created to increase availability of mortgage credit for residential housing
and owned entirely by private stockholders. FHLMC issues participation
certificates which represent interests in conventional mortgages from FHLMC's
national portfolio. Pass-through securities issued by FNMA and participation
certificates issued by FHLMC are guaranteed as to timely payment of principal
and interest by FNMA and FHLMC, respectively, but are not backed by the full
faith and credit of the United States Government.
Although the underlying mortgage loans in a pool may have maturities of
up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment
rates vary widely and may be affected by changes in market interest rates. In
periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the pool certificates.
Conversely, when interest rates are rising, the rate of prepayments tends to
decrease, thereby lengthening the actual average life of the certificates.
Accordingly, it is not possible to predict accurately the average life of a
particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign CMO in
which a Fund may invest is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
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CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
and interest received from the pool of underlying mortgages, including
prepayments, is first returned to the class having the earliest maturity date
or highest maturity. Classes that have longer maturity dates and lower
seniority will receive principal only after the higher class has been retired.
SYNTHETIC CONVERTIBLE SECURITIES are derivative positions composed of
two or more different securities whose investment characteristics, taken
together, resemble those of convertible securities. For example, a Fund may
purchase a non-convertible debt security and a warrant or option, which
enables the Fund to have a convertible-like position with respect to a
company, group of companies or stock index. Synthetic convertible securities
are typically offered by financial institutions and investment banks in
private placement transactions. Upon conversion, the Fund generally receives
an amount in cash equal to the difference between the conversion price and
the then current value of the underlying security. Unlike a true convertible
security, a synthetic convertible comprises two or more separate securities,
each with its own market value. Therefore, the market value of a synthetic
convertible is the sum of the values of its fixed-income component and its
convertible component.For this reason, the values of a synthetic convertible
and a true convertible security may respond differently to market
fluctuations. A Fund only invests in synthetic convertibles with respect to
companies whose corporate debt securities are rated "A" or higher by Moody's
or "A" or higher by S&P.
OPTIONS AND FUTURES
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Funds may:
- - Buy call options on foreign currency in anticipation of an increase in the
value of the underlying asset.
- - Buy put options on foreign currency, portfolio securities, and futures in
anticipation of a decrease in the value of the underlying asset.
- - Write call options on portfolio securities and futures to generate income
from premiums, and in anticipation of a decrease or only limited increase
in the value of the underlying asset. If a call written by a Fund is
exercised, the Fund foregoes any possible profit from an increase in the
market price of the underlying asset over the exercise price plus the
premium received. When the Fund writes options on futures contracts, it
will be subject to margin requirements similar to those applied to futures
contracts.
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STOCK INDEX OPTIONS. Each Fund may also purchase put and call options with
respect to the S&P 500 and other stock indices. The Funds may purchase such
options as a hedge against changes in the values of portfolio securities or
securities which it intends to purchase or sell, or to reduce risks inherent in
the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain
risks not found in stock options generally. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index depends on the Investment Adviser's ability to predict correctly movements
in the direction of the stock market generally. This requires different skills
and techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if circumstances disrupt trading of certain
stocks included in the index, such as if trading were halted in a substantial
number of stocks included in the index. If this happens, the Fund could not be
able to close out options which it had purchased, and if restrictions on
exercise were imposed, the Fund might be unable to exercise an option it holds,
which could result in substantial losses to the Fund. The Funds purchase put or
call options only with respect to an index which the Investment Adviser believes
includes a sufficient number of stocks to minimize the likelihood of a trading
halt in the index.
FOREIGN CURRENCY OPTIONS. Each Fund may buy or sell put and call options on
foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Funds use foreign currency options
separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Funds to reduce foreign currency risk using such options.
As with other kinds of option transactions, writing options on foreign
currency constitutes only a partial hedge, up to the amount of the premium
received. The Funds could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
FORWARD CURRENCY CONTRACTS. Each Fund may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fix number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, a Fund might purchase a particular currency or enter into a forward
currency contract to
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preserve the U.S. dollar price of securities it intends to
or has contracted to purchase. Alternatively, it might sell a particular
currency on either a spot or forward basis to hedge against an anticipated
decline in the dollar value of securities it intends to or has contracted to
sell. Although this strategy could minimize the risk of loss due to a decline
in the value of the hedged currency, it could also limit any potential gain from
an increase in the value of the currency.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts." Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts.
The Funds may buy and sell interest rate or financial futures, futures on
indices, foreign currency exchange contracts, forward foreign currency exchange
contracts, foreign currency options, and foreign currency futures contracts.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. Each Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established
in the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial futures sale by a Fund obligates
the Fund, as seller, to deliver the specific type of financial instrument called
for in the contract at a specific future time for a specified price. A futures
contract purchased by a Fund obligates the Fund, as purchaser, to take delivery
of the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
Although interest rate or financial futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without delivery of securities. A Fund
closes out a futures contract sale by entering into a futures contract purchase
for the same aggregate amount of the specific type of financial instrument and
the same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Fund receives the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the Fund closes out a futures
contract purchase by entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on the
futures contracts they can purchase or sell, as described above. A futures
option gives the holder, in return for the premium paid, the right to buy
(call) from or sell (put) to the writer of the option a futures contract at a
specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder or writer of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. There is
no guarantee that such closing transactions can be effected.
Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract will not be
fully reflected in the value of the option. Depending on the pricing of the
option compared to either the futures contract upon which it is based, or
upon the price of the securities being hedged, an option may or may not be
less risky than ownership of the futures contract or such securities. In
general, the market prices of options are more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale
of futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS. There are several
risks related to the use of futures as a hedging device. One risk arises
because of the imperfect correlation
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between movements in the price of the options or futures contract and
movements in the price of the securities which are the subject of the hedge.
The price of the contract may move more or less than the price of the
securities being hedged. If the price of the contract moves less than the
price of the securities which are the subject of the hedge, the hedge will
not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, a Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, this advantage will be partially offset by
the loss on the contract. If the price of the future moves more than the
price of the hedged securities, the Fund will experience either a loss or a
gain on the contract which will not be completely offset by movements in the
price of the securities which are subject to the hedge.
When contracts are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest
in securities or options at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
contract that is not offset by a reduction in the price of securities
purchased.
Although the Funds intend to purchase or sell contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange
or board of trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures position, and
in the event of adverse price movements, the Funds would continue to be
required to make daily cash payments of variation margin.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Fund depends on the Investment Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Fund hedges against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the
increased value of the stocks which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it may be disadvantageous
to do so.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in
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futures contracts or options, the Fund could experience delays and losses in
liquidating open positions purchased or sold through the broker, and incur a
loss of all or part of its margin deposits with the broker.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. Except
as described below under "Non-Hedging Strategic Transactions," a Fund will
not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which
it intends to purchase and where the transactions are economically
appropriate to the reduction of risks inherent in the ongoing management of
the Fund. A Fund may not purchase or sell futures or purchase related options
if, immediately thereafter, more than 25% of its net assets would be hedged.
A Fund also may not purchase or sell futures or purchase related options if,
immediately thereafter, the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for such options would
exceed 5% of the market value of the Fund's net assets.
Upon the purchase of futures contracts, a Fund will deposit an amount of
cash or liquid debt or equity securities, equal to the market value of the
futures contracts, in a segregated account with the Custodian or in a margin
account with a broker to collateralize the position and thereby insure that
the use of such futures is unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and the Trustees of the Trust may change them if
applicable law permits such a change and the change is consistent with the
overall investment objective and policies of a Fund.
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INTEREST RATE AND CURRENCY SWAPS
For hedging purposes, each Fund may enter into interest rate and
currency swap transactions and purchase or sell interest rate and currency
caps and floors. An interest rate or currency swap involves an agreement
between a Fund and another party to exchange payments calculated as if they
were interest on a specified ("notional") principal amount (e.g., an exchange
of floating rate payments by one party for fixed rate payments by the other).
An interest rate cap or floor entitles the purchaser, in exchange for a
premium, to receive payments of interest on a notional principal amount from
the seller of the cap or floor, to the extent that a specified reference rate
exceeds or falls below a predetermined level.
CROSS-CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); an exchange of principal at the start of the
swap (the initial exchange) is optional. An initial exchange of notional
principal amounts at the spot exchange rate serves the same function as a
spot transaction in the foreign exchange market (for an immediate exchange of
foreign exchange risk). An exchange at maturity of notional principal amounts
at the spot exchange rate serves the same function as a forward transaction
in the foreign exchange market (for a future transfer of foreign exchange
risk). The currency swap market convention is to use the spot rate rather
than the forward rate for the exchange at maturity. The economic difference
is realized through the coupon exchanges over the life of the swap. In
contrast to single currency interest rate swaps, cross-currency swaps involve
both interest rate risk and foreign exchange risk.
SWAP OPTIONS. Each Fund may invest in swap options. A swap option is a
contract that gives a counterparty the right (but not the obligation) to
enter into a new swap agreement or to shorten, extend, cancel or otherwise
change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment
to enter into a swap that starts at some future date with specified rates. A
swap option may be structured European-style (exercisable on the
pre-specified date) or American-style (exercisable during a designated
period). The right pursuant to a swap option must be exercised by the right
holder. The buyer of the right to receive fixed pursuant to a swap option is
said to own a call.
SECURITIES SWAPS. Each Fund may enter into securities swaps, a technique
primarily used to indirectly participate in the securities market of a
country from which a Fund would otherwise be precluded for lack of an
established securities custody and safekeeping system. The Fund deposits an
amount of cash with its custodian (or the broker, if legally permitted) in an
amount equal to the selling price of the underlying security. Thereafter, the
Fund pays or receives cash from the broker equal to the change in the value
of the underlying security.
INTEREST RATE SWAPS. As indicated above, an interest rate swap is a
contract between two entities ("counterparties") to exchange interest
payments (of the same currency) between the parties. In the most common
interest rate swap structure, one counterparty agrees to make floating rate
payments to the other counterparty, which in turn makes fixed rate payments
to the first counterparty. Interest payments are determined by applying the
respective interest rates to an agreed upon amount, referred to as the
"notional principal amount." In most such transactions, the
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floating rate payments are tied to the London Interbank Offered Rate, which
is the offered rate for short-term Eurodollar deposits between major
international banks. As there is no exchange of principal amounts, an
interest rate swap is not an investment or a borrowing.
RISKS ASSOCIATED WITH SWAPS. The risks associated with interest rate and
currency swaps and interest rate caps and floors are similar to those
described above with respect to dealer options. In connection with such
transactions, a Fund relies on the other party to the transaction to perform
its obligations pursuant to the underlying agreement. If there were a default
by the other party to the transaction, the Fund would have contractual
remedies pursuant to the agreement, but could incur delays in obtaining the
expected benefit of the transaction or loss of such benefit. In the event of
insolvency of the other party, the Fund might be unable to obtain its
expected benefit. In addition, while each Fund will seek to enter into such
transactions only with parties which are capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be
able to close out such a transaction with the other party, or obtain an
offsetting position with any other party, at any time prior to the end of the
term of the underlying agreement. This may impair a Fund's ability to enter
into other transactions at a time when doing so might be advantageous.
A Fund usually enters into such transactions on a "net" basis, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payment streams. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each swap is accrued on a
daily basis, and an amount of cash or high-quality liquid securities having
an aggregate net asset value at least equal to the accrued excess is
maintained in a segregated account by the Trust's custodian. If a Fund enters
into a swap on other than a net basis, or sells caps or floors, the Fund
maintains a segregated account in the full amount accrued on a daily basis of
the Fund's obligations with respect to the transaction. Such segregated
accounts are maintained in accordance with applicable regulations of the
Commission.
A Fund will not enter into any of these transactions unless the
unsecured senior debt or the claims paying ability of the other party to the
transaction is rated at least "high quality" at the time of purchase by at
least one of the established rating agencies (e.g., AAA or AA by S&P).
SPECIAL TRANSACTIONS
TEMPORARY INVESTMENTS. The Funds may temporarily depart from their
principal investment strategies by investing its assets in cash, cash items,
and shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions
during adverse market conditions. This may cause the Fund to give up greater
investment returns to maintain the safety of principal, that is, the original
amount invested by shareholders.
REPURCHASE AGREEMENTS are transactions in which a Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually
agreed upon time and price. The repurchase price exceeds the sale price,
reflecting an agreed upon interest rate effective for the period the Fund
owns the security subject to repurchase. The agreed upon interest rate is
unrelated to the interest rate on the underlying security. The Funds will
only enter into repurchase agreements with
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banks and other recognized financial institutions, such as broker/dealers,
which are deemed by the Adviser to be creditworthy.
A Fund's custodian is required to take possession of the securities
subject to repurchase agreements. The Adviser or the custodian will monitor
the value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
WHEN ISSUED TRANSACTIONS are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may
invest its assets in securities of other investment companies, including the
securities of affiliated money market funds, as an efficient means of
carrying out its investment policies and managing its uninvested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of
other investment companies may be subject to such duplicate expenses.
"ROLL" TRANSACTIONS. Each Fund may enter into "roll" transactions, which
are the sale of GNMA certificates and other securities together with a
commitment to purchase similar, but not identical, securities at a later date
from the same party. During the roll period, a Fund forgoes principal and
interest paid on the securities. The Fund is compensated by the difference
between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the
initial sale. Like when-issued securities or firm commitment agreements, roll
transactions involve the risk that the market value of the securities sold by
the Fund may decline below the price at which the Fund is committed to
purchase similar securities. Additionally, in the event the buyer of
securities under a roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the transactions may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the
securities.
A Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for investment leverage. Nonetheless, roll transactions are
speculative techniques and are considered to be the economic equivalent of
borrowings by the Fund. To avoid leverage, the Fund will establish a
segregated account with its Custodian in which it will maintain liquid assets
in an amount sufficient to meet its payment obligations with respect to these
transactions. A Fund will not enter into roll transactions if, as a result,
more than 15% of the Fund's net assets would be segregated to cover such
contracts.
NON-HEDGING STRATEGIC TRANSACTIONS
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Each Fund's options, futures and swap transactions will generally be
entered into for hedging purposes -- to protect against possible changes in
the market values of securities held in or to be purchased for the Fund's
portfolio resulting from securities markets, currency or interest rate
fluctuations, to protect the Fund's unrealized gains in the values of its
portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchase or sale of particular securities. However,
in addition to the hedging transactions referred to above, the
Short-Intermediate, High Quality Bond, Global Blue Chip, Pacific Rim, Greater
China and Latin America Funds may enter into options, futures and swap
transactions to enhance potential gain in circumstances where hedging is not
involved. Each Fund's net loss exposure resulting from transactions entered
into for each purposes will not exceed 5% of the Fund's net assets at any one
time and, to the extent necessary, the Fund will close out transactions in
order to comply with this limitation. Such transactions are subject to the
limitations described above under "Options," "Futures Contracts," and
"Interest Rate and Currency Swaps."
REPURCHASE AGREEMENTS
Pursuant to such agreements, the Fund acquires securities from financial
institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Investment Adviser, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon date and price. The repurchase price generally equals the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the underlying portfolio
security). Securities subject to repurchase agreements will be held by the
Custodian or in the Federal Reserve/Treasury Book-Entry System or an
equivalent foreign system. The seller under a repurchase agreement will be
required to maintain the value of the underlying securities at not less than
102% of the repurchase price under the agreement. If the seller defaults on
its repurchase obligation, the Fund holding the repurchase agreement will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities is less than the repurchase price under the agreement. Bankruptcy
or insolvency of such a defaulting seller may cause the Fund's rights with
respect to such securities to be delayed or limited. Repurchase agreements
may be considered to be loans under the Investment Company Act.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements, which involve
the sale of a security by a Fund and its agreement to repurchase the security
(or, in the case of mortgage-backed securities, substantially similar but not
identical securities) at a specified time and price. A Fund will maintain in
a segregated account with the Custodian cash, U.S. Government securities or
other appropriate liquid securities in an amount sufficient to cover its
obligations under these agreements with broker-dealers (no such collateral is
required on such agreements with banks). Under the 1940 Act, these agreements
may be considered borrowings by the Funds, and are subject to the percentage
limitations on borrowings described below. The agreements are subject to the
same types of risks as borrowings.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
B-18
<PAGE>
Each Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will set aside cash
or liquid portfolio securities equal to the amount of the commitment in a
separate account. Normally, the Custodian will set aside portfolio securities
to satisfy a purchase commitment. In such a case, a Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that a Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
The Funds do not intend to engage in these transactions for speculative
purposes but only in furtherance of their investment objectives. Because a
Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described, the Fund's liquidity and the
ability of the Investment Adviser to manage it may be affected in the event
the Fund's forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 15% of the value of its net
assets.
When a Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund's incurring a loss
or missing an opportunity to obtain a price credited to be advantageous.
BORROWING
The use of borrowing by a Fund involves special risk considerations that
may not be associated with other funds having similar objectives and
policies. Since substantially all of a Fund's assets fluctuate in value,
whereas the interest obligation resulting from a borrowing remain fixed by
the terms of the Fund's agreement with its lender, the asset value per share
of the Fund tends to increase more when its portfolio securities increase in
value and to decrease more when its portfolio assets decrease in value than
would otherwise be the case if the Fund did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
The Trust entered into a Credit Agreement on behalf of its various
series, including the Funds, with several banks and The Chase Manhattan Bank,
as administrative agent for the lenders, to borrow up to $75,000,000 from
time to time to satisfy shareholder redemption requests without the necessity
of requiring the Funds to sell portfolio securities, at times when the
Investment Adviser believes such sales are not in the best interests of the
shareholders of the Funds or other series of the Trust, in order to provide
the Funds or such other series with cash to meet such redemption requests.
The Credit Agreement expires on April 7, 1999, unless renewed by the parties.
Under the Credit Agreement, each Fund may borrow, repay and reborrow
amounts (collectively, the "Revolving Credit Loans") in increments of $50,000,
provided the Revolving
B-19
<PAGE>
Credit Loans outstanding at any time aggregate at least $350,000 (the "Credit
Facility"). The Trust will pay a commitment fee at the rate of 0.10% per
annum of the average daily unused portion of the Credit Facility, and may at
any time terminate the Credit Agreement or reduce the lenders' commitment
thereunder in increments of $2,500,000.
While outstanding, the Revolving Credit Loans bear interest, fluctuating
daily and payable monthly, at either of the following rates or a combination
thereof, at the Trust's option: (i) at the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, plus 0.625% per annum; or (ii) the
prime rate of interest of The Chase Manhattan Bank. If, as a result of
changes in applicable laws, regulations or guidelines with respect to the
capital adequacy of any lender, the return on such lender's capital is
reduced, the Trust may be required to adjust the rate of interest to
compensate such lender for such reduction. Each Revolving Credit Loan is
payable in thirty days, and may be prepaid at any time in increments of
$100,000 without premium or penalty. No Fund is liable for repayment of a
Revolving Credit Loan to any other Fund.
The Credit Agreement contains, among other things, covenants that
require each Fund to maintain certain minimum ratios of debt to net worth;
limit the ability of the Trust to incur other indebtedness and create liens
on its assets or guarantee obligations of others; merge or consolidate with,
or sell its assets to, others; make material changes in its method of
conducting business; make distributions to shareholders in excess of the
requirements of Subchapter M of the Internal Revenue Code in the event of a
default under the Credit Agreement; or make changes in fundamental investment
policies. The Credit Agreement also contains other terms and conditions
customary in such agreements, including various events of default.
SHORT SALES
Certain Funds may make short sales of securities they own or have the
right to acquire at no added cost through conversion or exchange of other
securities they own (referred to as short sales "against the box") and short
sales of securities which they do not own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of
the security. To complete the sale, the Fund must borrow the security
generally from the broker through which the short sale is made) in order to
make delivery to the buyer. The Fund must replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is
said to have a "short position" in the securities sold until it delivers them
to the broker. The period during which the Fund has a short position can
range from one day to more than a year. Until the Fund replaces the security,
the proceeds of the short sale are retained by the broker, and the Fund must
pay to the broker a negotiated portion of any dividends or interest which
accrue during the period of the loan. To meet current margin requirements,
the Fund must deposit with the broker additional cash or securities so that
it maintains with the broker a total deposit equal to 150% of the current
market value of the securities sold short (100% of the current market value
if a security is held in the account that is convertible or exchangeable into
the security sold short within 90 days without restriction other than the
payment of money).
B-20
<PAGE>
Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of
the securities on the date of the short sale, the Fund's net asset value per
share tends to increase more when the securities it has sold short decrease
in value, and to decrease more when the securities it has sold short increase
in value, than would otherwise be the case if it had not engaged in such
short sales. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium, dividends or interest the Fund
may be required to pay in connection with the short sale. Short sales
theoretically involve unlimited loss potential, as the market price of
securities sold short may continually increase, although a Fund may mitigate
such losses by replacing the securities sold short before the market price
has increased significantly. Under adverse market conditions the Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations, and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
As a matter of policy, the Trust's Board of Trustees has determined that no
Fund will make short sales of securities or maintain a short position if to do
so could create liabilities or require collateral deposits and segregation of
assets aggregating more than 25% of the Fund's total assets, taken at market
value.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Limitations on resale
may have an adverse effect on the marketability of portfolio securities and
the Fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemption within seven days. The Fund might also have
to register such restricted securities in order to dispose of them, resulting
in additional expense and delay. Adverse market conditions could impede such
a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments. If such securities are subject to
purchase by institutional buyers in accordance with Rule 144A promulgated by
the Commission under the Securities Act, the Trust's Board of Trustees has
determined that such securities are not illiquid securities notwithstanding
their legal or contractual restrictions on resale. In all other cases,
however, securities subject to restrictions on resale will be deemed
illiquid. Investing in restricted securities eligible for resale under Rule
144A could have the effect of increasing the level of illiquidity in the
Funds to the extent that qualified institutional buyers become uninterested
in purchasing such securities.
B-21
<PAGE>
The Emerging Countries, Global Blue Chip, Pacific Rim, Greater China and
Latin America Funds may invest in foreign securities that are restricted
against transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than foreign securities of the same class
that are not subject to such restrictions. Unless these securities are
acquired directly from the issuer or its underwriter, the Fund treats foreign
securities whose principal market is abroad as not subject to the investment
limitation on securities subject to legal or contractual restrictions on
resale.
DIVERSIFICATION
Each Fund is "diversified" within the meaning of the Investment Company
Act. In order to qualify as diversified, a Fund must diversify its holdings
so that at all times at least 75% of the value of its total assets is
represented by cash and cash items (including receivables), securities issued
or guaranteed as to principal or interest by the United States or its
agencies or instrumentalities, securities of other investment companies, and
other securities (for this purpose other securities of any one issuer are
limited to an amount not greater than 5% of the value of the total assets of
the Fund and to not more than 10% of the outstanding voting securities of the
issuer).
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Funds, has adopted the following fundamental
policies that cannot be changed without the affirmative vote of a majority of
the outstanding shares of the appropriate Fund (as defined in the Investment
Company Act).
All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.
The investment objective of each Fund is a fundamental policy. In
addition, no Fund:
1. May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities of such
issuer, except that up to 25% of a Fund's total assets may be invested
without regard to this restriction and a Fund will be permitted to invest all
or a portion of its assets in another diversified, open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund. This restriction also does not apply to
investments by a Fund in securities of the U.S. Government or any of its
agencies and instrumentalities.
2. May purchase more than 10% of the outstanding voting securities, or
of any class of securities, of any one issuer, or purchase the securities of
any issuer for the purpose of exercising control or management, except that a
Fund will be permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund.
3. May invest 25% or more of the market value of its total assets in the
securities of issuers in any one particular industry, except that a Fund will be
permitted to invest all or a portion of its assets in another diversified,
open-end management investment company with substantially
B-22
<PAGE>
the same investment objective, policies and restrictions as the Fund. This
restriction does not apply to investments by a Fund in securities of the U.S.
Government or its agencies and instrumentalities.
4. May purchase or sell real estate. However, a Fund may invest in
securities secured by, or issued by companies that invest in, real estate or
interests in real estate.
5. May make loans of money, except that a Fund may purchase publicly
distributed debt instruments and certificates of deposit and enter into
repurchase agreements. Each Fund reserves the authority to make loans of its
portfolio securities in an aggregate amount not exceeding 30% of the value of
its total assets.
6. May borrow money on a secured or unsecured basis, provided that,
pursuant to the Investment Company Act, a Fund may borrow money if the
borrowing is made from a bank or banks and only to the extent that the value
of the Fund's total assets, less its liabilities other than borrowings, is
equal to at least 300% of all borrowings (including proposed borrowings).
7. May pledge or in any way transfer as security for indebtedness any
securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Funds from
engaging in options, futures and foreign currency transactions.
8. May underwrite securities of other issuers, except insofar as it may
be deemed an underwriter under the Securities Act in selling portfolio
securities.
9. May invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid.
10. May purchase securities on margin, except for initial and variation
margin on options and futures contracts, and except that a Fund may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of securities.
11. May engage in short sales (other than the Mid Cap Growth, Mini Cap
Growth, Small Cap Growth, Worldwide Growth, International Core Growth,
International Small Cap Growth, High Yield Bond, Global Blue Chip, Pacific
Rim, Greater China and Latin America Funds), except that a Fund may use such
short-term credits as are necessary for the clearance of transactions.
12. May invest in securities of other investment companies, except (a)
that a Fund will be permitted to invest all or a portion of its assets in
another diversified, open-end management investment company with the same
investment objective, policies and restrictions as the Fund; (b) in
compliance with the Investment Company Act, or (c) as part of a merger,
consolidation, acquisition or reorganization involving the Fund.
13. May issue senior securities, except that a Fund may borrow money as
permitted by restrictions 6 and 7 above. This restriction shall not prohibit
the Funds from engaging in short sales, options, futures and foreign currency
transactions.
14. May enter into transactions for the purpose of arbitrage, or invest
in commodities and
B-23
<PAGE>
commodities contracts, except that a Fund may invest in stock index, currency
and financial futures contracts and related options in accordance with any
rules of the Commodity Futures Trading Commission.
15. May purchase or write options on securities, except for hedging
purposes (except in the case of the Short-Intermediate, High Quality Bond,
Global Blue Chip, Pacific Rim, Greater China and Latin America Funds, which
may do so for non-hedging purposes) and then only if (i) aggregate premiums
on call options purchased by a Fund do not exceed 5% of its net assets, (ii)
aggregate premiums on put options purchased by a Fund do not exceed 5% of its
net assets, (iii) not more than 25% of a Fund's net assets would be hedged,
and (iv) not more than 25% of a Fund's net assets are used as cover for
options written by the Fund.
OPERATING RESTRICTIONS
As a matter of operating (not fundamental) policy adopted by the Board
of Trustees of the Trust, no Fund:
1. May invest in interests in oil, gas or other mineral exploration or
development programs or leases, or real estate limited partnerships, although
a Fund may invest in the securities of companies which invest in or sponsor
such programs.
2. May lend any securities from its portfolio unless the value of the
collateral received therefor is continuously maintained in an amount not less
than 100% of the value of the loaned securities by marking to market daily.
TRUSTEES AND PRINCIPAL OFFICERS
The names, addresses and ages of the Trustees and principal officers of
the Trust, including their positions and principal occupations during the
past five years, are shown below. Trustees whose names are followed by an
asterisk are "interested persons" of the Trust (as defined by the Investment
Company Act). Unless otherwise indicated, the address of each Trustee and
officer is 600 West Broadway, 30th Floor, San Diego, California 92101.
ARTHUR E. NICHOLAS (51), TRUSTEE AND PRESIDENT.* Managing Partner and
Chief Investment Officer, Nicholas-Applegate Capital Management (since 1984),
and Chairman / President Nicholas-Applegate Securities. Director and Chairman
of the Board of Directors of Nicholas-Applegate Fund, Inc., a registered
open-end investment company, since 1987. Formerly, President of
Nicholas-Applegate Mutual Funds (until 1999).
JOHN J.P. MCDONNELL (47), TRUSTEE. Partner and Chief Operating Officer,
Nicholas-Applegate Capital Management (since August 1998); Chief Operating
Officer Nicholas-Applegate Securities (since 1999); formerly, Chief Financial
Officer, American Express Travel Related Services New York (April 1978 - June
1998).
B-24
<PAGE>
WALTER E. AUCH (76), TRUSTEE.* 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Geotech Communications, Inc., a mobile radio
communications company (since 1987); Fort Dearborn Fund (since 1987); Brinson
Funds (since 1994), Smith Barney Trak Fund (since 1992), registered
investment companies; Pimco Advisors L.P., an investment manager (since
1994); and Banyan Realty Fund (since 1987), Banyan Strategic Land Fund (since
1987), Banyan Strategic Land Fund II (since 1988), and Banyan Mortgage Fund
(since 1988), real estate investment trusts. Formerly Chairman and Chief
Executive Officer, Chicago Board Options Exchange (1979 to 1986); Senior
Executive Vice President, Director and Member of the Executive Committee,
PaineWebber, Inc. (until 1979). Formerly Trustee, Nicholas-Applegate Mutual
Funds (until 1999). Mr. Auch is considered to be an "interested person" of
the Trust under the 1940 Act because he is on the board of a company a
subsidiary of which is a broker-dealer.
DARLENE DEREMER (42), TRUSTEE. 155 South Street, Wrentham,
Massachusetts. President and Founder, DeRemer Associates, a marketing
consultant for the financial services industry (since 1987); Vice President,
PBNG Funds, Inc. (since 1995); formerly Vice President and Director, Asset
Management Division, State Street Bank and Trust Company (from 1982 to 1987),
and Vice President, T. Rowe Price & Associates (1979 to 1982); Director,
Jurika & Voyles Fund Group (since 1994), Nicholas-Applegate Strategic
Opportunities Ltd. (since 1994), Nicholas-Applegate Securities International
(since 1994), and King's Wood Montessori School (since 1995); Member of
Advisory Board, Financial Women's Association (since 1995). Formerly
Trustee, Nicholas-Applegate Mutual Funds.
GEORGE F. KEANE (68), TRUSTEE. 450 Post Road East, Westport,
Connecticut. President Emeritus and Senior Investment Adviser, The Common
Fund, a non-profit investment management organization representing
educational institutions (since 1993), after serving as its President (from
1971 to 1992); Member of Investment Advisory Committee, New York State Common
Retirement Fund (since 1982); Director and Chairman of the Investment
Committee, United Negro College Fund (since 1987); Director, United Educators
Risk Retention Group (since 1989); Director, RCB Trust Company (since 1991);
Director, School, College and University Underwriters Ltd. (since 1986);
Trustee, Fairfield University (since 1993); Director, The Bramwell Funds,
Inc. (since 1994); Chairman of the Board, Trigen Energy Corporation (since
1994); Director Universal Stainless & Alloy Products Inc. (since 1994).
Formerly President, Endowment Advisers, Inc. (from August 1987 to December
1992; Trustee, Nicholas-Applegate Mutual Funds (until 1999).
B-25
<PAGE>
E. BLAKE MOORE, JR. (40), SECRETARY. Chief Financial Officer,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities
(since 1998), and General Counsel and Secretary, Nicholas-Applegate Capital
Management and Nicholas-Applegate Securities (since 1993). Formerly
Attorney, Luce, Forward, Hamilton & Scripps (from 1989 to 1993); Treasurer
and Secretary, Nicholas-Applegate Mutual Funds, (until 1999).
CHARLES WILLIAM MAHER (38), VICE PRESIDENT. Chief Financial Officer,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities
(since 1999). Formerly Chief Financial Officer, Mitchell Hutchins Asset
Management, Inc. (1990-1998).
Each Trustee of the Trust who is not an officer or affiliate of the
Trust, the Investment Adviser or the Distributor receives an aggregate annual
fee of $14,000 for services rendered as a Trustee of the Trust, and $1,000
for each meeting attended ($2,000 per Committee meeting for Committee
chairmen). Each Trustee is also reimbursed for out-of-pocket expenses
incurred as a Trustee.
The following table sets forth the aggregate compensation paid by the
Trust for the fiscal year ended March 31, 1998, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Trust's board and that of all other funds in
the "Trust complex" (as defined in Schedule 14A under the Securities Exchange
Act of 1934):
B-26
<PAGE>
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Total Compensation
Compensation Benefits Accrued as Part Annual Benefits from Trust and Trust
Name from Trust of Trust Expenses Upon Retirement Complex Paid to Trustee
<S> <C> <C> <C> <C>
Walter E. Auch $20,000 None N/A $20,000(17*)
Darlene Deremer $18,000 None N/A $18,000(17*)
George F. Keane $20,000 None N/A $20,000(17*)
</TABLE>
* Indicates total number of funds in Trust complex, including the Funds.
INVESTMENT ADVISER
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Trust and the
Investment Adviser with respect to the Funds, the Trust retains the
Investment Adviser to manage the Funds' investment portfolios, subject to the
direction of the Trust's Board of Trustees. The Investment Adviser is
authorized to determine which securities are to be bought or sold by the
Funds and in what amounts.
The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by a
Fund or the Trust in connection with the matters to which the Investment
Advisory Agreement relates, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of the Investment Adviser's reckless disregard of its duties and
obligations under the Investment Advisory Agreement. The Trust has agreed to
indemnify the Investment Adviser against liabilities, costs and expenses that
the Investment Adviser may incur in connection with any action, suit,
investigation or other proceeding arising out of or otherwise based on any
action actually or allegedly taken or omitted to be taken by the Investment
Adviser in connection with the performance of its duties or obligations under
the Investment Advisory Agreement or otherwise as an investment adviser of
the Trust. The Investment Adviser is not entitled to indemnification with
respect to any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or of its reckless disregard of its duties and obligations under the
Investment Advisory Agreement.
B-27
<PAGE>
The amounts of the advisory fees earned by the Investment Adviser and
reported below were for services provided to the master funds of the Master
Trust prior to the Reorganization. The amounts of the advisory fees earned
by the Investment Adviser for the fiscal years ended March 31, 1996, 1997 and
1998, and the amounts of the reductions in fees and reimbursement of expenses
by the Investment Adviser (or recoupment of fees previously deferred and
expenses previously reimbursed) as a result of the expense limitations and
fee waivers described below under "Expense Limitation" were as follows:
For the Year ended
March 31, 1996
<TABLE>
<CAPTION>
FUND ADVISORY FEES (OR RECOUPMENTS)
- ---- ------------- ----------------
<S> <C> <C>
Global Blue Chip Fund $ 0 $ 0
International Core Growth Fund 0 0
Worldwide Growth Fund 922,328 58,228
International Small Cap Growth Fund 69,849 117,278
Global Growth & Income Fund 0 0
Emerging Countries Fund 49,827 57,853
Pacific Rim Fund 0 0
Greater China Fund 0 0
Latin America Fund 0 0
Large Cap Fund 0 0
Mid Cap Growth Fund 2,563,061 0
Value Fund 0 0
Small Cap Growth Fund 5,190,853 0
Mini Cap Growth Fund 98,817 (40,723)
Convertible Fund 723,032 (4,263)
Short Intermediate Fund 5,905 5,905
High Quality Bond Fund (1) 3,962 3,962
High Yield Bond Fund 0 0
Global Technology Fund 0 0
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were assigned
to and assumed by the High Quality Bond Fund pursuant to the Reorganization.
B-28
<PAGE>
For the Year Ended
March 31, 1997
<TABLE>
<CAPTION>
FUND ADVISORY FEES (OR RECOUPMENTS)
- ---- ------------- ----------------
<S> <C> <C>
Global Blue Chip Fund $ 0 $ 0
International Core Growth Fund 5,726 5,696
Worldwide Growth Fund 1,028,250 62,497
International Small Cap Growth Fund 477,212 13,583
Global Growth & Income Fund 0 0
Emerging Countries Fund 915,615 (22,429)
Pacific Rim Fund 0 0
Greater China Fund 0 0
Latin America Fund 0 0
Large Cap Fund 2,359 7,907
Mid Cap Growth Fund 3,594,196 0
Value Fund 17,527 30,135
Small Cap Growth Fund 5,836,182 0
Mini Cap Growth Fund 376,577 (59,756)
Convertible Fund 902,615 (39,067)
Short Intermediate Fund 15,497 81,090
High Quality Bond Fund (1) 20,207 83,987
High Yield Bond Fund 17,627 19,182
Global Technology Fund 0 0
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were assigned
to and assumed by the High Quality Bond Fund pursuant to the Reorganization.
For the Year Ended
March 31, 1998
<TABLE>
<CAPTION>
Fee Reductions and
Expense Reimbursements
FUND ADVISORY FEES (OR RECOUPMENTS)
- ---- ------------- ----------------
<S> <C> <C>
Global Blue Chip Fund $ 21,373 $ 25,177
International Core Growth Fund 308,562 30,669
Worldwide Growth Fund 1,251,181 111,071
International Small Cap Growth Fund 658,893 79,886
Global Growth & Income Fund 29,786 20,322
Emerging Countries Fund 2,790,216 84,868
Pacific Rim Fund 2,848 8,837
Greater China Fund 2,721 8,977
Latin America Fund 4,778 13,560
Large Cap Fund 32,530 53,872
Mid Cap Growth Fund 3,422,148 9,400
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C> <C>
Value Fund 52,328 60,348
Small Cap Growth Fund 6,613,874 0
Mini Cap Growth Fund 866,987 (5,098)
Convertible Fund 1,427,198 0
Short Intermediate Fund 37,524 93,900
High Quality Bond Fund (1) 94,359 193,047
High Yield Bond Fund 36,505 111,479
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were assigned
to and assumed by the High Quality Bond Fund pursuant to the Reorganization.
ADMINISTRATOR
The principal administrator of the Trust is Investment Company
Administration Corporation ("ICAC"), 4455 East Camelback Road, Suite 261-E,
Phoenix, Arizona 85018.
Pursuant to an Administration Agreement with the Trust, ICAC is
responsible for performing all administrative services required for the daily
business operations of the Trust, subject to the supervision of the Board of
Trustees of the Trust. ICAC has no supervisory responsibility over the
investment operations of the Funds. The management or administrative
services of ICAC for the Trust are not exclusive under the terms of the
Administration Agreement and ICAC is free to, and does, render management and
administrative services to others. ICAC also serves as the administrator for
the Master Trust.
For its services, ICAC receives under the Administration Agreement
annual fees from each Fund equal to the Fund's pro rata portion (based on its
net assets compared to the Trust's total net assets) of a fee equal to 0.05%
of the first $100 million of the Trust's average net assets, 0.04% of the
next $150 million, 0.03% of the next $300 million, 0.02% of the next $300
million and 0.01% thereafter, subject to a $40,000 annual minimum. As a
result, for the fiscal year ended March 31, 1996, 1997 and 1998, ICAC
received aggregate compensation of $ 318,556, $386,550 and $848,799,
respectively for all of the series of the Trust.
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is responsible for providing all administrative services
which are not provided by ICAC or by the Trust's Distributor, transfer
agents, accounting agents, independent accountants and legal counsel. These
services are comprised principally of assistance in coordinating with the
Trust's various service providers, providing certain officers of the Trust,
responding to inquiries from shareholders which are directed to the Trust
rather than other service providers, calculating performance data, providing
various reports to the Board of Trustees, and assistance in preparing
reports, prospectuses, proxy statements and other shareholder communications.
The Agreement contains provisions regarding liability and termination
similar to those of the Administration Agreement.
Under the Administrative Services Agreement, the Investment Adviser is
compensated at the annual rate of up to 0.10% of the average daily net
assets attributable to the Class Q Shares of each Fund.
B-30
<PAGE>
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway,
30th Floor, San Diego, California 92101, is the principal underwriter and
distributor for the Trust and, in such capacity, is responsible for
distributing shares of the Funds. The Distributor is a California limited
partnership organized in 1992 to distribute shares of registered investment
companies. Its general partner is Nicholas-Applegate Capital Management
Holdings, L.P., the general partner of the Investment Adviser.
Pursuant to its Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the
Portfolios, but is not obligated to sell any specified number of shares. The
Distribution Agreement contains provisions with respect to renewal and
termination similar to those in the Investment Advisory Agreement discussed
above. The minimum assets for investors in the Funds may be waived from time
to time. Pursuant to the Distribution Agreement, the Trust has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the Securities Act.
SHAREHOLDER SERVICE PLAN
The Trust has also adopted a Shareholder Service Plan with respect to
the Q Shares of the Trust. Under the Shareholder Service Plan, the
Distributor may be compensated at the annual rate of up to 0.25% of the
average daily net assets of each Fund attributable to the Class Q shares of
each Fund.
Support services include, among other things, establishing and
maintaining accounts and records relating to their clients that invest in
Fund shares; processing dividend and distribution payments from the Funds on
behalf of clients; preparing tax reports; arranging for bank wires;
responding to client inquiries concerning their investments in Fund shares;
providing the information to the Funds necessary for accounting and
subaccounting; preparing tax reports, forms and related documents; forwarding
shareholder communications from the Trust (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to clients; assisting in processing exchange
and redemption requests from clients; assisting clients in changing dividend
options, account designations and addresses; and providing such other similar
services.
The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by a vote
of the Board of Trustees of the Trust, including a majority of the Trustees
who have no direct or indirect financial interest in the operation of the
Shareholder Service Plan or in any agreement related to the Shareholder
Service Plan (the "Independent Trustees"), cast in person at a meeting called
for the purpose of voting on such continuance. The Shareholder Service Plan
may be amended at any time by the Board, provided that any material
amendments of the terms of the Plan will become effective only upon the
approval by a majority of the Board and a majority of the Independent
Trustees pursuant to a vote cast in person at a meeting called for the
purpose of voting on the Plan. The Shareholder Service Plan may be
terminated with respect to any Fund or class at any time, without penalty, by
the Board.
B-31
<PAGE>
DISTRIBUTION PLAN
Under a plan of distribution for the Trust with respect to the Class Q
shares of the Funds (the "Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act and distribution agreement (the "Distribution
Agreement"), the Distributor incurs the expense of distributing such shares of
the Funds. The Distribution Plan provides for compensation to the Distributor
for the services it provides, and the costs and expenses it incurs, related to
marketing such shares of the Funds. The Distributor is paid for: (a) expenses
incurred in connection with advertising and marketing such shares of the Funds,
including but not limited to any advertising by radio, television, newspapers,
magazines, brochures, sales literature, telemarketing or direct mail
solicitations; (b) periodic payments of fees or commissions for distribution
assistance made to one or more securities brokers, dealers or other industry
professionals such as investment advisers, accountants, estate planning firms
and the Distributor itself in respect of the average daily value of such shares
owned by clients of such service organizations, and (c) expenses incurred in
preparing, printing and distributing the Funds' prospectuses and statements of
additional information with respect to such shares.
The Distribution Plan continues in effect from year to year, provided that
each such continuance is approved at least annually by a vote of the Board of
Trustees of the Trust, including a majority vote of the Trustees of the Trust
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any
agreements related to the Distribution Plan (the "Rule 12b-1 Trustees"), cast in
person at a meeting called for the purpose of voting on such continuance. The
Distribution Plan may be terminated with respect to any Class of shares of a
Fund at any time, without penalty, by the vote of a majority of the Rule 12b-1
Trustees or by the vote of the holders of a majority of the outstanding shares
of such Fund. The Distribution Plan may not be amended to increase materially
the amounts to be paid by the Q Class of shares of a Fund for the services
described therein without approval by a majority of such outstanding shares of
the Fund, and all material amendments are required to be approved by the Board
of Trustees in the manner described above. The Distribution Plan will
automatically terminate in the event of its assignment. A Class of shares of a
Fund will not be contractually obligated to pay expenses incurred under the
Distribution Plan if the Plan is terminated or not continued with respect to
such shares.
Under the Distribution Plan, the Distributor is compensated for
distribution-related expenses with respect to the Class Q Shares of the Funds.
The Distributor is compensated at the annual rate of 0.25%, payable monthly,
based on the average daily net assets. The Distributor recovers the distribution
expenses it incurs through the receipt of compensation payments from the Trust
under the Distribution Plan.
If the Distributor incurs expenses greater than the maximum distribution
fees payable under the Distribution Plan, as described above, with respect to
Class Q Shares of a Fund, the Class will not reimburse the Distributor for the
excess in the subsequent fiscal year. However, because the Distribution Plan is
a "compensation-type" plan, the distribution fees are payable even if the
Distributor's actual distribution related expenses are less than the percentages
described above.
The Trust currently has no intention to activate the 12b-1 Plan.
Shareholders will be given a 60 day notice upon the Trust's determination to
activate the Plan.
MISCELLANEOUS
Pursuant to the Shareholder Service Plan, the Board of Trustees reviews
at least quarterly a written report of the service expenses incurred on
behalf of shares of the Funds by the Distributor. The report includes an
itemization of the service expenses and the purposes of such expenditures.
Because the Trust offers shares of numerous Funds which are subject to Rule
12b-1 under the Investment Company Act, the selection and nomination of
Trustees who are not interested persons of the Trust is committed to the
Trustees who are not interested persons of the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Trust's Board of Trustees, the
Investment Adviser executes the Funds' portfolio transactions and allocates
the brokerage business. In executing such transactions, the Investment
Adviser seeks to obtain the best price and execution for the Funds, taking
into account such factors as price, size of order, difficulty and risk of
execution and operational facilities of the firm involved. Securities in
which the Funds invest may be traded in the over-the-counter markets, and the
Funds deal directly with the dealers who make markets in such securities
except in those circumstances where better prices and execution are available
elsewhere. The Investment Adviser negotiates commission rates with brokers
or dealers based on the quality or quantity of services provided in light of
generally prevailing rates, and while the Investment Adviser generally seeks
reasonably competitive commission rates, the Funds do not necessarily pay the
lowest commissions available. The Board of Trustees of the Trust
periodically reviews the commission rates and allocation of orders.
The Funds have no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who sell shares of the Funds or provide
supplemental research, market and statistical information and other research
services and products to the Investment Adviser may receive orders for
transactions by the Funds. Such information, services and products are those
which brokerage houses customarily provide to institutional investors, and
include items such as statistical and economic data, research reports on
particular companies and industries, and computer software used for research
with respect to investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement, and
the expenses of the Investment Adviser are not necessarily reduced as a result
of the receipt of such supplemental information, services and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Trust, and not all such
information, services and products are used by the Investment Adviser in
connection with the Funds. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers
B-32
<PAGE>
through whom other clients of the Investment Adviser effect securities
transactions may be useful to the Investment Adviser in providing services to
the Funds. The Investment Adviser may pay higher commissions on brokerage
transactions for the Funds to brokers in order to secure the information,
services and products described above, subject to review by the Trust's Board
of Trustees from time to time as to the extent and continuation of this
practice.
Although the Investment Adviser makes investment decisions for the Trust
independently from those of its other accounts, investments of the kind made
by the Funds may often also be made by such other accounts. When the
Investment Adviser buys or sells the same security at substantially the same
time on behalf of the Funds and one or more other accounts managed by the
Investment Adviser, the Investment Adviser allocates available investments by
such means as, in its judgment, result in fair treatment. The Investment
Adviser aggregates orders for purchases and sales of securities of the same
issuer on the same day among the Funds and its other managed accounts, and
the price paid to or received by the Funds and those accounts is the average
obtained in those orders. In some cases, such aggregation and allocation
procedures may affect adversely the price paid or received by the Funds or
the size of the position purchased or sold by the Funds.
Securities trade in the over-the-counter market on a "net" basis with
dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's commission or discount. On occasion,
certain money market instruments and agency securities may be purchased
directly from the issuer, in which case no commissions or discounts are paid.
During the fiscal year ended March 31, 1998, the following master funds
(which were predecessors to the corresponding Funds) acquired securities of
their regular brokers or dealers (as defined in Rule 10b-1 under the
Investment Company Act) or their parents: Worldwide Growth Fund -- Merrill
Lynch & Co.; International Small Cap Growth Fund -- Merrill Lynch & Co.;
Global Growth & Income Fund -- Salomon Smith Barney, J. P. Morgan & Co.,
Merrill Lynch & Co.; Emerging Countries Fund -- Merrill Lynch & Co.; Large
Cap Growth Fund -- Merrill Lynch & Co., J. P. Morgan & Co.; Mid Cap Growth
Fund -- Merrill Lynch & Co., J. P. Morgan & Co.; Small Cap Growth Fund --
Merrill Lynch & Co.; Mini Cap Growth Fund -- Merrill Lynch & Co.; Convertible
Fund -- Salomon Smith Barney, Merrill Lynch & Co., J. P. Morgan & Co.;
Short-Intermediate Fund -- Lehman Brothers; High Yield Bond Fund -- Merrill
Lynch & Co., J. P. Morgan & Co. The holdings of securities of such brokers
and dealers were as follows as of March 31, 1998: Worldwide Growth Fund --
Merrill Lynch & Co. ($456,500); Global Growth & Income -- Salomon Smith
Barney ($56,737); Large Cap Growth Fund -- Merrill Lynch & Co. ($116,200);
Mid Cap Growth Fund -- Merrill Lynch & Co. ($3,925,900); Convertible Fund --
Salomon Smith Barney ($2,619,937); Short-Intermediate Fund -- Lehman Brothers
($202,356); High Yield Bond Fund -- Merrill Lynch & Co. ($1,205,000).
The aggregate dollar amount of brokerage commissions paid by the master
fund predecessors to the corresponding Funds during the last three fiscal
years of the Trust were as follows:
B-33
<PAGE>
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Global Blue Chip Fund $ 49,764 N/A N/A
International Core Growth Fund 464,615 $ 24,643 N/A
Worldwide Growth Fund 1,065,153 970,564 $ 484,310
International Small Cap Growth Fund 745,259 692,326 116,735
Global Growth & Income Fund 52,145 0 N/A
Emerging Countries Fund 3,634,338 1,427,861 169,728
Pacific Rim Fund 10,403 N/A N/A
Greater China Fund 11,105 N/A N/A
Latin America Fund 12,759 N/A N/A
Large Cap Growth Fund 30,907 4,620 0
Mid Cap Growth Fund 1,809,755 1,139,938 862,396
Value Fund 14,316 8,996 N/A
Small Cap Growth Fund 1,002,867 987,245 1,038,140
Mini Cap Growth Fund 202,223 90,844 40,185
Convertible Fund 130,017 114,243 83,459
Short Intermediate Fund 0 0 0
High Quality Bond Fund (1) 100 0 0
High Yield Bond Fund 1,896 200 N/A
</TABLE>
(1) The Government Income Fund, the assets and liabilities of which were
assigned to and assumed by the High Quality Bond Fund paid no brokerage fees in
the fiscal year ended March 31, 1998.
Of the total commissions paid during the fiscal year ended March 31, 1998,
$1,155,155 (12.39%) were paid to firms which provided research, statistical or
other services to the Investment Adviser. The Investment Adviser has not
separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Funds may be purchased and redeemed at their net asset
value without any initial or deferred sales charge.
The offering price is effective for orders received by the Transfer
Agent or any sub-transfer agent prior to the time of determination of net
asset value. Dealers are responsible for promptly transmitting purchase
orders to the Transfer Agent or a sub-transfer agent. The Trust reserves the
right in its sole discretion to suspend the continued offering of the Funds'
shares and to reject purchase orders in whole or in part when such rejection
is in the best interests of the Trust and the affected Funds. Payment for
shares redeemed will be made not more than seven days after receipt of a
written or telephone request in appropriate form, except as permitted by the
Investment Company Act and the rules thereunder. Such payment may be
postponed or the right of redemption suspended at times when the New York
Stock Exchange is closed for other than
B-34
<PAGE>
customary weekends and holidays, when trading on such Exchange is restricted,
when an emergency exists as a result of which disposal by a Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
SHAREHOLDER SERVICES
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A shareholder of one Fund may elect to cross-reinvest dividends or
dividends and capital gain distributions paid by that Fund (the "paying
Fund") into any other Fund of the same share class (the "receiving Fund")
subject to the following conditions: (i) the aggregate value of the
shareholder's account(s) in the paying Fund(s) must equal or exceed $5,000
(this condition is waived if the value of the account in the receiving Fund
equals or exceeds that Fund's minimum initial investment requirement), (ii)
as long as the value of the account in the receiving Fund is below that
Fund's minimum initial investment requirement, dividends and capital gain
distributions paid by the receiving Fund must be automatically reinvested in
the receiving Fund, (iii) if this privilege is discontinued with respect to a
particular receiving Fund, the value of the account in that Fund must equal
or exceed the Fund's minimum initial investment requirement or the Fund will
have the right, if the shareholder fails to increase the value of the account
to such minimum within 90 days after being notified of the deficiency,
automatically to redeem the account and send the proceeds to the shareholder.
These cross-reinvestments of dividends and capital gain distributions will
be at net asset value (without a sales charge).
AUTOMATIC WITHDRAWAL
The Transfer Agent arranges for the redemption by the Fund of sufficient
shares, deposited by the shareholder with the Transfer Agent, to provide the
withdrawal payment specified. Withdrawal payments should not be considered
as dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals
of amounts exceeding reinvested dividends and distributions and increases in
share value will reduce the aggregate value of the shareholder's account.
REDEMPTION IN KIND
The Trust intends to pay in cash for all shares of a Fund redeemed, but
the Trust reserves the right to make payment wholly or partly in shares of
readily marketable investment securities. In such cases, a shareholder may
incur brokerage costs in converting such securities to cash. However, the
Trust has elected to be governed by the provisions of Rule 18f-1 under the
Investment Company Act, pursuant to which it is obligated to pay in cash all
requests for redemptions by any shareholder of record, limited in amount with
respect to each shareholder during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Trust at the beginning of such
period.
B-35
<PAGE>
REPORTS TO INVESTORS
Each Fund will send its investors annual and semi-annual reports. The
financial statements appearing in annual reports will be audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Funds may provide one annual and semi-annual report and annual
prospectus per household. In addition, quarterly unaudited financial data
are available from the Funds upon request.
NET ASSET VALUE
The net asset value of a Fund is calculated by dividing (i) the value of
the securities held by the Fund , plus any cash or other assets, minus all
the Class' proportional interest in the Fund's liabilities (including accrued
estimated expenses on an annual basis) and all liabilities allocable to such
Class, by (ii) the total number of Class I or Q shares of the Fund
outstanding. The value of the investments and assets of a Fund is determined
each business day. Investment securities, including ADRs and EDRs, that are
traded on a stock exchange or on the NASDAQ National Market System are valued
at the last sale price as of the close of business on the New York Stock
Exchange (normally 4:00 P.M. New York time) on the day the securities are
being valued, or lacking any sales, at the mean between the closing bid and
asked prices. Securities listed or traded on certain foreign exchanges whose
operations are similar to the United States over-the-counter market are
valued at the price within the limits of the latest available current bid and
asked prices deemed by the Investment Adviser best to reflect fair value. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security by the Investment Adviser. Listed securities that are not traded on
a particular day and other over-the-counter securities are valued at the mean
between the closing bid and asked prices.
In the event that the New York Stock Exchange or the national securities
exchange on which stock or stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Board of Trustees of the
Trust will reconsider the time at which they compute net asset value. In
addition, the asset value of the Fund may be computed as of any time
permitted pursuant to any exemption, order or statement of the Commission or
its staff.
The Funds value long-term debt obligations at the quoted bid prices for
such securities or, if such prices are not available, at prices for
securities of comparable maturity, quality and type; however, the Investment
Adviser will use, when it deems it appropriate, prices obtained for the day
of valuation from a bond pricing service, as discussed below. The Funds
value debt securities with maturities of 60 days or less at amortized cost if
their term to maturity from date of purchase is less than 60 days, or by
amortizing, from the sixty-first day prior to maturity, their value on the
sixty-first day prior to maturity if their term to maturity from date of
purchase by the Fund is more than 60 days, unless this is determined by the
Board of Trustees of the Trust not to represent fair value. The Funds value
repurchase agreements at cost plus accrued interest.
The Funds value U.S. Government securities which trade in the
over-the-counter market at the last available bid prices, except that
securities with a demand feature exercisable within one to seven days are
valued at par. Such valuations are based on quotations of one or more dealers
that make markets in the securities as obtained from such dealers, or on the
evaluation of a pricing
B-36
<PAGE>
service.
The Funds value options, futures contracts and options thereon, which
trade on exchanges, at their last sale or settlement price as of the close of
such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes
later than 4:00 p.m. New York time, the options or futures traded on it are
valued based on the sale price, or on the mean between the bid and ask
prices, as the case may be, as of 4:00 p.m. New York time.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of
business day in New York. In addition, foreign securities trading may not
take place on all business days in New York, and may occur in various foreign
markets on days which are not business days in New York and on which net
asset value is not calculated. The calculation of net asset value may not
take place contemporaneously with the determination of the prices of
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined
and the close of the New York Stock Exchange will not be reflected in the
calculation of net asset value unless the Board of Trustees of the Trust
deems that the particular event would materially affect net asset value, in
which case an adjustment will be made. Assets or liabilities initially
expressed in terms of foreign currencies are translated prior to the next
determination of the net asset value into U.S. dollars at the spot exchange
rates at 1:00 p.m. New York time or at such other rates as the Investment
Adviser may determine to be appropriate in computing net asset value.
Securities and assets for which market quotations are not readily
available, or for which the Trust's Board of Trustees or persons designated
by the Board determine that the foregoing methods do not accurately reflect
current market value, are valued at fair value as determined in good faith by
or under the direction of the Trust's Board of Trustees. Such valuations and
procedures will be reviewed periodically by the Board of Trustees.
The Trust may use a pricing service approved by its Board of Trustees.
Prices provided by such a service represent evaluations of the mean between
current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics, indications
of values from dealers and other market data. Such services may use electronic
data processing techniques and/or a matrix system to determine valuations. The
procedures of such services are reviewed periodically by the officers of the
Trust under the general supervision and responsibility of its Board of Trustees,
which may replace a service at any time if it determines that it is in the best
interests of the Funds to do so.
DIVIDENDS, DISTRIBUTIONS AND TAXES
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify each Fund as a regulated investment
company under Subchapter M of the Code, and intends that each Fund will remain
so qualified.
B-37
<PAGE>
As a regulated investment company, a Fund will not be liable for federal
income tax on its income and gains provided it distributes all of its income
and gains currently. Qualification as a regulated investment company under
the Code requires, among other things, that each Fund (a) derive at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities
or foreign currencies, or other income (including, but not limited to, gains
from options, futures or forward contracts) derived with respect to its
business of investing in such securities or currencies; (b) for taxable years
beginning on or before August 5, 1997 derive less than 30% of its gross
income from the sale or other disposition of stock, securities, options,
futures, forward contracts, certain foreign currencies and certain options,
futures, and forward contracts on foreign currencies held less than three
months; (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and securities of other
regulated investment companies, and other securities (for purposes of this
calculation generally limited, in respect of any one issuer, to an amount not
greater than 5% of the market value of the Fund's assets and 10% of the
outstanding voting securities of such issuer) and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or two or more issuers which the Trust controls and
which are determined to be engaged in the same or similar trades or
businesses; and (d) distribute at least 90% of its investment company taxable
income (which includes dividends, interest, and net short-term capital gains
in excess of net long-term capital losses) each taxable year.
A Fund generally will be subject to a nondeductible excise tax of 4% to
the extent that it does not meet certain minimum distribution requirements as
of the end of each calendar year. To avoid the tax, a Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of
its ordinary income and net capital gain (not taking into account any capital
gains or losses as an exception) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. A distribution will be
treated as paid on December 31 of the calendar year if it is declared by the
Fund in October, November, or December of that year to shareholders of record
on a date in such a month and paid by the Portfolio during January of the
following year. Such distributions will be taxable to shareholders (other
than those not subject to federal income tax) in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received. To avoid the excise tax, the Funds intend to
make timely distributions of their income in compliance with these
requirements and anticipate that they will not be subject to the excise tax.
Dividends paid by a Fund from ordinary income, and distributions of the
Fund's net realized short-term capital gains, are taxable to its shareholders
as ordinary income. Distributions to corporate shareholders will be eligible
for the 70% dividends received deduction to the extent that the income of the
Funds is derived from dividends on common or preferred stock of domestic
corporations. Dividend income earned by a Fund will be eligible for the
dividends received deduction only if the Fund has satisfied a 46-day holding
period requirement (described below) with respect to the underlying portfolio
security (91 days in the case of dividends derived from preferred stock). In
addition, a corporate shareholder must have held its shares in the Fund for
not less than 46 days during the 90-day period that begins 45 days before the
stock becomes ex-
B-38
<PAGE>
dividend with respect to the dividend (91 days during the 180-day period that
begins 90 days before the stock becomes ex-dividend with respect to the
dividend in the case of dividends derived from preferred stock) in order to
claim the dividend received deduction. Not later than 60 days after the end
of its taxable year, the Fund will send to its shareholders a written notice
designating the amount of any distributions made during such year which may
be taken into account by its shareholders for purposes of such deduction
provisions of the Code. Net capital gain distributions are not eligible for
the dividends received deduction.
SPECIAL TAX CONSIDERATIONS
SECTION 1256 CONTRACTS. Many of the futures contracts and forward
contracts used by the Funds are "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally credited 60% long-term and 40%
short-term capital gains or losses ("60/40") although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by the Funds at the end of each taxable
year (and, for purposes of the 4% excise tax, on certain other dates as
prescribed under the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss,
depending on the circumstances.
STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the
Funds may result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by the
Funds. In addition, losses realized by a Fund on positions that are part of
a straddle may be deferred under the straddle rules, rather than being taken
into account in calculating the taxable income for the taxable year in which
such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures and forward contracts to the Funds are not entirely clear.
The transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to shareholders.
The Funds may make one or more of the elections available under the Code
which are applicable to straddles. If the Funds make any of the elections,
the amount, character and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The qualifying income and diversification requirements applicable to the
Funds' assets may limit the extent to which the Funds will be able to engage in
transactions in options, futures
B-39
<PAGE>
contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable
income to be distributed to the shareholders.
FOREIGN TAX. Foreign countries may impose withholding and other taxes
on income received by a Fund from sources within those countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate
such taxes. In addition, the Investment Adviser intends to manage the Funds
with the intention of minimizing foreign taxation in cases where it is deemed
prudent to do so. If more than 50% of the value of a Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to elect to "pass-through" to the Fund's
shareholders the amount of foreign income and similar taxes paid by the Fund.
Each shareholder will be notified in writing within 60 days after the close
of the Fund's taxable year whether the foreign taxes paid by the Fund will be
"pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the Fund elects
pass-through treatment, the source of the Fund's income flows through to
shareholders of the Fund. With respect to such election, the Fund treats
gains from the sale of securities as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit applies
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportion at share of the foreign taxes paid by the Fund. The foreign
tax credit is modified for purposes of the federal alternative minimum tax
and can be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible
in computing alternative minimum taxable income.
ORIGINAL ISSUE DISCOUNT. The Funds may treat some of the debt
securities (with a fixed maturity date of more than one year from the date of
issuance) they may acquire as issued originally at a discount. Generally,
the Funds treat the amount of the original issue discount ("OID") as interest
income and include it in income over the term of the debt security, even
though they do not receive payment of that amount until a later time, usually
when the debt security matures. The Funds treat a portion of the OID
includable in income with respect to certain high-yield corporation debt
securities as a dividend for federal income tax purposes.
The Funds may treat some of the debt securities (with a fixed maturity
date of more than one year from the date of issuance) they may acquire in the
secondary market as having market
B-40
<PAGE>
discount. Generally, a Fund treats any gain recognized on the disposition of,
and any partial payment of principal on, a debt security having market
discount as ordinary interest income to the extent the gain, or principal
payment, does not exceed the "accrued market discount" on such debt security.
Market discount generally accrues in equal daily installments. The Funds
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing the recognition
of income.
The Funds generally must distribute dividends to shareholders
representing discount on debt securities that is currently includable in
income, even though the Funds have yet to receive cash representing such
income. The Funds may obtain cash to pay such dividends from sales proceeds
of securities held by the Funds.
PERFORMANCE INFORMATION
The Trust may from time to time advertise total returns and yields for
the Funds, compare Fund performance to various indices, and publish rankings
of the Funds prepared by various ranking services. Any performance
information should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the its portfolio, and the
market conditions during the given period, and should not be considered to be
representative of what may be achieved in the future. For purposes of
calculating the historical performance of a Fund, the Trust will take into
account the historical performance of the series of the Trust corresponding
to the Fund prior to the Reorganization.
TOTAL RETURN
The total return for a Fund is computed by assuming a hypothetical
initial payment of $1,000. It is assumed that all investments are made at
net asset value (as opposed to market price) and that all of the dividends
and distributions by the Fund over the relevant time periods are invested at
net asset value. It is then assumed that, at the end of each period, the
entire amount is redeemed without regard to any redemption fees or costs.
The average annual total return is then determined by calculating the annual
rate required for the initial payment to grow to the amount which would have
been received upon redemption. Total return does not take into account any
federal or state income taxes.
Total return is computed according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the period
(or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the period.
B-41
<PAGE>
YIELD
The yield for a Fund is calculated based on a 30-day or one-month
period, according to the following formula:
6
Yield = 2[(a - b + 1) -1]
------
(c x d)
For purposes of this formula, "a" is total dividends and interest
earned during the period; "b" is total expenses accrued for the period (net of
reimbursements); "c" is the average daily number of shares outstanding during
the period that were entitled to receive dividends; and "d" is the maximum
offering price per share on the last day of the period.
Yields for the predecessors to the Funds for the 30-day period ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Fund Class I Class Q
<S> <C> <C>
Convertible Fund 2.11% 1.87%
Short-Intermediate Fund 5.93% 5.93%
High Quality Bond Fund 6.22% 5.96%
High Yield Bond Fund 10.75% 10.48%
</TABLE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
- - references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
- - charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
- - discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views
on how such developments could impact the Funds; and information about
the mutual fund industry from sources such as the Investment Company
Institute.
The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates
of deposit, and Treasury bills.
B-42
<PAGE>
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider
all relevant factors such as the composition of the index used, prevailing
market conditions, portfolio compositions of other funds, and methods used to
value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and
year-to-date.
Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income
mutual funds. The highest rating is One, and ratings are effective for one
month.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following tables set forth historical performance information for
the Large Cap, Value, Mini Cap Growth, Short-Intermediate, High Quality Bond,
and High Yield Bond Funds. It includes historical performance information
for the Institutional and Qualified Portfolios which preceded the Funds prior
to the reorganization of the Trust in July 1998 and the Investment Adviser's
composite performance data relating to the historical performance of all
institutional private accounts managed by the Investment Adviser, since the
dates indicated, that have investment objectives, policies, strategies and
risks substantially similar to those of such Funds. The composite data is
provided to illustrate the past performance of the Investment Adviser in
managing substantially similar accounts as measured against specified market
indices and does not represent the performance of the Funds. Investors
should not consider this performance data as an indication of future
performance of the Funds or of the Investment Adviser.
The Investment Adviser has advised the Trust that the net performance
results for the Funds are calculated as set forth above under "General
Information -- Performance Information." All information set forth in the
tables below relies on data supplied by the Investment Adviser or from
statistical services, reports or other sources believed by the Investment
Adviser to be reliable. However, except as otherwise indicated, such
information has not been verified and is unaudited.
The Investment Adviser's composite performance data shown below were
calculated in accordance with recommended standards of the Association for
Investment Management and
B-43
<PAGE>
Research ("AIMR")(1), retroactively applied to all time periods. All returns
presented were calculated on a total return basis and include all dividends
and interest, accrued income and realized and unrealized gains and loses.
All returns reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by the Investment Adviser's
institutional private accounts, without provision for federal or state income
taxes. Custodial fees, if any, were not included in the calculation. The
Investment Adviser's composites include all actual, fee-paying, discretionary
institutional private accounts managed by the Investment Adviser that have
investment objectives, policies, strategies and risks substantially similar
to those of the Large Cap, Value, Mini Cap Growth, Short-Intermediate, High
Quality Bond and High Yield Bond Funds. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. The monthly returns of the
Investment Adviser's composites combine the individual accounts' returns
(calculated on a time-weighted rate of return that is revalued whenever cash
flows exceed $500) by asset-weighing each individual account's asset value as
of the beginning of the month. Quarterly and yearly returns are calculated
by geometrically linking the monthly and quarterly returns, respectively.
The yearly returns are computed by geometrically linking the returns of each
quarter within the calendar year. Investors should be aware that the SEC
uses a methodology different from that used below to calculate performance
which, as with the use of any methodology different from that below, could
result in different performance data.
The institutional private accounts that are included in the Investment
Adviser's composites are not subject to the same types of expenses to which
the Large Cap, Value, Mini Cap Growth, Short-Intermediate, High Quality Bond
and High Yield Bond Funds are subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds by the Investment Company Act or Subchapter M of the Internal
Revenue Code. Consequently, the performance results for the Investment
Adviser's composites could have been adversely affected if the institutional
private accounts included in the composites had been subject to the same
expenses as the Funds or had been regulated as investment companies under the
federal securities laws.
The results presented below may not necessarily equate with the return
experienced by any particular investor as a result of the timing of investments
and redemptions. In addition, the effect of taxes on any investor will depend
on such person's tax status, and the results have not been reduced to reflect
any income tax which may have been payable.
The investment results presented below are not intended to predict or
suggest the returns that might be experienced by the Large Cap, Value, Mini
Cap, Short-Intermediate, High Quality Bond or High Yield Bond Funds or an
individual investor investing in such Funds.
- -------------------------
(1) AIMR is a non-profit membership and education with more than 60,000
members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
B-44
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
---------------------------
VALUE PERFORMANCE
------------------------------------
INVESTMENT
ADVISER'S
VALUE VALUE S&P 500
YEAR FUND COMPOSITE INDEX(1)
----- ------ ----------- ---------
<S> <C> <C> <C>
1994(2) 3.79% 5.32%
1995 30.79 37.60
1996(2) 24.25% 32.01 22.95
1997 40.55 40.55 33.36
1998(3) 20.13 20.19 28.58
Last Year(3) 20.13 20.19 28.58
Last 5 Years(3) N/A N/A N/A
Since Inception(3) 31.97 26.24 26.51
</TABLE>
- ------------------------
(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarding as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
(2) Inception dates are as follows: Value Composite (predecessor to the Class I
shares of the Value Fund) - April 1, 1994; Value Institutional Portfolio -
April 30, 1996.
(3) Through December 31, 1998
B-45
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
--------------------------------------------
LARGE CAP GROWTH MINI CAP PERFORMANCE
---------------- --------------------
PERFORMANCE
-----------
INVESTMENT RUSSELL INVESTMENT
LARGE CAP ADVISER'S LARGE 1000 MINI CAP ADVISER'S RUSSELL 2000
GROWTH CAP GROWTH GROWTH GROWTH MINI CAP GROWTH STOCK
YEAR FUND COMPOSITE INDEX(1) FUND COMPOSITE INDEX(2)
---- ------ --------------- -------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1991(3) 28.69% 14.77%
1992 11.58 7.77
1993 7.25 13.36
1994 (5.85) (2.43)
1995(3) 35.38% 14.80% 55.93 31.06
25.26%
1996(3) (1.12%) 26.63 23.12 28.73 27.72 11.26
1997 46.07 33.06 30.48 30.19 30.61 12.84
1998(4) 60.29 -- 38.71 8.43 -- 1.28
Last Year(4) 60.29 -- 38.71 8.43 -- 1.28
Last 5 Years(4) N/A N/A N/A N/A 24.78 10.21
Since Inception(4) 51.81 -- 31.49 23.59 -- 11.75
</TABLE>
- ---------------------
(1) The Russell 1000 Growth Index contains those companies among the Russell
1000 securities with higher than average price-to-book ratios and
forecasted growth. The Russell 1000 Index contains the top 1,000
securities of the Russell 3000 Index, which comprises the 3,000 largest
U.S. securities as determined by total market capitalization. The Russell
1000 Growth Index is considered generally representative of the U.S. market
for large cap stocks. 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.
(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher price-to-book and
price-earnings ratios than the average for all companies in the 2000 Index.
The Russell 2000 Index is a widely regarded small-cap index of the 2,000
smallest securities in the Russell 3000 Index, which comprises the 3,000
largest U.S. securities as determined by total market capitalization. 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.
(3) Inception dates are as follows: Large Cap Growth Composite - April 1,
1995; Large Cap Growth Institutional Portfolio (predecessor to the Class I
shares of the Large Cap Growth Fund) - December 26, 1996; Mini Cap
Composite - August 1, 1991; Mini Cap Growth Institutional Portfolio
(predecessor to the Class I shares of the Mini Cap Growth Fund) - July 12,
1995.
(4) Through December 31, 1998
B-46
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
---------------------------
SHORT-INTERMEDIATE
PERFORMANCE HIGH QUALITY BOND PERFORMANCE
----------- -----------------------------
SHORT- MERRILL LYNCH LEHMAN BROS.
INTERMEDIATE INVESTMENT 1-3 YR. HIGH QUALITY INVESTMENT GOVT./CORP.
FUND ADVISER'S TREASURY BOND ADVISER'S BOND
YEAR COMPOSITE INDEX(1) FUND COMPOSITE INDEX(2)
- ---- ------------ ---------- ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1984(3) 13.28% 13.78% 15.72% 15.00%
1985 15.66 13.96 21.98 21.30
1986 10.71 10.35 16.13 15.59
1987 5.09 5.65 2.60 2.31
1988 7.93 6.22 7.87 7.52
1989 10.16 10.87 12.53 14.23
1990 9.43 9.72 8.37 8.29
1991 12.56 11.68 17.38 16.13
1992 6.20 6.30 7.38 7.57
1993 7.19 5.41 12.32 11.06
1994 0.39 0.57 (4.16) (3.51)
1995 (3) 4.95% 10.24 10.99 8.81% 16.69 19.24
1996 4.85 4.79 4.99 2.29 3.00 2.89
1997 6.67 6.66 6.65 9.52 9.49 9.75
1998 (4) 6.85 -- 6.99 8.54 -- 9.47
Last year (4) 6.85 -- 6.99 8.54 -- 9.47
Last 5 years (4) N/A -- 5.98 -- -- 7.30
Last 10 years (4) N/A -- 7.37 N/A -- 9.33
Since inception (4) 7.03 -- 8.22 8.76 -- 10.26
</TABLE>
- -----------------------
(1) The Merrill Lynch 1-3 Year Treasury Index is an index consisting of all
public U.S. Treasury obligations having maturities from one to 2.99 years.
The Index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
(2) The Lehman Brothers Government/Corporate Bond Index is an index consisting
of the Lehman Brothers Government Bond Index and the Lehman Brothers
Corporate Bond Index. The Government Bond Index includes all public
obligations of the U.S. Treasury (excluding flower bonds and
foreign-targeted issues), its agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government.
B-47
<PAGE>
The Corporate Bond Index includes all publicly issued, fixed rate, non-
convertible investment grade U.S. dollar denominated corporate debt
registered with the Securities and Exchange Commission; it also includes
debt issued or guaranteed by foreign sovereign governments, municipalities,
and governmental or international agencies. The Index includes income and
distributions but does not reflect fees, brokerage commissions or other
expenses of investing.
(3) Inception dates are as follows: Short-Intermediate Composite - January 1,
1984; Short-Intermediate Institutional Portfolio (predecessor to the Class
I shares of the Short-Intermediate Fund) - August 31, 1995;
Discretionary-U.S. Composite - January 1, 1984; Fully Discretionary
Institutional Portfolio (predecessor to the Class I shares of the High
Quality Bond Fund) - August 31, 1995.
(4) Through December 31, 1998
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
------------------------------------------------------------------
HIGH YIELD BOND PERFORMANCE
---------------------------
INVESTMENT
HIGH YIELD ADVISER'S FIRST BOSTON
BOND HIGH YIELD HIGH YIELD
YEAR FUND BOND COMPOSITE INDEX(1)
- ---- ---------- -------------- -------------
<S> <C> <C> <C>
1994(2) 1.45% 0.09%
1995 19.40 17.38
1996(2) 11.33% 21.87 12.42
1997 21.40 21.83 12.63
1998(3) 4.52 -- 0.58
Last Year(3) 4.52 -- 0.58
Since inception(3) 15.35 -- 8.85
</TABLE>
- -----------------------
(1) 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 issue
size of $100 million. The Index reflects the reinvestment of income, if any,
but does not reflect fees, dealer markups, or other expenses of investing.
B-48
<PAGE>
(2) Inception dates are as follows: High Yield Bond Composite - April 1, 1994;
High Yield Bond Portfolio (predecessor to the Class I shares of the High Yield
Bond Fund) - July 31, 1996.
(3) Through December 31, 1998
<TABLE>
<CAPTION>
CLASS Q SHARES OF THE FUND
----------------------------------------------------
INVESTMENT
ADVISER'S
VALUE S&P 500
YEAR COMPOSITE VALUE FUND INDEX(1)
- ---- ----------- ---------- --------
<S> <S> <S> <S>
1994(3) 3.79% 1.32%
1995 30.79 37.60
1996 32.01 22.96
1997 40.55 33.31
1998(4) 20.19 19.74 28.58
Last Year(4) 20.19 19.74 28.58
Last 5 years(4) N/A N/A N/A
Since inception(4) 26.24 31.61 26.51
</TABLE>
- -----------------------
(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarding as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
B-49
<PAGE>
(2) Commencement of investment operations is April 1, 1988.
(3) Inception dates are as follows: Value Composite - April 1, 1994; Value Fund
Class Q Shares - August 1, 1998.
(4) Through December 31, 1998.
<TABLE>
<CAPTION>
CLASS Q SHARES OF THE FUND
------------------------------
INVESTMENT ADVISER'S
LARGE CAP GROWTH RUSSELL 1,000 LARGE CAP
YEAR COMPOSITE GROWTH INDEX(1) FUND
- ---- ------------ ------------- -----------
<S> <C> <C> <C>
1995(2).........................35.38% 25.26%
1996(2).........................26.63 23.12 (1.18)%
1997............................33.06 30.48 45.45
1998(3)......................... -- 38.71 60.02
Last Year(3).................... -- 38.71 60.02
Since inception(3).............. -- 31.49 51.32
</TABLE>
- -----------------------
(1) The Russell 1000 Growth Index contains those companies among the Russell
1000 Securities with higher than average price-to-book ratios and
forecasted growth. The Russell 1000 Index contains the top 1,000
securities of the Russell 3000 Index, which comprises the 3,000 largest
U.S. securities as determined by total market capitalization. The Russell
1000 Growth Index is considered generally representative of the U.S. market
for large cap stocks. 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.
(2) Inception dates are as follows: Large Cap Growth Composite - April 1,
1995; Large Cap Qualified Portfolio (predecessor to the Class Q shares of
the Large Cap Fund) - December 27, 1996.
(3) Through December 31, 1998.
B-50
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
INDEPENDENT AUDITORS
PNC Bank, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, serves as Custodian for the portfolio
securities and cash of the Funds and in that capacity maintains certain
financial and accounting books and records pursuant to agreements with the
Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware, an affiliate of
the Custodian, provides additional accounting services to the Portfolios and
Funds.
Brown Brothers Harriman & Company, 40 Water Street, Boston,
Massachusetts, 02109, serves as Foreign Custodian for the portfolio
securities and cash of the Funds and in that capacity maintains certain
financial and accounting books and records pursuant to agreements with the
Trust.
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor, North
Quincy, Massachusetts, 02171, serves as the Dividend Disbursing Agent and
as the Transfer Agent for the Funds. The Transfer Agent provides customary
transfer agency services to the Trust, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance
of shareholder account records, and related functions. The Dividend
Disbursing Agent provides customary dividend disbursing services to the
Trust, including payment of dividends and distributions and related functions.
Ernst & Young, L.L.P., 515 South Flower Street, Los Angeles, California
90071, serves as the independent auditors for the Trust, and in that capacity
examines the annual financial statements of the Trust.
MISCELLANEOUS
SHARES OF BENEFICIAL INTEREST
On any matter submitted to a vote of shareholders of the Trust, all
shares then entitled to vote will be voted by the affected series unless
otherwise required by the Investment Company Act, in which case all shares of
the Trust will be voted in the aggregate. For example, a change in a Fund's
fundamental investment policies would be voted upon by shareholders of that
Fund, as would the approval of any advisory or distribution contract for the
Fund. However, all shares of the Trust may vote together in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Rule 18f-2 under the Investment Company Act provides that any matter
required to be submitted to the holders of the outstanding voting securities
of an investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding
shares of the series of the Trust affected by the matter. Under Rule 18f-2,
a series is presumed to be affected by a matter, unless the interests of each
series in the matter are identical or the matter does not affect any interest
of such series. Under Rule 18f-2 the approval of an investment advisory
agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority
of its outstanding shares. However, the rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be
B-51
<PAGE>
effectively acted upon by the shareholders of the Trust voting without regard
to Fund.
As used in the Funds' prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Fund, means the vote of the lesser of (i) 67% of the
shares of the Fund represented at a meeting if the holders of more than 50%
of the outstanding shares of the Fund are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders
of the Trust, means the vote of the lesser of (i) 67% of the Trust's shares
represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or by proxy, or (ii) more than 50%
of the Trust's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. Unless
otherwise provided by law (for example, by Rule 18f-2 discussed above) or by
the Trust's Declaration of Trust or Bylaws, the Trust may take or authorize
any action upon the favorable vote of the holders of more than 50% of the
outstanding shares of the Trust.
The Trust will dispense with annual meetings of shareholders in any year
in which it is not required to elect Trustees under the Investment Company
Act. However, the Trust undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a
Trustee or Trustees if requested in writing by the holders of at least 10% of
the Trust's outstanding voting securities, and to assist in communicating
with other shareholders as required by Section 16(c) of the Investment
Company Act.
Each share of each Fund represents an equal proportional interest in the
Fund and is entitled to such dividends and distributions out of the income
earned on the assets allocable to the Fund as are declared in the discretion
of the Trustees. In the event of the liquidation or dissolution of the
Trust, shareholders of a Fund are entitled to receive the assets attributable
to the Fund that are available for distribution, and a distribution of any
general assets not attributable to a particular Fund that are available for
distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and nonassessable by the Trust.
DECLARATION OF TRUST
The Declaration of Trust of the Trust provides that obligations of the
Trust are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not
be liable to the trust or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee, officer, employee or
agent against any liability to the trust or its investors to which the
Trustee, officer, employee or agent would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
his or her duties. The Declaration of Trust also provides that the debts,
liabilities, obligations and expenses incurred, contracted for or existing
with respect to a designated Fund shall be enforceable against the assets and
property of such Fund only, and not against the assets or property of any
other Fund or the investors therein.
FINANCIAL STATEMENTS
The Trust's 1998 Annual Report to Shareholders of the Institutional
Portfolios (predecessor to the Class I shares of the Funds) and the Trust's
1998 Semi Annual Report accompanies this Statement of Additional
B-52
<PAGE>
Information. The financial statements in such Reports are incorporated in
this Statement of Additional Information by reference. Such financial
statements for the fiscal years ended March 31, 1996, 1997 and 1998 have been
audited by the Funds' independent auditors, Ernst & Young L.L.P., whose
report thereon appears in such Annual Report. The Trust's Semi Annual
Reports are unaudited. Such financial statements have been incorporated
herein in reliance upon such report given upon their authority as experts in
accounting and auditing. Additional copies of the Trust's 1998 Annual and
Semi Annual Reports to Shareholders may be obtained at no charge by writing
or telephoning the Trust at the address or number on the front page of this
Statement of Additional Information.
B-53
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating
symbols of securities.
COMMERCIAL PAPER
The following paragraphs summarize the description for the rating symbols
of commercial paper.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings, which are also applicable to commercial
paper investments permitted to be made by the Master Trust, are opinions of
the ability of issuers to repay punctually their senior debt obligations
which have an original maturity not exceeding one year. Moody's employs the
following designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
PRIME 1: Issuers (or related supporting institutions) rated PRIME-1 have
a superior ability for repayment of short-term promissory obligations.
PRIME-1 repayment ability will often be evidenced by the following
characteristics: (a) leading market positions in well-established
industries; (b) high rates of return on funds employed; (c) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (d) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and (e) well-established access to a range
of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated PRIME-2 (or related supporting institutions) have
a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above in the
PRIME-1 category but to a lesser degree. Earning trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
PRIME 3: Issuers rated PRIME-3 (or related supporting institutions) have
an acceptable ability for repayment of short-term debt obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
Standard & Poor's ratings are a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. Ratings are graded into four categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. Issues within
the "A" category are delineated with the numbers 1, 2, and
A-54
<PAGE>
3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to possess
overwhelming safety characteristics are denoted with a "PLUS" (+) designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
C: Issues rated "C" are regarded as having a doubtful capacity for
payment.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally strong credit quality. Commercial paper assigned
this rating is regarded as having the strongest degree of assurance for
timely payment.
F-1: Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2: Good credit quality. Commercial paper assigned this rating has a
satisfactory degree of assurance for timely payment but the margin of safety is
not as great as for issuers assigned F-1+ and F-1 ratings.
F-3: Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near term adverse changes could cause these securities to be
rated below investment grade.
DUFF & PHELPS
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
DUFF 1+ - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
DUFF 1 - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
DUFF 1- - Debt possesses high certainty of timely payment. Liquidity
factors are strong and
A-55
<PAGE>
supported by good fundamental protection factors. Risk factors are very
small.
DUFF 2 - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
DUFF 3 - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
DUFF 4 - Debt possesses speculative investment characteristics.
DUFF 5 - Issuer has failed to meet scheduled principal and/or interest
payments.
THOMSON BANKWATCH
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
TBW-1 - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
TBW-3 - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.
IBCA
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
A1+ - Obligations are supported by the highest capacity for timely
repayment.
A1 - Obligations are supported by a strong capacity for timely repayment.
A2 - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
A-56
<PAGE>
CORPORATE BONDS
DUFF & PHELPS
The following summarizes the ratings used by Duff & Phelps for corporate
and municipal long-term debt:
AAA - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB - Debt possesses below average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
FITCH INVESTORS SERVICE, INC.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
A-57
<PAGE>
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D - Bonds that possess one of these
ratings are considered by Fitch to be speculative investments. The ratings
"BB" to "C" represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or
liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.
ICBA
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
AAA - Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
AA - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
BB, B, CCC, CC, AND C - Obligations are assigned one of these ratings where
it is considered that speculative characteristics are present. "BB" represents
the lowest degree of speculation and indicates a possibility of investment risk
developing. "C" represents the highest degree of speculation and indicates that
the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
THOMSON BANKWATCH
A-58
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
AAA - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
AA - This designation indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
A - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BBB - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BB, B, CCC, AND CC, - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded
as having speculative characteristics regarding the likelihood of timely
payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
D - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
A-59
<PAGE>
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
PART C
ITEM 23. EXHIBITS.
(1) (a) Certificate of Trust of Registrant - filed as Exhibit 1.1
to Amendment No. 1 to the Registrant's Form N-1A Registration
Statement ("Amendment No. 1") on March 17, 1993 and
incorporated herein by reference.
(2) (a) Certificate of Amendment of Certificate of Trust of Registrant
- filed as Exhibit 1.2 to Amendment No. 1 on March 17, 1993
and incorporated herein by reference.
(3) (a) Declaration of Trust of Registrant - filed as Exhibit 1 to
Registrant's Form N1-A Registration Statement on December 31,
1992 and incorporated herein by reference.
(4) (a) Amended and Restated Declaration of Trust of Registrant -
filed as Exhibit 1.4 to Amendment No. 1 on March 17, 1993 and
incorporated herein by reference.
(5) (a) Amendment # 15 to the Declaration of Trust of Registrant
(to be filed by amendment).
(1) (b) Amended Bylaws of Registrant - filed as Exhibit 2 to Amendment
No. 2 on April 6, 1993 and incorporated herein by reference.
(c) Not applicable.
(d) Investment Advisory Agreement between Registrant and Nicholas-
Applegate Capital Management (to be filed by amendment).
(e) Distribution Agreement between Registrant and Nicholas-
Applegate Securities (to be filed by amendment)
(f) None.
(1) (g) Custodian Services Agreement between Registrant and PNC Bank
(to be filed by amendment)
(2) (g) Foreign Custody Agreement between Registrant and Brown
Brothers Harriman & Co. (to be filed by amendment).
(1) (h) Administration Agreement between Registrant and Investment
Company Administration Corporation (to be filed by amendment).
(2) (h) Administration Services Agreement between Registrant and
Nicholas-Applegate Capital Management (to be filed by
amendment)
(3) (h) Accounting Services Agreement between Registrant and PFPC
Inc. (to be filed by amendment).
(4) (h) License Agreement between Registrant and Nicholas-Applegate
Capital Management (to be filed by amendment).
(5) (h) Expense Reimbursement agreement between Registrant and
Nicholas-Applegate Capital Management (to be filed by
amendment)
(6) (h) Credit Agreement between Registrant and Registrant (to be
filed by amendment).
(7) (h) Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company (to be filed by
amendment)
(8)(h) License Agreement between Registrant and Nicholas-Applegate
Capital Management dated December 17, 1992 - filed as
Exhibit 9.6 to Amendment No. 6 on August 1, 1994 and
incorporated herein by reference.
C-1
<PAGE>
(8) (h) Shareholder Service Plan between Registrant and Nicholas-
Applegate Securities (to be filed by amendment)
(i) Opinion of Counsel on legality of shares being issued with
respect to Registrant
(j) Consent of independent auditors
(k) Not Applicable
(l) Investment Letter of initial investor in Registrant
(to be filed by amendment)
(m) Form of Rule 12b-1 Plan for Class Q Shares (to be filed by
amendment)
(n) Financial Data Schedules (Institutional Shares)
(o) Rule 18f-3 Plan between Registrant and Nicholas-Applegate
Capital Management (to be filed by amendment).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 25. INDEMNIFICATION
Article V of Registrant's Declaration of Trust, included as Exhibit A(2)
hereto and incorporated herein by reference, provides for the indemnification of
Registrant's trustees, officers, employees and agents.
Indemnification of the Registrant's Investment Adviser and Placement Agent
is provided for, respectively, in Section 8 of the Investment Advisory
Agreement.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions. In
no event will Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933 and
Release 11330 under the Investment Company Act in connection with any
indemnification.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Nicholas-Applegate Capital Management, the Investment Adviser to the
Trust, is a California limited partnership, the general partner of which is
Nicholas-Applegate Capital Management Holdings, L.P. During the three fiscal
years ended December 31, 1998, the Investment Adviser has engaged principally
in the business of providing investment services to institutional and other
clients. All of the additional information required by this Item 26 with
respect to the Investment Adviser is set forth in the Form ADV, as amended,
of Nicholas-Applegate Capital Management (File No. 801-21442), which is
incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Nicholas-Applegate Securities does not act as a principal underwriter,
depositor or investment adviser to any investment company other than
Registrant.
(b) Nicholas-Applegate Securities, the Distributor of the shares of
Registrant's Funds, is a California limited partnership and its general
partner is Nicholas-Applegate Capital Management Holdings, L.P. (the
"General Partner"). Information is furnished below with respect to the
officers, partners and directors of the General Partner and Nicholas-
Applegate Securities. The principal business address of such persons is
600 West Broadway, 30th Floor, San Diego, California 92101, except as
otherwise indicated below.
C-2
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions in Offices
Business Address Principal Underwriter with Registrant
- ------------------ -------------------------- --------------------
<S> <C> <C>
Arthur E. Nicholas Chairman President
Arthur E. Nicholas President Trustee and President
C. William Maher Treasurer Chief Financial Officer
E. Blake Moore, Jr. General Counsel Secretary
and Secretary
John J.P. McDonnell Chief Operating Officer Trustee
Todd Spillane Director of Compliance None
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act and the rules promulgated
thereunder will be maintained either at the offices of the Registrant (600
West Broadway, 30th Floor, San Diego, California 92101); the Investment
Adviser, Nicholas-Applegate Capital Management (600 West Broadway, 30th
Floor, San Diego, California 92101); the Administrator, Investment Company
Administration Corporation (4455 East Camelback Road, Suite 261-E, Phoenix,
Arizona 85018); or the Custodian, PNC Bank (Airport Business Center,
International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113).
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 29th day
of January 1998.
Nicholas-Applegate Investment Trust
By: Arthur E. Nicholas*
-------------------
Arthur E. Nicholas
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Arthur E. Nicholas* Principal Executive Office [date]
- --------------------------------
Arthur E. Nicholas
Principal Financial and
- -------------------------------- Accounting Officer
E. Blake Moore Jr.
Fred C. Applegate* Trustee [date]
- --------------------------------
Fred C. Applegate
Dann V. Angeloff* Trustee [date]
- --------------------------------
Dann V. Angeloff
Walter E. Auch* Trustee [date]
- --------------------------------
Walter E. Auch
Theodore J. Coburn* Trustee [date]
- --------------------------------
Theodore J. Coburn
Darlene Deremer* Trustee [date]
- --------------------------------
Darlene Deremer
George F. Keane* Trustee [date]
- --------------------------------
George F. Keane
Arthur B. Laffer* Trustee [date]
- --------------------------------
Arthur B. Laffer
Charles E. Young* Trustee [date]
- --------------------------------
Charles E. Young
*--------------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
<PAGE>
Exhibit (i)
January 26, 1999
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
We have acted as counsel to Nicholas-Applegate Institutional Funds, a
Delaware business trust (the "Trust"), in connection with the issuance of an
indefinite number of shares of beneficial interest in a public offering
pursuant to this Registration Statement filed on Form N-1A with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Registration Statement").
In our capacity as counsel for the Trust, we have examined the
Declaration of Trust dated as of December 17, 1992, as amended, the bylaws of
the Trust, as amended, originals or copies of actions of the Trustees as
furnished to us by the Trust, certificates of public officials, statutes and
such other documents, records and certificates as we have deemed necessary
for the purposes of this opinion.
Based upon our examination as aforesaid, we are of the opinion that
the shares are duly authorized and, when purchased and paid for as described
in the Registration Statement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion of counsel as an
exhibit to the Registration Statement.
Very truly yours,
Charles H. Field
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial
Highlights" in Registration Statement under the Securities Act of 1933 and
Post-Effective Amendment No. 15 under the Investment Company Act of 1940 to
the Registration Statement (Form N-1A, No. 811-7384) and related Prospectus
and Statement of Additional Information of Nicholas-Applegate Investment
Trust.
Los Angeles, California
January 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 59
<NAME> NICHOLAS-APPLEGATE GLOBAL BLUE CHIP FUND
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
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<INVESTMENTS-AT-COST> 5715533
<INVESTMENTS-AT-VALUE> 6393728
<RECEIVABLES> 97490
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6491218
<PAYABLE-FOR-SECURITIES> 50716
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57
<TOTAL-LIABILITIES> 50773
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 449234
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<ACCUMULATED-NII-CURRENT> 3191
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 678770
<NET-ASSETS> 6440445
<DIVIDEND-INCOME> 49257
<INTEREST-INCOME> 0
<OTHER-INCOME> 2403
<EXPENSES-NET> 46888
<NET-INVESTMENT-INCOME> 4772
<REALIZED-GAINS-CURRENT> 244894
<APPREC-INCREASE-CURRENT> (489684)
<NET-CHANGE-FROM-OPS> (240018)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67127
<NUMBER-OF-SHARES-REDEEMED> 111971
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (879153)
<ACCUMULATED-NII-PRIOR> (1581)
<ACCUMULATED-GAINS-PRIOR> (110669)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 85600
<AVERAGE-NET-ASSETS> 7715404
<PER-SHARE-NAV-BEGIN> 14.81
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.48)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.34
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 50
<NAME> NICHOLAS-APPLEGATE INTERNATIONAL CORE GROWTH CLASS I
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 90486974
<INVESTMENTS-AT-VALUE> 91856059
<RECEIVABLES> 3651930
<ASSETS-OTHER> 10470
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95518459
<PAYABLE-FOR-SECURITIES> 1425731
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