<PAGE>
As filed with the Securities and Exchange Commission
on June 18, 1999
1933 Act File No. 333-71469
1940 Act File No. 811-07384
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 2 /X/
---
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 20
----------------------------
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
/ / immediately upon filing pursuant to paragraph (b)
/ / on _________ pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on _________ pursuant to paragraph (a)(i)
/X/ 75 days after filing pursuant to paragraph (a)(ii) on September 1, 1999
/ / on _________ pursuant to paragraph (a)(ii), of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares by this Registration
Statement.
--------------------------------------
<PAGE>
[NICHOLAS APPLEGATE LOGO]
INSTITUTIONAL FUNDS PROSPECTUS
INSTITUTIONAL SHARES
- ------------------------------------
GLOBAL HEALTH CARE FUND
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
DETERMINED 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.
September , 1999
- ---------------------------------------
<PAGE>
TABLE OF CONTENTS
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A LOOK AT THE FUND'S GOALS,
PRINCIPAL STRATEGIES, PRINCIPAL
INVESTMENTS AND PRIMARY
RISKS.
GLOBAL HEALTH CARE FUND 1
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN THE
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 3
Buying Shares 3
Exchanging Shares 3
Selling or Redeeming Shares 4
Signature Guarantees 4
YOUR ACCOUNT
Transaction Policies 5
Features and Account Policies 5
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FURTHER INFORMATION THAT APPLIES
TO THE FUND.
ORGANIZATION AND MANAGEMENT
Investment Adviser 7
Investment Adviser Compensation 7
Portfolio Management 7
Portfolio Trades 7
Portfolio Turnover 7
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PRINCIPAL STRATEGIES, RISKS AND OTHER
INFORMATION 8
FOR MORE INFORMATION Back Cover
<PAGE>
1
GLOBAL HEALTH CARE FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation.
In pursuing its goal, the Fund invests primarily in the equity securities of
U.S. and foreign companies with business operations in the health care and
health care-related industries. The Fund considers a "health care company" to be
one that designs, manufactures, or sells products or services used for or in
connection with health care or medicine (such as pharmaceutical companies,
biotechnology research firms, companies that sell medical products, and
companies that own or operate health care facilities). The Fund may invest up to
35% in equity securities of other companies the Investment Adviser believes will
benefit from developments in the health care industry.
In analyzing specific companies for possible investment, the Investment Adviser
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
Investment Adviser considers whether to sell a particular security when any of
those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Investment Adviser expects a high portfolio turnover rate of 300% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund will normally invest at least 75% of its assets in health care related
equity securities. Normally, the Fund will invest at least 65% of its assets in
the equity securities of companies located in at least three different
countries, including the United States, and may invest a significant portion of
its assets in the securities of U.S. issuers. When in the opinion of the
Investment Adviser greater investment opportunities exist, the Fund may also
invest in companies located in countries with emerging securities markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
- - STOCK MARKET VOLATILITY--The prices of equity securities change in response to
many factors, including the historical and prospective earnings of the issuer,
the value of its assets, general economic conditions, interest rates, investor
perceptions, and market liquidity. Stock prices are unpredictable, may fall
suddenly and may continue to fall for extended periods.
- - SECTOR RISK--The value of the Fund's shares is particularly vulnerable to
factors affecting the health care industry, such as substantial government
regulation. Government regulation may impact the demand for products and
services offered by health care companies. Also, the products and services
offered by health care companies may be subject to rapid obsolescence caused
by scientific advances and technological innovations. Because the Fund focuses
its investments in the health care industry, the value of your shares may rise
and fall more than the value of shares of a fund that invests more broadly.
- - ISSUER-SPECIFIC RISKS--The value of an individual security or particular type
of security can be more volatile than the market as a whole and can perform
differently than the value of the market as a whole. The value of securities
of smaller issuers can be more volatile than that of larger issuers.
- - ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to generate
more taxable short-term gains for shareholders and may have an adverse effect
on the Fund's performance.
- - FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability in
their home countries and by changes in economic or taxation policies in those
countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
<PAGE>
2
GLOBAL HEALTH CARE FUND
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in countries
with emerging markets, the foreign securities risks are magnified since these
countries may have unstable governments and less established markets. See
"Principal Strategies, Risks and Other Information" starting on page 8.
[GRAPHIC]PAST PERFORMANCE
The Global Health Care Fund is a new Fund for which there is no past
performance.
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<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%
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Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses+ 4.60%
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)++ 5.60%
+ Other expenses are based on estimated amounts for the current fiscal
year.
++ The Fund's total actual operating expenses after waivers will be 1.40%.
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has contractually 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 three year period. The
Investment Adviser may not amend the fee waiver agreement without the
consent of the Fund.
</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 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 after waivers for the 1 year period, and
before waivers for the 3 year period. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3
<S> <C> <C>
$143 $1,638
</TABLE>
<PAGE>
3
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 The 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) 551-8643.
- -----------------------------------------------------------------------------------------------------------------------------------
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) 551-8643.
<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) 551-8643 for further information.
To initiate an ACH purchase, call the Trust at (800) 551-8643.
<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) 551-8643.
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>
4
SIMPLIFIED ACCOUNT INFORMATION
<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) 551-8643 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) 551-8643.
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) 551-8643.
If you want to receive The proceeds will be sent in accordance with the
your monies by ACH Please call us at (800) 551-8643. existing ACH instructions on the account and will
generally be received at your bank two business
days after your request is received.
- ---------------------------------------------------------------------------------------------------------------------------------
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 and assumes the risk of
loss during the time required to convert to cash. However, the Trust has elected to be governed by the
Redemption in Kind 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.
</TABLE>
<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.
</TABLE>
<PAGE>
5
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales
charge. The minimum initial investment is $250,000, and the minimum subsequent
investment is $10,000. The minimum investment may be waived for purchases of
shares made by current or retired directors, trustees, partners, officers and
employees of the Trust, the Distributor, the Investment Adviser and its general
partner, certain family members of the above persons, and trusts or plans
primarily for such persons, or, at the discretion of the Distributor.
PRICING OF FUND 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 Fund's
net assets by the number of its shares outstanding.
Securities traded in foreign countries may not take place on all business days
of the New York Stock Exchange, and may occur in various foreign markets on days
which are not business days of the New York Stock Exchange. Accordingly, the
Fund's NAV may change on days when the U.S. markets are closed whereby a
shareholder of the Fund will not be able to sell their shares.
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. The 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.
The 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, the Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to seven business days
or longer, as allowed by federal securities laws.
REDEMPTIONS IN KIND. When the Fund elects to satisfy a redemption request as a
redemption in kind, the shareholder assumes the market risk of an unfavorable
market movement during the time required to convert the securities to cash.
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, the Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
CERTIFICATED SHARES. Shares of the Trust are electronically recorded. The Trust
does not issue Certificated shares.
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 the 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.
<PAGE>
6
YOUR ACCOUNT
DIVIDENDS. The Fund generally distributes most or all of its net earnings in the
form of dividends. The Fund pays dividends of net investment income and any net
capital gains 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 the Fund, whether reinvested
or taken as cash, are generally taxable. Dividends from the 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 $250,000, 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 INVESTMENT PLAN. You may make regular monthly or quarterly investments
in the 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
1-800-551-8643.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into another Nicholas-Applegate
Institutional 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>
7
ORGANIZATION AND MANAGEMENT
THE INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's Investment Adviser,
Nicholas-Applegate Capital Management (the "Investment Adviser"), subject to
direction by the Trustees. The Investment Adviser continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the Fund.
Founded in 1984, the Investment Adviser currently manages over $24 billion of
discretionary assets for numerous clients, including employee benefit plans
corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals. The Investment
Adviser's address is 600 West Broadway, Suite 2900, San Diego, California 92101.
INVESTMENT ADVISER COMPENSATION
The Fund pays the Investment Adviser a monthly fee at the annual rate of 1.00%
of its average net assets pursuant to an investment advisory agreement.
[GRAPHIC]PORTFOLIO MANAGEMENT TEAM
The Investment Adviser emphasizes a team approach to portfolio management.
ARTHUR E. NICHOLAS, MANAGING PARTNER
CHIEF INVESTMENT OFFICER
Since 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
Since 1987; prior investment management experience with Professional Asset
Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S.--University of Southern California
PAUL E. CLUSKEY
PORTFOLIO MANAGER
Since 1998; 4 years prior investment experience at SEI Investments and Piper
Jaffray, Inc.
B.S.--New York University
TRISHA C. SCHUSTER, CFA
PORTFOLIO MANAGER
Since 1998; 4 years prior investment management experience with Farmers
Insurance Group
M.B.A.--University of Southern California;
B.A.--University of California, Irvine
JOHN TRIBOLET
PORTFOLIO MANAGER
Since 1997; 1995-1997 Full Time MBA Student University of Chicago; 3 years prior
investment banking experience.
M.B.A.--University of Chicago; B.A.--Columbia University
PORTFOLIO TRADES
In placing portfolio trades for the Fund, 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.
PORTFOLIO TURNOVER
To the extent that the Investment Adviser actively trades the Fund's portfolio
securities in an attempt to achieve the Fund's investment goal, such trading may
cause the Fund to have an increased portfolio turnover rate of 300% 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 may have an adverse impact on the Fund's
performance.
<PAGE>
8
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
INTERNATIONAL INVESTMENT RISKS AND CONSIDERATIONS
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Fund 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 Fund invests.
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 or 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
in the Fund's portfolio.
A number of Asian and Latin American countries are currently experiencing
economic difficulties and significant declines in values in their financial
markets. The unsettled condition of several Asian and Latin American 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.
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 the 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 United States, 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 Fund are not fully invested, or could result in the 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.
GENERAL FIXED INCOME SECURITIES RISKS
The Fund may invest in debt securities as a non principal strategy. The debt
securities in which the Fund invests may be of any maturity. Fixed income
securities are subject to the following risks:
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 affect on fixed income securities with longer durations.
<PAGE>
9
CREDIT RISK. 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 companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the rating of the fixed income
security, the greater the credit risk.
Lower rated 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.
CALL RISK. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("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.
LIQUIDITY RISKS. Fixed income securities that have noninvestment grade credit
ratings, have not been rated or that are not widely held may trade less
frequently than other securities. This may increase the price volatility of
these securities.
FOREIGN RISKS. Foreign debt securities pose additional risks because foreign
economic or political conditions may be less favorable than those of the United
States. Foreign financial markets may also have fewer investor protections. Debt
securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors. Due to these risk factors, foreign debt
securities may be more volatile and less liquid than similar securities traded
in the U.S.
INVESTMENT GRADE BOND RISK. The debt securities in which the Fund invests will
be rated "Baa" or higher by Moody's Investors Service, Inc. or "BBB" or higher
by Standard & Poor's Corporation or unrated if determined by the Investment
Adviser to be of comparable quality. In the event the rating of a debt security
held by the Fund is downgraded below investment grade, the Investment Adviser
will sell the security as promptly as possible.
REPURCHASE AGREEMENTS AND RISKS
The Fund may enter into repurchase agreements as a non-principal investment
strategy that is, the purchase by the Fund of a security that a seller has
agreed to buy back, usually within one to seven days. The seller's promise to
repurchase the security is fully collateralized by securities equal in value to
102% of the purchase price, including accrued interest. 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 Fund enters into these agreements only with brokers, dealers,
or banks that meet credit quality standards established by the Board of
Trustees.
SHORT SALES AND RISKS
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 the Fund will not 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 AND RISKS
The Fund may, from time to time, invest all of its assets in short-term
instruments when the Investment Adviser determines that adverse market,
economic, political or other conditions call for a temporary
<PAGE>
10
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
defensive posture. Such a defensive position may result in the Fund failing to
achieve its investment objective.
LENDING OF PORTFOLIO SECURITIES' RISK
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 Investment Adviser has determined are creditworthy under
guidelines established by the Board of Trustees 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 TRANSACTION RISKS
The Fund may trade in derivative contracts to hedge portfolio holdings as a
non-principal investment strategy. 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
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 Investment
Advisor 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 Fund's 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.
<PAGE>
11
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 Fund's business involves international investments, thereby
exposing the Fund 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 Fund's 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 Fund will treat the euro
as a separate currency from that of any participating state.
The conversion may adversely affect the Fund if a participating state withdraws
from the European Monetary Union; or if the computing, accounting and trading
systems used by the Fund's 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.
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 the Fund's investments
and its net asset value.
The Investment Adviser has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund 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 Fund has not borne any expense relating to these actions.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8643.
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 - 551-8643
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>
- ---------------------------------------------------------
Global Health Care I( ) / / $
- ---------------------------------------------------------
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 1-800-551-8643 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 Fund, 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 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
More information on the Fund is available
free upon request, including the following:
ANNUAL/SEMIANNUAL REPORT (AVAILABLE DECEMBER, 1999)
Describes the Fund's performance, lists portfolio
holdings and contains a letter from the Fund's
Investment Adviser discussing recent market
conditions and investment strategies that
significantly affected the Fund's performance
during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
Provides more details about the Fund and its
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 www.nacm.com
ON THE INTERNET Text versions of the Funds'
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
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, CA 92101
800-551-8643
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
Nicholas-Applegate Institutional Funds
SEC file number: 333-71469
MFGHCPRO999
<PAGE>
Nicholas-Applegate-Registered Trademark- Institutional Funds
Global Health Care Fund
Institutional Shares
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8643
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER ____, 1999
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the Fund's prospectus dated September _____, 1999. To
obtain the Fund's prospectus without charge please call 800-551-8643.
TABLE OF CONTENTS
Page
----
Organization...............................................................B-2
Securities Descriptions and Techniques.....................................B-2
Investment Restrictions....................................................B-17
Trustees and Principal Officers............................................B-18
Investment Adviser.........................................................B-20
Custodian, Fund Accounting Agent and Administrators........................B-21
Transfer and Dividend Disbursing Agent, Legal Counsel
and Independent Auditors...................................................B-21
Distributor................................................................B-22
Portfolio Transactions and Brokerage.......................................B-22
Purchase and Redemption of Fund Shares.....................................B-23
Shareholder Services.......................................................B-23
Net Asset Value............................................................B-24
Dividends, Distributions and Taxes.........................................B-26
Performance Information....................................................B-28
Miscellaneous..............................................................B-30
B-1
<PAGE>
ORGANIZATION
Nicholas-Applegate Institutional Funds (the "Trust") is a diversified
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 Global Health Care
Fund. 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 a 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 May 1999, the Trust was reactivated to be the successor entity to
the assets of 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 expenses 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.
SECURITIES DESCRIPTIONS AND TECHNIQUES
The following information supplements the discussion of the Fund's
investment objective, policies and risks discussed in the Prospectus. The
investment objective of the Fund is fundamental and may only be changed with
shareholder approval. There is no assurance that the Fund will achieve its
investment objective.
EQUITY SECURITIES:
COMMON STOCK is the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earning 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 gives the Fund the option to buy the issuer's stock or other
equity securities at a specified price. The Fund 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 the 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
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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 equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as equity securities for
purposes of their investment policies and limitations, because of their unique
characteristics.
FIXED INCOME SECURITIES:
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 sort
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 are 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
Fund treats demand instruments as short-term securities, even though their
stated maturity may extend beyond one year. Insurance contracts include
guaranteed investment contracts, funding agreements and annuities.
GOVERNMENT 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
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("FNMA"), Federal Home Loan Mortgage Corporation, and the Student Loan Marketing
Association. No assurances 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.
VARIABLE AND FLOATING RATE INSTRUMENTS are generally not rated by
credited rating agencies; 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 the
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 securities of issuers based outside the U.S.
They are primarily denominated in foreign currencies and traded outside of the
United States. In addition to the risks normally associated with equity and
fixed income securities, foreign securities are subject to country risk and
currency risks. Trading in certain foreign markets is also subject to
liquidity risks.
FOREIGN EXCHANGE CONTRACTS are used by the Fund 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
("spot currency trades"). The 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
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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 guasi-governmental
agencies.
DEPOSITORY RECEIPTS are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by 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 Fund 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 U.S.
dollars; the underling security may be denominated in a foreign currency,
although the underlying security may be subject to foreign governmental 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. dollars
outside the United States. The Fund may invest without limitation in Eurodollar
convertible securities, subject to its investment policies and restrictions,
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 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 may countries. Yankee Dollar instruments are U.S. dollar
denominated bonds issued in the U.S. by foreign banks and corporations.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
The Fund may engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to enhance return.
The Fund, and thus its investors, may lose money through any unsuccessful use of
these strategies. These strategies include the use of foreign currency forward
contracts, options, futures contracts and options thereon. The Fund's ability to
use these strategies may be limited by various factors, such as market
conditions, regulatory limits and tax considerations, and there can be no
assurance that any of these strategies will succeed. If new financial products
and risk management techniques are developed, each Fund may use them to the
extent consistent with its investment objectives and polices.
RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES.
Participation in the options and futures markets and in currency exchange
transactions involves investment risks and transaction costs
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to which the Fund would not be subject absent the use of these strategies. The
Fund, and thus its investors, may lose money through any unsuccessful use of
these strategies. If the Investment Adviser's predictions of movements in the
direction of the securities, foreign currency or interest rate markets are
inaccurate, the adverse consequences to the Fund may leave it in a worse
position than if such strategies were not used. Risk inherent in the use of
options, foreign currency and futures contracts and options on futures contracts
include (1) dependence on the Investment Adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the risk that the counterparty may be unable to complete the transaction;
and (6) the possible liability of the Fund to purchase or sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate assets in connection with hedging transactions.
DERIVATIVES:
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 Fund 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.
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ASSET BACKED SECURITIES are payable from pools of obligations other
than mortgages. Almost any type of fixed income assets (including other fixed
income securities) may be used to create an asset backed security. However,
most asset backed securities involve consumer or commercial debts with
maturities of less than ten years. Asset backed securities may take the form of
commercial paper or notes, in addition to pass through certificates. Asset
backed securities may also resemble some types of CMOs, such as Floaters,
Inverse Floaters, IOs and POs.
Historically, borrowers are more likely to refinance their mortgage
than any other type of consumer debt or short term commercial debt. In
addition, some asset backed securities use prepayment to buy additional
assets, rather than paying off the securities. Therefore, although asset
backed securities may have some prepayment risks, they generally do not
present the same degree of risk as mortgage backed securities.
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, the 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. The 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 Standard and Poor's.
OPTIONS AND FUTURES:
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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 Fund 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 the 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.
STOCK INDEX OPTIONS. The Fund may also purchase put and call options
with respect to U.S. and global stock indices. The Fund may purchase such
options as a hedge against changes in the values of portfolio securities or
securities 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 the 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 Fund
purchases 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. The Fund may buy or sell put and call
options on foreign currencies. A put or call option on 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 Fund uses 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
a 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 of an in-the-money strike prices. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be
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subject to position limits which may limit the ability of the Fund 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 Fund 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
the Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
FORWARD CURRENCY CONTRACTS. The 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, the Fund might purchase a particular currency at a future date, which
may be any fixed 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, the Fund might
purchase a particular currency or enter into a forward currency contract to
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 Fund 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. The 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 markets, 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 future sale by the 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 the 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. The 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
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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 Fund may purchase options on the
futures contracts it can purchase or sell, as describe 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 contract
will note 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 Fund because the maximum amount at
risk is limited to the premium paid for the options (plus transaction costs).
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 contact 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 Fund 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 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, the Fund would be in a better
position than if it had not hedged at all. If the price of the security 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 the 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
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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 Fund intends 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 Fund 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
the 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 the 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 the Fund
engages in transactions in 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",
the 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. The Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. The 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, the 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 the Fund.
B-11
<PAGE>
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); and 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. The 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. The Fund may enter into securities swaps, a
technique primarily used to indirectly participate in the securities market of a
country from which the 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.
RISKS ASSOCIATED WITH SWAPS. The risks associated with swaps are
similar to those described above with respect to dealer options. In connection
with such transactions, the 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
B-12
<PAGE>
other party, the Fund might be unable to obtain its expected benefit. In
addition, while the Fund will seek to enter into such transactional only with
parties which are capable of entering into closing transactions with the Fund,
there can be no assurance that the 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 the Fund's ability to enter into other transactions
at a time when doing so might be advantageous.
The 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 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 the Fund enters into a swap on other than
a net basis, the Fund maintains a segregated account of 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.
The 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 the purchase by at
least one of the established rating agencies (e.g., AAA or AA by S&P).
SPECIAL TRANSACTIONS
TEMPORARY INVESTMENTS. The Fund may temporarily depart from their
principal investment strategies in response to adverse market, economic,
political or other conditions by investing their assets in cash, cash items, and
short-term, higher quality debt securities. The Fund may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. A defensive posture taken by the Fund may result in
it failing to achieve its investment objective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may
invest its assets in securities of other investment companies, as an efficient
means of carrying out its investment policies. 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.
The 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 is payment obligations with respect to these transactions.
The 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.
B-13
<PAGE>
NON-HEDGING STRATEGIC TRANSACTIONS
The 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 Fund may enter into options, futures and swap
transactions to enhance potential gain in circumstances where hedging is not
involved. The Fund's net loss exposure resulting from transactions entered into
for each purpose 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 are agreements are transactions in which the
Fund buys a security from a dealer or bank and agrees to sell the security back
at a mutually agreed upon time and price. Pursuant to such agreements, the Fund
acquires securities from financial institutions 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 Fund's 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.
The Fund's custodian is required to take possession of the securities
subject to repurchase agreements. The Investment 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.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements, which involve the sale of a security to the 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. The Fund will maintain in a segregated account with its
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 Investment Company Act, these agreements may
be considered borrowings by the Fund, an are subject to the percentage
limitations on borrowings describe below. The agreements are subject to the same
types of risks as borrowings.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
The Fund may purchase securities on a "when-issued," forward commitment or
delayed settlement basis. In this event, the Fund's 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, the 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 the 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.
B-14
<PAGE>
The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of its investment objectives.
Because the 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 exceed 15% of the value of its net assets.
When the Fund engages in when-issued, forward commitments and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
BORROWING. The use of borrowing by the Fund involves special risk
considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of the Fund's assets fluctuate
in value, whereas the interest obligation resulting form 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.
SHORT SALES. The Fund may make short sales of securities it owns or
has the right to acquire at no added cost through conversion or exchange or
other securities it owns (referred to as short sales "against the box") and
short sales of securities which it does not own or have the right to acquire.
In a short sale that is not "against the box," the 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).
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 increase in value,
than would otherwise be the case if it had not engage in such short sale. 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 the 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.
B-15
<PAGE>
As a matter of policy, the Trust's Board of Trustees has determined
that the Fund will not 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 night 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 Fund to the extent that qualified institutional buyers become
uninterested in purchasing such securities.
The Fund 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. The Fund is "diversified" within the meaning of the Investment
Company Act. In order to qualify as diversified, the Fund must diversify its
holdings so that at all time at least 75% of the value of its total assets is
represented by cash and cash items (including receivable), 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 ore than 10% of the outstanding voting securities of the issuer).
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and will not be
changed without the approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means the approval by the lesser of (1) the holders of 67% or more
of the Fund's shares represented at a meeting if more than 50% of the Fund's
outstanding shares are present in person or by proxy at that meeting or (2) more
than 50% of the Fund's outstanding shares.
B-16
<PAGE>
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 Fund's portfolio.
The Fund may not:
1. With respect to 75% of the value its total assets, will not
purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities) if as
a result more than 5% of the value of its total assets would
be invested in the securities of that issuer, and the fund
will not acquire more than 10% of the outstanding voting
securities of any one issuer.
2. Invest 25% of its total assets in securities of issuers in any
one particular industry, except the health care industry and
the 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 does
not apply to investments by the Fund in securities of the U.S.
Government or its agencies and instrumentalities.
3. Purchase or sell real estate. However, the Fund may invest in
securities secured by, or issued by companies that invest in,
real estate or interest in real estate.
4. Make commercial loans of money, except that the Fund may purchase
investment debt instruments and certificates of deposit and enter
into repurchase agreements. The 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.
5. Borrow money on a secured or unsecured basis, provided that,
pursuant to the Investment Company Act, the 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).
6. Pledge or in any way transfer as security from indebtedness any
securities owned or held by it, except to secure indebtedness
permitted by restriction 6 above. This restriction shall not
prohibit the Fund from engaging in options, futures and foreign
currency transactions.
7. Underwrite securities of other issuers, except insofar as it may
be deemed an underwriter under the Securities Act in selling
portfolio securities.
8. Invest more than 15% of the value of its net assets in securities
that at the time of purchase are illiquid.
9. Purchase securities on margin, except for initial and variation
margin on options and futures contracts, and except that the Fund
may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities.
B-17
<PAGE>
10. Invest in securities of other investment companies, except (a)
that the 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.
11. Issue senior securities, except that the Fund may borrow money as
permitted by restrictions 6 and 7 above. This restriction shall
not prohibit the Fund from engaging in short sales, options,
futures and foreign currency transactions.
12. Enter into transactions for the purpose of arbitrage, or invest
in commodities and commodities contracts, except that the 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.
13. Purchase or write options on securities if (i) aggregate premiums
on call options purchased by the Fund exceed 5% of its net
assets; (ii) aggregate premiums on put options purchased by the
Fund exceed 5% of its net assets; (iii) more than 25% of the
Fund's net assets would be hedged; and (iv) more than 25% of the
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, the Fund:
1. May not invest in interest in oil, gas or other mineral
exploration or development programs or leases, or real estate
limited partnerships, although the Fund may invest in the
securities of companies which invest in or sponsor such programs.
2. May not 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 business of the Fund is managed by the Trustees of the Trust who
elect officers who are responsible for the day-to-day operations of the Fund
and who execute policies formulated by the Trustees. Several of the officers
and Trustees of the Trust are also officers of the Investment Adviser, or
officers of the Fund's Distributor, Nicholas-Applegate Securities.
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.
B-18
<PAGE>
JOHN J.P. MCDONNELL (47), PRESIDENT AND TRUSTEE. Partner and Chief
Operating Officer, Nicholas-Applegate Capital Management (since July 1998).
Formerly, Chief Financial Officer, American Express Travel Related Services New
York (April 1978-June 1998).
ARTHUR E. NICHOLAS (51), TRUSTEE AND CHAIRMAN OF THE BOARD.* 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); Chairman,
Nicholas-Applegate Fund, Inc. (since 1989). Formerly, President and Chairman of
Nicholas-Applegate Mutual Funds (until 1999).
WALTER E. AUCH (76), TRUSTEE. 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Fort Dearborn Fund (sine 1992); Brinson Funds (since 1994),
Salomon Smith Barney Concert Series (since 1996); Advisors Group (since 1997);
Smith Barney Trak Fund (since 1992); Pilgrim Mutual Funds (since 1999)
registered investment companies; Pimco Advisors L.P., an investment manager
(since 1994); and Banyan Realty Fund (since 1988) Legena Properties Fund (since
1987); and Senele Group (since 1988), real estate investment trusts. Formerly,
Chairman and Chief Executive Officer, Chicago Board of Options Exchange
(1979-1986); Senior Executive Vice President, Director and Member of the
Executive Committee, PaineWebber, Inc. (until 1979). Formerly, Trustee
Nicholas-Applegate Mutual Funds (until 1999)/
DARLENE DEREMER (42), TRUSTEE. 155 South Street, Wrentham,
Massachusetts. President and Founder, DeRemer Associates, a strategic and
marketing consulting firm for the financial services industry (since 1987).
Formerly, Vice President and Director, Asset Management Division, State Street
Bank and Trust Company (from 1982-1987), and Vice President, T. Rowe Price &
Associates (1979-1982); Director, Jurika & Voyles Fund Group (since 1994),
Founding member and Director, National Defined Contribution Council (since
1997); Trustee, Boston Alzheimer's Association (since 1998); Member, Boston
Club (since 1998); Founder, Mutual Fund Cafe Website. Editorial Board, National
Association of Variable Annuities (Since 1997). Nicholas-Applegate Strategic
Opportunities Ltd. (since 1994), and King's Wood Montessori School (since 1995);
Member of Advisory Board, Financial Women's Association (since 1995). Formerly,
Trustee of Nicholas-Applegate Mutual Funds (until 1999).
GEORGE F. KEANE (69), TRUSTEE. 7408 Eaton Court, University Park,
Florida 34201. President Emeritus and Senior Investment Adviser, The Common
Fund, a non-profit investment management organization representing educational
institutions (since 1993), after serving as President (from 1971-1992); Member
of Investment Advisory Committee, New York State Common Retirement Fund (since
1982); Chairman of the Investment Committee, United Negro College Fund (since
1987); Director, Northern Trust of Connecticut (since 1991); Trustee, Fairfield
University (since 1993); Consultant, Associated Energy Managers (since 1994);
Director, The Bramwell Funds, Inc. (since 1994); Chairman of the Board, Trigen
Energy Corporation (since 1994); Director Universal Stainless & Alloy Products
Inc. (since 1994). Director, United Water Services and affiliated companies
(since 1996); Director, Security Capital U.S. Real Estate (since 1997);
Director, The Universal Bond Fund (since 1997). Formerly, President, Endowment
Advisers, Inc. (1987 - 1992); Trustee, Nicholas-Applegate Mutual Funds (until
1999).
E. BLAKE MOORE, JR. (41), SECRETARY. General Counsel and Secretary,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1993); Treasurer (1998-1999) and Secretary (1994-1999), Nicholas-Applegate
Mutual Funds.
C. WILLIAM MAHER (38), TREASURER. Chief Financial Officer,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1999). Formerly Chief Financial Officer, Mitchell Hutchins Asset Management,
Inc. (1990-1998); Treasurer, Nicholas-Applegate Mutual Funds (until 1999).
B-19
<PAGE>
Each Trustee of the Trust 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 estimated aggregate compensation to
be paid by the Trust for the fiscal year ending March 31, 2000, 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" for the fiscal year ended March 31, 1999
(as defined in Schedule 14A under the Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
Estimated Total Compensation
Aggregate Pension or Retirement Estimated from Trust and Trust
Compensation Benefits Accrued as Part Annual Benefits Complex Paid to
Name from Trust of Trust Expenses Upon Retirement Trustee
- --------------------- --------------------- -------------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Walter E. Auch $18,000 None N/A $ 24,500 (23)*
Darlene DeRemer $18,000 None N/A $ 24,500 (23)*
George F. Keane $18,000 None N/A $ 28,500 (23)*
</TABLE>
*Indicates total number of funds in Trust complex, including the Fund.
INVESTMENT ADVISER
The Investment Adviser to the Trust is Nicholas-Applegate Capital
Management, a California limited partnership, with offices at 600 West Broadway,
30th Floor, San Diego, California 92101.
The Investment Adviser was organized in August 1984 to manage
discretionary accounts investing primarily in publicly traded equity securities
and securities convertible into or exercisable for publicly traded equity
securities, with the goal of capital appreciation. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership, the general partner of which is Nicholas-Applegate Capital
Management Holdings, Inc., a California corporation owned by Arthur E. Nicholas.
Personnel of the Investment Adviser may invest in securities for their
own accounts pursuant to a Code of Ethics that sets forth all partners' and
employees' fiduciary responsibilities regarding the Fund, establishes procedures
for personal investing, and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance and participation in
initial public offerings is prohibited. In addition, restrictions on the timing
of all personal investing in relation to trades by the Fund and on short-term
trading having been adopted.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between Trust and the
Investment Adviser with respect to the Fund, the Trust retains the Investment
Adviser to manage the Fund's investment portfolio, subject to 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 Fund and in what amounts.
The Investment Advisory Agreement provides that the Investment
Advisory will not be liable for any error of judgment or for any loss suffered
by the Fund or the Trust in connection with the matters to the Investment
Advisory Agreement relates, except for liability resulting form 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
B-20
<PAGE>
indemnity 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 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.
EXPENSE LIMITATION
Under the Investment Advisory Agreement, the Investment Adviser has
agreed to defer its fees, and to absorb other expenses of the Fund (including
administrative fees and distribution expenses for the Fund, but excluding
interest, taxes, brokerage commissions and other costs incurred in connection
with portfolio securities transactions, organizational expenses and other
capitalized expenditures and extraordinary expenses), subject to possible
reimbursement during a three-year period, to ensure that the operating expenses
for the Fund does not exceed the amounts specified in the Fund's prospectus.
CUSTODIAN, FUND ACCOUNTING AGENT AND ADMINISTRATORS
The Custodian, Fund Accounting and Administrator Agent for the Trust
is Brown Brothers Harriman & Co., Private Bankers ("BBH&Co."), a New York
Limited Partnership established in 1818. BBH&Co. has offices worldwide and
provides services to Trust from its offices located at 40 Water Street, Boston,
Massachusetts 02109. As Custodian, Administrator and Fund Accounting Agent,
BBH&Co. is responsible for the custody of Trust's portfolio securities and cash,
maintaining the financial and accounting books and records of the Trust,
computing the Trust's net asset value per share and providing the administration
services required for the daily business operations of the Trust. For its
services to the Trust, BBH&Co. is paid a fee based on the net asset value of the
Trust and is reimbursed by the Trust for its disbursements, certain expenses and
charges based on an out - of - pocket schedule agreed upon by BBH&Co. and the
Trust from time to time.
PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware provides
additional accounting services to the Fund.
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is responsible for providing all administrative services
which are not provided by the BBH 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 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 0.10% of the average daily net assets of the
Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT, LEGAL COUNSEL AND
INDEPENDENT AUDITORS
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor,
North Quincy, Massachusetts, 02171, serves as the Transfer Agent and as the
Dividend Disbursing Agent for the Fund. The Transfer
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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.
From time to time Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, DC 20006 and Ropes & Gray, One International Place, Boston,
Massachusetts 02110-2624 provide legal services to the Trust. They also act
as legal counsel to the Distributor and the Investment Adviser.
Ernst and 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 and financial statements of the Trust.
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway, 30th
Floor, San Diego, CA 92101, is the principal underwriter and distributor for the
Trust and, in such capacity is responsible for distributing shares of the Fund.
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 the Fund, 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 Fund 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Trust's Board of Trustees, the
Investment Adviser executes the Fund's portfolio transactions and allocated the
brokerage business. In executing such transactions, the Investment Adviser seeks
to obtain the best price and execution for the Fund, 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 Fund
invests may be traded in the over-the-counter markets, and the Fund deals
directly with the dealers who make the 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 Fund does not necessarily pay the lowest commissions
available. The Board of Trustees of the Trust periodically reviews the
commission rates and allocation of orders.
The Fund has 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 Fund 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
Fund. 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 on 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
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Investment Adviser under the Investment Advisory Agreement, and the expenses of
the Investment Adviser are not necessary reduced as a result to the receipt of
such supplemental information, service 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 Fund.
Similarly, such information, services and products provided to the Investment
Adviser by brokers and dealers through whom other clients of the Investment
Adviser effect securities transactions may be useful to the Investment Adviser
in providing services to the Fund. The Investment Adviser may pay higher
commissions on brokerage transactions for the Fund 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, investment of the kind
made by the Fund may often also be made by such other accounts. When the
Investment Adviser buys and sells the same security at substantially the same
time on behalf of the Fund 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 Fund and its other managed accounts, and the price paid
to or received by the Fund 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 Fund or the size of the position
purchased or sold by the Fund.
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.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund 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 Fund's shares and to reject
purchase orders in whole or in part when such rejection is in the best interests
of the Trust and the Fund. 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 customary
weekends and holidays, when trading on such Exchange is restricted, when an
emergency exists as a result of which disposal by the 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.
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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 Nicholas-Applegate Institutional 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 Funds 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-investments 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.
REPORTS TO INVESTORS
The 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
Fund may provide one annual and semi-annual report and annual prospectus per
household. In addition, quarterly unaudited financial data are available from
the Trust upon request.
NET ASSET VALUE
The net asset value of the 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) all liabilities allocable to such
Class, by the total number of shares of the Fund outstanding. The value of the
investments and assets of the 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 listed or traded on more than on 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 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 Trust
will reconsider the time at which they compute net asset value. In addition, the
asset
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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 Fund values long-term debt obligations at the quoted bid prices
for such securities or, if such prices are not available, at prices for
securities or 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 Fund values debt
securities with maturities of 60 days or less at amortized cost if their term to
maturity from date of purchase is less that 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 Fund values repurchase agreements at close plus
accrued interest.
The Fund values 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 value 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 service.
The Fund values 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 and 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 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 11:00 a.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 Fund to do so.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify the Fund as a registered investment
company under Subchapter M of the Code, and intends that the Fund will remain so
qualified.
As a regulated investment company, the 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 the Fund (a) derive at least
90% of it gross income form 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 form
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) for taxable years beginning
August 5, 1997 derive less than 30% of it 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.
The 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, the Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of it
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, 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 that 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 Fund intends 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 the 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 Fund is derived form dividends on common or preferred stock of domestic
corporations. Dividend income earned by the Fund will be eligible for the
dividends received deduction only if the Fund has satisfied a 46-day 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 it shares in the Fund for not less than 46
days during the 90-day period that begins 45 days before the stock becomes
ex-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 it
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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 contract and forward
contracts used by the Fund 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 Fund 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 Fund
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 Fund. In
addition, losses realized by the Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculation 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 Fund are not entirely clear. The transactions may
increase the amount of shore-term capital gain realized by the Fund which is
taxed as ordinary income when distributed to shareholders.
The Fund may take one or more of the elections available under the
Code which are applicable to straddles. If the Fund may 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 Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options, futures contracts or forward contracts.
SECTIONS 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time the
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 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.
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FOREIGN TAX. Foreign countries may impose withholding and other taxes
on other income received by the Fund form sources within those countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Investment Adviser intend to manage the Fund 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 the 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 the 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 Fund 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
Fund treats 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 Fund treats 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 Fund may treat some of the debt securities (with a fixed maturity
date of more than one year from the date of issuance) it may acquire in the
secondary market as having market discount. Generally, the 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 Fund 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 Fund generally must distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though the Fund has yet to receive cash representing such income. The Fund
may obtain cash to pay such dividends from sales proceeds of securities held by
the Fund.
PERFORMANCE INFORMATION
The Trust may form time advertise total returns for the Fund, compare
Fund performance to various indices, and publish rankings of the Fund prepared
by various ranking services. Any performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of 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.
TOTAL RETURN
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The total return for the Fund is computed by assuming a hypothetical
initial payment of $1,000. It is assumed that all investment 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 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:
P(1 + T)n = 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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
- - references to ratings, rankings, and financial publication and/or
performance comparison 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 Fund; 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.
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 Fund performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
condition, 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 prices under 25% for one month periods and year-to-date.
Value Line Mutual Funds 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.
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CDR 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.
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 the Fund's
fundamental investment policies would be voted upon by shareholders of the 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
any 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 the 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 effectively acted upon by the shareholders of the Trust voting without
regard to the Fund.
As used in the Fund's prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of the 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. 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 the 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 the 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
B-30
<PAGE>
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
the Fund shall be enforceable against the assets and property of the Fund only,
and not against the assets or property of any other Fund or the investors
therein.
B-31
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a)(1) 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.
(a)(2) Certificate of Amendment of Certificate of Trust of
Registrant - filed as Exhibit 1.2 to Amendment No. 1
to the Registrant's Form N-1A Registration Statement
on March 17, 1993 and incorporated herein by
reference.
(a)(3) 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.
(a)(4) Amended and Restated Declaration of Trust of
Registrant - filed as Exhibit 1.4 to Amendment No. 1
to the Registrant's Form N-1A Registration Statement
on March 17, 1993 and incorporated herein by
reference.
(a)(5) Amended and Restated Declaration of Trust dated
February 19, 1999--filed as Exhibit 5(a) to the
Registrant's Form N-1A Registration Statement on May
6, 1999 and incorporated herein by reference.
(a)(6) Amendment No. 1 to the Amended and Restated
Declaration of Trust dated February 19,1999.
(b)(1) Amended Bylaws of Registrant - filed as Exhibit 2 to
Amendment No. 2 to the Registrant's Form N-1A
Registration Statement on April 6, 1993 and
incorporated herein by reference.
(2)(b) Amended Bylaws of Registrant dated February 19,
1999--filed as Exhibit 2(b) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management - filed as
Exhibit (d) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(d)(2) Form of letter agreement dated August 31, 1999
between Registrant and Nicholas-Applegate Capital
Management adding the Global Health Care Fund to the
Investment Advisory Agreement.
(d)(3) Distribution Agreement between Registrant and
Nicholas-Applegate Securities dated May 10,
1999--filed as Exhibit (e) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(f) None.
(g)(1) Custodian Services Agreement between Registrant and
Brown Brothers Harriman & Co.--filed as Exhibit 1(g)
to the Registrant's Form N-1A Registration Statement
on May 6, 1999 and incorporated herein by reference.
(g)(2) Foreign Custody Agreement between Registrant and
Brown Brothers Harriman & Co. -filed as Exhibit
(2)(g) to the Registrant's Form N-1A Registration
Statement on May 6, 1999 and incorporated herein by
reference.
C-1
<PAGE>
(g)(3) Amendment to Custodian Services Agreement between
Registrant and Brown Brothers Harriman & Co.--filed
as Exhibit (3)(g) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(g)(4) Cash Management Authorization Services Agreement
between Registrant and Brown Brothers Harriman &
Co.--filed as Exhibit (4)(g) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(g)(5) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to the Foreign Custody Agreement dated May 1,
1999--to be filed by amendment.
(g)(6) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to Custodian Services Agreement dated May 1,
1999--to be filed by amendment
(g)(7) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
fund to the Cash Management Authorization Services
Agreement dated May 1, 1999--to be filed by
amendment.
(h)(1) Administration and Fund Accounting Agency Agreement
between Registrant and Brown Brothers Harriman & Co.
-filed as Exhibit (1)(h) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(2) Administration Services Agreement between Registrant
and Nicholas-Applegate Capital Management--filed as
Exhibit (2)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(3) License Agreement between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (3)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(4) Expense Reimbursement agreement between Registrant
and Nicholas-Applegate Capital Management--filed as
Exhibit No. (4)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(5) Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust
Company--filed as Exhibit No. (5)(h) to the
Registrant's Form N-1A Registration Statement on May
27, 1999 and incorporated herein by reference.
(h)(6) Shareholder Service Plan between Registrant and
Nicholas-Applegate Securities for Class Q
Shares--filed as Exhibit No. (6)(h) to the
Registrant's Form N-1A Registration Statement on May
6, 1999 and incorporated herein by reference.
(h)(7) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding Global Health Care
Fund to the Administration and Fund Accounting Agency
Agreement dated May 1, 1999--to be filed by
amendment.
(h)(8) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management adding Global
Health Care Fund to the Expense Reimbursement
Agreement.
(h)(9) Form of letter agreement between Registrant and State
Street Bank and Trust Company adding Global Health
Care Fund to the Transfer Agency and Service
Agreement.
(i) Opinion of Counsel on legality of shares being issued
with respect to Registrant.
C-2
<PAGE>
(j) Consent of independent auditors.
(k) Not Applicable
(l) Investment Letter of initial investor in
Registrant--filed as Exhibit (l) to the Registrant's
Form N-1A Registration Statement on May 27, 1999 and
incorporated herein by reference.
(m) Form of Rule 12b-1 Plan for Class Q Shares--filed as
Exhibit (m) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(n) Not Applicable
(o) Rule 18f-3 Plan between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (o) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(p) Limited Powers of Attorney of Trustees--Filed as an
Exhibit to Amendment No. 12 to Registrant's Form N-1A
Registration Statement on August 1, 1994 and
incorporated herein by reference.
(p)(1) Limited Power of Attorney of Walter E. Auch--Filed as
an Exhibit to Amendment No. 14 to Registrant's Form
N-1A Registration Statement on September 26, 1994 and
incorporated herein by reference.
(p)(2) Limited Power of Attorney of John J.P. McDonnell
(p)(3) Certified Resolution of Board of Trustees of
Registrant regarding Limited Power of Attorney of
John J.P. McDonnell.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Arthur E. Nicholas is a member of the Board of Trustees of Registrant,
and also one of the seven members of the Board of Directors of
Nicholas-Applegate Fund, Inc., a registered investment company organized under
the laws of Maryland. Accordingly, Registrant and Nicholas-Applegate Fund, Inc.
may be deemed to be under common control.
ITEM 25. INDEMNIFICATION
Article V of Registrant's Declaration of Trust, included as Exhibit
(a)(5) 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
C-3
<PAGE>
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, 1997, 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.
Name and Principal Positions and Offices with Positions in Offices
Business Address Principal Underwriter with Registrant
- ---------------- --------------------- ---------------
John J.P. McDonnell None President & Trustee
E. Blake Moore, Jr. General Counsel Secretary
C. William Maher Chief Financial Officer Treasurer
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 and Custodian, Brown Brothers Harriman &
Co. (40 Water Street, Boston, MA 02109.
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has dully caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of San Diego,
and the state of California on this 17th day of June, 1999.
Nicholas-Applegate Institutional Funds
By: John J.P. McDonnell*
-----------------------------------
John J.P. McDonnell
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on June 17, 1999.
John J.P. McDonnell* President
- --------------------------------
John J.P. McDonnell
/s/ C. William Maher Principal Financial and Accounting
- -------------------------------- Officer
C. William Maher
/s/ E. Blake Moore, Jr.
- -------------------------------- Secretary
E. Blake Moore, Jr.
Arthur E. Nicholas* Chairman of the Board & Trustee
- --------------------------------
Arthur E. Nicholas
Walter E. Auch* Trustee
- --------------------------------
Walter E. Auch
Darlene Deremer* Trustee
- --------------------------------
Darlene Deremer
George F. Keane* Trustee
- --------------------------------
George F. Keane
* /s/ E. Blake Moore, Jr.
------------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
<PAGE>
Exhibit (a)(6)
AMENDMENT NO. 1 TO
AMENDED AND RESTATED DECLARATION OF TRUST
OF NICHOLAS-APPLEGATE INSTITUIONAL FUNDS
THIS AMENDMENT NO. 1 TO THE AMENDED AND RESTATED DECLARATION OF TRUST
OF NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS is made as of the 2nd day of August,
1999 by the undersigned, constituting a majority of the Trustees of the Trust.
WHEREAS, the Amended and Restated Declaration of Trust of the Trust
adopted as of February 19,1999, as heretofore amended (the "Declaration of
Trust"), designated certain series of Interests of the Trust; and
WHEREAS, the Trustees wish to create an addition series of Interests
of the Trust to be known as the Global Health Care Fund;
NOW THEREFORE, the Board of Trustees hereby amends the Declaration of
Trust as follows:
Without limiting the authority of the Trustees set forth in this
Section 8.8 to establish and designate any further series, the
Trustees hereby establish and designate nineteen series, as follows:
Nicholas-Applegate Small Cap Growth Fund
Nicholas-Applegate Mid Cap Growth Fund
Nicholas-Applegate Emerging Countries Fund
Nicholas-Applegate Worldwide Growth Fund
Nicholas-Applegate International Small Cap Growth Fund
Nicholas-Applegate International Core Growth Fund
Nicholas-Applegate Large Cap Growth Fund
Nicholas-Applegate Convertible Fund
Nicholas-Applegate High Yield Bond Fund
Nicholas-Applegate High Quality Bond Fund
Nicholas-Applegate Value Fund
Nicholas-Applegate Global Blue Chip Fund
Nicholas-Applegate Global Growth & Income Fund
Nicholas-Applegate Global Technology Fund
Nicholas-Applegate Pacific Rim Fund
Nicholas-Applegate Latin America Fund
Nicholas-Applegate Mini-Cap Growth Fund
Nicholas-Applegate Short-Intermediate Fixed Income Fund
Nicholas-Applegate Global Health Care Fund
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
____________________________ ____________________________
Walter E. Auch Darlene Deremer
____________________________ ____________________________
George F. Keane Arthur E. Nicholas
____________________________
John J.P. McDonnell
Adopted as of August 2, 1999
<PAGE>
Exhibit (d)(2)
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, California 92101
August 31, 1999
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
This will confirm our agreement that the Investment Advisory
Agreement between us dated May 8, 1999, as amended, is hereby amended by adding
thereto the Nicholas-Applegate Global Health Care Fund as a Fund thereunder. The
full list of Funds covered by the Agreement and the annual advisory fee with
respect to each such Fund shall be as set forth on Exhibit A.
In all other respects, the Investment Advisory Agreement will
remain in full force and effect. Please sign this letter below to confirm your
agreement with this amendment.
Very truly yours,
_____________________
E. Blake Moore, Jr.
Secretary
AGREED:
Nicholas-Applegate Capital Management
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner
By: _____________________
E. Blake Moore, Jr.
Secretary
<PAGE>
EXHIBIT A
NICHOLAS-APPLEGATE MID CAP GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE LARGE CAP GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE MINI CAP GROWTH FUND: 1.25% of the Fund's average net assets.
NICHOLAS-APPLEGATE SMALL CAP GROWTH: 1.00% of the Fund's average net assets.
NICHOLAS-APPLEGATE CONVERTIBLE FUND : 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE WORLDWIDE GROWTH FUND: 1.00% of the first $500 million of the
Fund's average net assets, .90% of the next $500 million of net assets, and .85%
of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE INTERNATIONAL CORE GROWTH FUND: 1.00% of the first $500
million of the Fund's average net assets, 0.90% of the next $500 million of net
assets, and 0.80% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE EMERGING COUNTRIES FUND: 1.25% of the Fund's average net
assets.
NICHOLAS-APPLEGATE GLOBAL GROWTH & INCOME FUND: 0.85% of the Fund's average net
assets.
NICHOLAS-APPLEGATE INTERNATIONAL SMALL CAP GROWTH FUND: 1.00% of the first $500
million of the Fund's average net assets, .90% of the next $500 million of net
assets, and .85% of net assets in excess of $1 billion.
NICHOLAS-APPLEGATE VALUE FUND: 0.75% of the first $500 million of the Fund's
average net assets, 0.675% of the next $500 million of net assets, and 0.65% of
net assets in excess of $1 billion.
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND: 0.60% of the Fund's average net assets.
NICHOLAS-APPLEGATE SHORT-INTERMEDIATE FIXED INCOME FUND: 0.30% of the first $250
million of the Fund's average net assets and 0.25% of the net assets in excess
of $250 million.
NICHOLAS-APPLEGATE HIGH QUALITY BOND FUND: 0.45% of the first $500 million of
the Fund's average net assets, 0.40% of the next $250 million of net assets, and
0.35% of net assets in excess of $750 million.
NICHOLAS-APPLEGATE GLOBAL BLUE CHIP FUND: 0.80% of the Fund's average net
assets.
NICHOLAS-APPLEGATE PACIFIC RIM FUND: 1.00% of Fund's average net assets.
NICHOLAS-APPLEGATE LATIN AMERICA FUND: 1.25% of the Fund's average net assets.
NICHOLAS-APPLEGATE GLOBAL TECHNOLOGY FUND: 1.00% of the Fund's average net
assets.
<PAGE>
NICHOLAS-APPLEGATE GLOBAL HEALTH CARE FUND: 1.00% of the Fund's average net
assets.
<PAGE>
Exhibit (h)(8)
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, California 92101
August 30, 1999
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
This will confirm our agreement that the expense limitation letter agreement
between us dated May 9, 1999 is hereby amended to add the Global Health Care
Fund as a Fund thereunder. The full list of Funds covered by the Agreement and
the expense limitations with respect to each such Fund are as set forth in
Exhibit A hereto.
In all other respects, the expense limitation letter agreement, as
previously amended, will remain in full force and effect. Please sign this
letter below to confirm your agreement with this amendment.
Very truly yours,
____________________
E. Blake Moore, Jr.
Secretary
AGREED:
Nicholas-Applegate Capital Management
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner
By: _____________________
E. Blake Moore, Jr.
Secretary
<PAGE>
EXHIBIT A
EXPENSE LIMITATIONS BY FUND
<TABLE>
<S> <C> <C>
Small Cap Growth Class I 1.17%
Class R 1.42%
Mid Cap Growth Class I 1.00%
Class R 1.25%
Large Cap Growth Class I 1.00%
Class R 1.25%
Value Class I 1.00%
Class R 1.25%
Emerging Countries Class I 1.65%
Class R 1.90%
International Core Growth Class I 1.40%
Class R 1.65%
High Quality Bond Class I 0.45%
Class R 0.70%
Mini Cap Growth Class I 1.56%
Global Technology Class I 1.40%
International Small Cap Class I 1.40%
Worldwide Growth Class I 1.35%
Global Growth & Income Class I 1.35%
Latin America Class I 1.65%
Pacific Rim Class I 1.40%
Convertible Class I 1.00%
Global Blue Chip Class I 1.20%
High Yield Bond Class I 0.75%
Short Intermediate Fixed Class I 0.35%
Global Health Care Class I 1.40%
</TABLE>
<PAGE>
Exhibit (h)(9)
Nicholas-Applegate Institutional Funds
600 West Broadway
30th Floor
San Diego, California 92101
August 30,1999
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Ladies and Gentlemen:
Reference is made to the Transfer Agency and Service Agreement
between us dated as of May 7, 1999 (the "Agreement").
Pursuant to Section 16.1 of the Agreement, we wish to add the
Nicholas-Applegate Global Health Care Fund to the Agreement. The full list of
Funds covered by the Agreement as set forth in Exhibit A attached hereto.
Please indicate your acceptance of this amendment by signing the
letter below and returning a copy to us. Thank you for your assistance regarding
this matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
AGREED:
STATE STREET BANK AND TRUST COMPANY
By:________________________________
Title:_____________________________
<PAGE>
EXHIBIT A
Nicholas-Applegate Mid Cap Growth Fund
Nicholas-Applegate Large Cap Growth Fund
Nicholas-Applegate Mini Cap Growth Fund
Nicholas-Applegate Small Cap Growth Fund
Nicholas-Applegate Convertible Fund
Nicholas-Applegate Worldwide Growth Fund
Nicholas-Applegate International Core Growth Fund
Nicholas-Applegate Emerging Countries Fund
Nicholas-Applegate Global Growth & Income Fund
Nicholas-Applegate International Small Cap Growth Fund
Nicholas-Applegate Value Fund
Nicholas-Applegate High Yield Bond Fund
Nicholas-Applegate Short-Intermediate Fixed Income Fund
Nicholas-Applegate High Quality Bond Fund
Nicholas-Applegate Global Blue Chip Fund
Nicholas-Applegate Pacific Rim Fund
Nicholas-Applegate Latin America Fund
Nicholas-Applegate Global Technology Fund
Nicholas-Applegate Global Health Care Fund
<PAGE>
Exhibit (i)
June 15, 1999
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
I 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").
I have examined the Declaration of Trust dated as of February 19, 1999,
as amended, the bylaws of the Trust, as amended, originals or copies of
actions of the Trustees as furnished to me by the Trust, certificates of
public officials, statutes and such other documents, records and certificates
as I have deemed necessary for the purposes of this opinion.
Based upon this examination, I am 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.
I hereby consent to the filing of this opinion of counsel as an exhibit
to the Registration Statement.
Very truly yours,
Charles H. Field
Fund Counsel
<PAGE>
Exhibit (j)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Transfer and
Dividend Disbursing Agent, Legal Counsel and Independent Auditors" in Post
Effective Amendment No. 2 under the Securities Act of 1933 and Amendment No. 20
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 Institutional Funds.
Los Angeles, California
June 17, 1999
<PAGE>
Exhibit (p)(2)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints E. Blake Moore, Jr. and Charles H. Field, Jr., and each of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Nicholas-Applegate
Institutional Funds, a Delaware business trust, on Form N-1A under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and any or all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
DATED: February 19, 1999
/s/ John J.P. McDonnell
____________________________
John J.P. McDonnell
<PAGE>
Exhibit (p)(3)
CERTIFICATE OF SECRETARY
The undersigned hereby certifies as follows:
1. He is the duly elected and acting Secretary of Nicholas-Applegate
Institutional Funds, a Delaware business trust (the "Trust").
2. The following resolution was duly adopted by the Board of Trustees of
the Trust at a meeting held on February 19, 1999, and is in full force and
effect:
RESOLVED, that in accordance with Rule 483(b) under the Securities
Act of 1933, E. Blake Moore, Jr. and Charles H. Field, and each of them,
are hereby authorized to sign the Registration Statement of the Trust on
Form N-1A under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and any or all amendments
thereto, on behalf of John J.P. McDonnell, the principal executive
officer of the Trust, pursuant to the Limited Power of Attorney dated
February 19, 1999 granted by John J.P. McDonnell to E. Blake Moore, Jr.
and Charles H. Field, Jr., and any such signature is hereby authorized,
approved and ratified.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
February 19, 1999.
s/E. Blake Moore, Jr.
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E. Blake Moore, Jr.
Secretary
